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Lodging Fund REIT III Replaces Auditors and Settles SEC Case- Investors May Have Claims

Investors in Lodging Fund REIT III Inc. (referred to below as referred to below as “Lodging Fund III”) 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.


When it was established in 2018, Lodging Fund III offered $100 million in common stock to investors, reportedly raising $75.3 million in proceeds from sales of stock as of the last quarter of 2020,  Lodging Fund REIT III is a Maryland corporation and focuses on holding a diversified portfolio of select service, limited service and extended stay hotels located in the heartland of America.   According to a filing with the Securities and Exchange Commission (“SEC”) by Lodging Fund III, the non-traded REIT has a diversified portfolio that includes “limited service, select service, and extended stay hospitality properties” in the geographic area stretching from the Rockies to the Appalachian Mountains and from Texas to North Dakota.

In a filing with the SEC in late 2023, Lodging Fund III reported that its board of directors had both dismissed Deloitte & Touche LLP (Deloitte) and appointed Marcum LLP to serve as its independent public accounting firm as of October 24, 2023.  Deloitte had served as the REIT’s audit firm for 2020 and 2021 and provided clean audit opinions of the REIT’s financial statements in each year. Concurrent with its dismissal, Deloitte filed a letter with the SEC stating that it had no disagreements with the REIT related to its financial statements, disclosures, practices, or accounting principles.

Despite these facts, Lodging Fund III has not filed quarterly reports with the SEC since the second quarter of 2022, despite being required to do so under federal law, nor has it filed its annual report for the year ending 2022.  The REIT has reported that uncertainties related to an SEC investigation disclosed on September 23, 2022, have led to delays in filing its quarterly and annual reports.   Lodging Fund III had previously reported that in December 2020, it had received notice that the SEC is conducting an inquiry into the company’s reimbursement of certain expenses to its external advisor.

On September 12, 2022, the company reportedly received a Wells notice from the SEC staff, indicating that the SEC has made a preliminary determination to bring an enforcement action against LF REIT III’s advisor for possible violations of securities laws. Corey Maple, the CEO of the REIT, has also received a Wells notice as part of this same investigation.

On August 28, 2023, the SEC announced it had settled charges against the REIT’s advisor, and its principal Corey Maple “for their roles in directing two REITs to reimburse overhead expenses in a manner that was inconsistent with disclosures made to investors.” The SEC order finds that “from 2014 to 2020, the Respondents improperly directed Lodging Opportunity Fund Real Estate Investment Trust and Lodging Fund REIT III, Inc., (collectively the Funds) to reimburse approximately $5 million of overhead expenses.” The SEC’s order also noted that Legendary Capital entities and Mr. Maple represented that certain sponsoring entities would be responsible for the overhead expenses from managing the Funds, including payroll and office rent, and that the Funds would not be responsible for such overhead expenses.  The parties later settled the SEC case on the terms accessible here: lodging fund iii settlement

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.

Stockbrokers and financial advisors who sell non-traded REITs and other non-conventional investments have an obligation to recommend these investments only when they have a reasonable basis to recommend them to an individual customer.  Advisors also may not sell non-traded REITs or other investments via a misleading sales presentation that omits to disclose material risks.

Investors with questions about claims against a stockbroker or investment advisor concerning Lodging Fund III or other non-traded REITs or non-conventional investments may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at 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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