Investors in Hospitality Investors Trust (“HIT”), formerly known as American Realty Capital Hospitality Trust or ARC Hospitality, may have FINRA arbitration claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.
HIT, a public, non-traded real estate investment trust (“REIT”) with a focus on hospitality properties in the United States, declared bankruptcy earlier this year. Originally sold for $25/share, HIT seen a decline in share price over the last few years. In March 2021, secondary market service Central Trade & Transfer (CTT) reported trades in HIT for prices as low as 46 cents a share. In May 2021, Hospitality Investors Trust Operating Partnership, LP filed for Chapter 11 bankruptcy protection. HIT investors later learned that under the bankruptcy plan, their stocks will be canceled and they would be getting contingent cash payments of no more than $6/share. In July 2021, a bankruptcy court in Delaware approved the Chapter 11 restructuring plan.
HIT had previously announced a decrease in its estimated net asset value (“NAV”) to $8.35 a share, down from $9.21 per share. As a publicly registered non-traded REIT, HIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares upon the recommendation of a broker or money manager. Original investors of HIT could purchase shares at $25.00 per share.
Non-traded REITs pose many risks that are often not readily apparent to retail investors, or adequately explained by the financial advisors and stockbrokers who recommend these complex investments, including illiquidity and the risk of loss of principal. An additional negative characteristic of non-traded REITs is their high up-front commissions, typically between 7-10%. In addition to high commissions, non-traded REITs like HIT generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.
Our firm often handles cases involving direct participation products (DPPs), private placements, non-traded REITs, and other alternative investments. These products are almost always unsuitable for retail investors, who may be unaware of the enormous commissions and fees usually exceeding ten percent of the purchase price, as well as the potential for loss of principal. According to studies, non-traded REITs historically have underperformed even safe benchmarks, like U.S. treasury bonds – meaning that non-traded REITs provide paltry investment returns considering the risk an investor takes and the available low-commission alternatives such as publicly traded REITs.
Investors who wish to discuss a possible claim may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at firstname.lastname@example.org for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York, Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).
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