Investors in New York City REIT (“NYC REIT”, formerly known as American Realty Capital New York City 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.
NYC REIT is a former public, non-traded REIT that listed on the New York Stock Exchange (“NYSE”) on August 18, 2020 under the ticker symbol “NYC”. Investors who were relying on NYC REIT’s most recent estimated NAV of $20.26 a share (valued as of June 30, 2019) were in for an unwelcome surprise, as despite a reverse split of its shares of 2.43 to 1, NYC REIT shares closed their first day of trading at $17.60 a share.
This price doesn’t sound so bad until one accounts for the reverse split- after the 2.43 to 1 reverse split, pre-split shares of NYC REIT are effectively worth only about $7.24 a pre-split share. While drastically below the sponsor’s stated value of $20.26 a share, this price is only modestly below the $8.75 to $9.50 a share purchase of NYC REIT in the illiquid private market before share listed. Shares of the REIT were originally sold to the public for $25.00.
Investors who purchased NYC REIT shares before the NYSE listing have had 25% of their shares converted into Class A shares that are freely saleable. The remaining 75% of each investor’s shares are currently designated as Class B shares that are not freely saleable. However, NYC REIT has indicated that it expects all Class B shares to be converted to Class A shares and become saleable within about a year of the REIT’s NYSE listing.
According to its website, ARC NYC REIT was 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. However, the REIT delivered neither, as it has lost value and also suspended distributions, effective March 1, 2018. According to the Board, the suspension of distributions was made in order to enhance the non-traded REIT’s ability to execute on acquisitions, as well as conduct repositioning and leasing efforts related to its property portfolio. The REIT has said that intends to reinstate distributions after NYC REIT’s shares have been listed on NYSE.
NYC REIT was incorporated in December 2013 and is registered with the SEC. The REIT closed its offering in 2015 after reportedly raising $776 million in sales of stock to the public.
In its former status as a publicly registered non-traded REIT, New York City REIT was permitted to sell securities to the investing public at large, including unsophisticated retail investors who bought shares 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 New York City REIT generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.
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. The firm has handled numerous cases against financial advisors who allegedly made misleading or unsuitable recommendations of alternative investments. 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).
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