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Investors in Non-Traded REITs Steadfast Apartment REIT, Steadfast Apartment REIT III and Steadfast Income REIT That Are Subject of Proposed Merger May Have Arbitration Claims

Investors in non-traded REITs Steadfast Apartment REIT, Steadfast Apartment REIT III and Steadfast Income REIT 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.

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According to public filings with the Securities and Exchange Commission (SEC), on December 19, 2019, Steadfast Apartment REIT III, Inc. (STAR III) and Steadfast Income REIT (SIR) filed their respective definitive proxies seeking shareholder approval of the proposed mergers with Steadfast Apartment REIT, Inc. (STAR).

These transactions were previously announced by Steadfast in August 2019, but the December 2019 SEC filings provide additional information as the REITs prepare for a shareholder vote.  If approved, these transactions would result in a consolidation of STAR III and SIR into non-traded REIT, Steadfast Apartment REIT.  Under the terms of the mergers, STAR III shareholders would reportedly receive 1.43 shares of STAR common stock as consideration, and SIR shareholders would receive 0.5934 shares of STAR common stock as consideration, on a NAV-for-NAV basis.

According to Steadfast, if both STAR III and SIR shareholders approve the mergers the combined Steadfast Apartment REIT would have 70 properties across 14 states and approximately $3.2 billion in total assets.

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 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 newcases@investorlawyers.net 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).