Investors in Cole Credit Property Trust IV Inc. (“Cole IV”, now known as CIM Real Estate Finance 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 stockbroker or advisor.
Cole IV was formed as a non-traded real estate investment trust, also known as a REIT, that invests in income-producing single-tenant retail properties with long-term net leases with credit-worthy tenants. Investors who purchased shares in Cole IV at the initial offering acquired shares at $10 per share, but currently has a reported estimated net asset value (“NAV”) of $8.65 per share. Even worse, shares on the secondary market are valued between $6.35 and $6.55 per share.
Although investors may be disappointed at the low $8.65 a share NAV, this net asset value or NAV may not even reflect the actual value that shareholders would realize if Cole IV were liquidated, listed on an exchange or merged with a public company. Financial analysts frequently assume that non-traded investments such as Cole IV will trade at a discount to NAV if listed on a securities exchange. In a prominent example of this phenomenon, a large non-traded REIT known as American Finance Trust or AFIN listed its shares in 2018 had published an estimated NAV of $23.56 a share, yet shares later traded for as little as $10.08 after AFIN was listed on the Nasdaq Global Select Market. AFIN shares now trade at less than $13 a share as of January 2020.
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. One significant risk associated with non-traded REITs has to do with their high up-front commissions, typically between 7-10%. In addition to high commissions, non-traded REITs like Cole IV generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.
Furthermore, non-traded REITs are generally illiquid investments. Unlike traditional stocks and mutual funds, non-traded REITs do not trade on a national securities exchange. Many uninitiated investors in non-traded REITs have come to learn too late that their ability to exit their investment position is limited. Typically, investors in non-traded REITs can only exit their investment through redemption directly with the sponsor on a limited basis, and often at a disadvantageous price, or through sales in a limited secondary market.
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, New Jersey, 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).