Investors in New York City REIT Inc., formerly known as American Realty Capital New York City REIT (“ARC NYC REIT”), may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“FINRA”), if their ARC NYC REIT 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. According to its website, ARC NYC REIT is structured to provide its investors with a combination of current income and capital appreciation through strategic investments in high-quality commercial real estate located throughout the five boroughs of New York City.
In October 2019, the independent directors of ARC NYC REIT approved an estimated net asset value of $20.26 per share, as of June 30, 2019. Last year’s NAV per share was also $20.26, and shares were originally sold for $25.00 each.
However, net asset value or NAV may not reflect the actual value that shareholders would realize if ARC NYC REIT were liquidated, listed on an exchange or merged with a public company. Financial analysts frequently assume that non-traded investments such as ARC NYC REIT 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 $14.56 a share as of the close of the market on December 4, 2019.
A publicly registered non-traded real estate investment trust (“REIT”), ARC NYC REIT was incorporated in December 2013 as a Maryland REIT and is registered with the SEC. Accordingly, ARC NYC REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or money manager.
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 ARC NYC REIT generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%. Such high fees (perhaps as high as 13-15%) act as an immediate ‘drag’ on any investment and can serve to compound losses.
Moreover, non-traded REITs are generally illiquid investments. Unlike traditional stocks and publicly traded REITs, non-traded REITs do not trade on a national securities exchange. Therefore, many investors in non-traded REITs like ARC NYC REIT, who may well have been uninformed of their liquidity issues, have come to learn too late that their ability to exit their investment position is limited. And, as noted above, even if the shares do become freely tradeable, they may prove to be worth much less than the estimated NAV.
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).