NorthStar Healthcare Income, Inc. (“NorthStar Healthcare”) a public, non-traded REIT, has lowered its estimates net asset value or “NAV” to $6.25 a share. Shares were originally sold for $10.00 a share. NorthStar Healthcare had last reported a $7.10 NAV per share, as of June 30, 2018. More recently, Robert A. Stanger & Co. Inc., developed the $6.25 a share valuation, which is based on the estimated value of NorthStar Healthcare’s assets, less the estimated value of its liabilities, divided by the number of shares outstanding as of June 30, 2019. Stanger reportedly relied upon appraisals for 75 properties with an estimated value of $1.99 billion in estimating the new NAV.
Although investors may be disappointed at the low $6.25 a share NAV, this net asset value or NAV may not even reflect the actual value that shareholders would realize if NorthStar Healthcare were liquidated, listed on an exchange or merged with a public company. Financial analysts frequently assume that non-traded investments such as NorthStar Healthcare 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.
Recently, shares of NorthStar Healthcare were reportedly trading on a secondary platform at prices as low as $2.45 a share- down from over $5.00 a share a year ago and a far cry from even the new, lowered $6.25 NAV.
As a publicly registered, non-traded REIT, numerous retail investors were solicited by a financial advisor to invest in NorthStar Healthcare. Unfortunately, customers who purchased shares through the IPO upon the recommendation of a broker may, in some instances, have been uninformed of the complex nature of the investment, including its high upfront commissions and fees (as set forth in its prospectus, NorthStar Healthcare charged investors a selling commission of up to 7% of gross offering proceeds, a dealer-manager fee of up to 3%, and an acquisition fee of 2.25% for properties acquired by the REIT).
Furthermore, as a non-traded REIT, NorthStar Healthcare is illiquid in nature. Investors seeking liquidity have limited options at their disposal in the event that they wish to exit their investment position in the near term. Briefly, investors seeking liquidity may: (i) seek to redeem their shares directly with the sponsor (it is worth noting that NorthStar is “not obligated to repurchase shares” under its Share Repurchase Program), or (ii) be presented with limited, market-driven opportunities to tender their shares to a third party professional investment firm (typically at a disadvantageous price), or finally, (iii) seek to sell their shares on a limited secondary market specializing in creating a market for illiquid securities. Finally, non-traded investments like NorthStar Healthcare may, as here, lose principal value- but the sales presentations that many advisors give to customers may indicate or imply that the customer’s principal investment is guaranteed to be returned after a period of time.
Any investment program recommended by a broker which includes an excessive concentration of illiquid investments, including non-traded REITs, business development companies (BDCs), or private placement offerings, is likely unsuitable for the average, retail investor. For investors who acquired their shares though the IPO at $10 per share, such disadvantageous pricing suggests investors who sell on such a secondary market will sustain considerable losses of approximately 45% on their investment, excluding distributions.
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex non-conventional investments, including non-traded REITs and BDCs. Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail 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).