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Hospitality Investors Trust Investors May Have FINRA Arbitration Claims

Investors in Hospitality Investors Trust Inc. (“HIT”), a publicly registered non-traded REIT formerly known as American Realty Capital Hospitality Trust, 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 broker or financial advisor.

Wastebasket Filled with Crumpled Dollar Bills

HIT owns a portfolio of hotel properties throughout North America, including various Hilton-, Marriott- and Hyatt- branded hotels, within the select service and full-service markets.  As of December 31, 2018, HIT reportedly owned 144 hotels.  The REIT’s offering was declared effective in January 2014 and suspended sales activities in November 2015 after raising $903 million in investor equity, according to Summit Investment Research.

In April 2017, HIT changed its name from American Realty Capital Hospitality Trust to HIT after restructuring to become a standalone self-managed REIT as well as a partnership with Brookfield Strategic Real Estate Partners II.  Prior to the restructure and name change, HIT had an agreement with American Realty Capital Hospitality Advisors LLC, and affiliate of AR Global Trust II.

In January 2017, HIT suspended distributions.  In October 2017, HIT commenced a defensive tender offer for up to one (1) million shares of its common stock at a price of $6.50 per share.  According to HIT’s board, the defensive tender was made in order to deter investors from accepting a tender offer made by third-party MacKenzie Realty Capital (“MacKenzie”).  On October 23, 2017, MacKenzie notified HIT investors that it had commenced an unsolicited tender offer to purchase up to 300,000 shares of common stock for $5.53 per share.  The MacKenzie tender offer expired on December 8, 2017, whereas the more recent HIT tender offer expired on December 11, 2017.

These tender offers by both MacKenzie and HIT illustrate one of the significant risks associated with investing in non-traded REITs.  Specifically, an investment in a non-traded financial product is generally an illiquid investment that can only be sold through redemption to the sponsor, or in some instances, through a limited and fragmented secondary market.

Non-traded REITs also pose risk of the loss of principal invested.  For investors who purchased HIT shares through the original offering, the shares were priced at $25.00 per share.  Therefore, even when factoring in any distributions paid on the investment,  investors appear to have incurred substantial principal losses.  In December 2017, the NAV of HIT’s common stock was listed at $13.87 per share.   In December 2018, the estimated NAV of HIT’s common stock was listed at $9.21 per share.  Thus, for investors who bought in through the IPO at $25.00 per share, it would appear they have sustained substantial principal losses.

But shares of HIT, which initially sold for $25.00/share, may be worth even less, and have reportedly changed hands in the limited and illiquid secondary market at prices of between $1.25 and $1.50 a share as of the date of this writing.  Unfortunately for many investors in HIT, it would appear that investors who attempt to exit their illiquid investment will incur a substantial loss.

If you have invested in HIT, or another non-traded REIT, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position), you may be able to recover your losses in FINRA arbitration.  Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.