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Investors in Hospitality Investors Trust (“HIT”), also known as American Realty Capital Hospitality Trust or ARC Hospitality, 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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HIT, a public, non-traded real estate investment trust (“REIT”) with a focus on hospitality properties in the United States, reportedly recently amended its limited partnership agreement with a major investor, Brookfield Strategic Real Estate Partners II Hospitality REIT II LLC.  Brookfield reportedly holds all of the outstanding Class C  limited partnership units in the REIT’s operating partnership.  Under the amendment, reportedly Brookfield will receive additional limited partnership units instead of cash distributions to which it would otherwise be entitled.

HIT characterized the move as caused by a cash crunch: “As previously disclosed, due to the impact of the coronavirus pandemic on the company’s business, the company expects it will no longer have sufficient cash on hand to continue to pay its current obligations during the first half of 2021 and the additional liquidity from a source other than property operations the company requires may not be available on favorable terms or at all,” the REIT state in a filing with the SEC. “The objective of the [limited partnership amendment with Brookfield] is to preserve at least in the short-term the company’s cash position as it continues discussions with the Brookfield investor regarding a holistic solution to the company’s liquidity dilemma.”

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Investors in Energy 11, L.P. (“Energy 11” or the “Partnership”) may be able to recover investment losses through FINRA arbitration. 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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On March 19, 2020, Energy 11 announced that it would suspend distributions to limited partners until further notice, citing “recent volatility in the market and oil prices in particular” that “has caused uncertainty to our cash flow for the remainder of 2020.  In December 2020, Energy 11 announced that it would continue to accrue distributions indefinitely, meaning that the distributions will not be paid to investors at least in the coming months of early 2021.

During January and February 2020, Energy 11 had reportedly borrowed $14 million on its revolving credit facility to fund capital expenditures for the Partnership’s in-process drilling program; these borrowings increased the outstanding balance on the revolving credit facility to $38 million.  The commitment amount for the revolving credit facility was $40 million, meaning that Energy 11 had nearly exhausted its available revolving credit.

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Investors in Phillips Edison & Company, Inc. (“PECO”) 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.

Money Whirlpool
PECO, an internally managed real estate investment trust focused on grocery-anchored shopping centers,  recently released the preliminary results of its tender offer to purchase up to 17.4 million shares of common stock from public shareholders at a price of $5.75 per share. Shareholders reportedly tendered approximately 13.5 million shares, and PECO reportedly expects to purchase 100 percent of the tendered shares for approximately $77.7 million beginning on or about January 7, 2021.

PECO also has announced a one-for-four reverse stock split, which reportedly is expected to take place around March 9, 2021, and as a result, every four shares of issued and outstanding common stock will be automatically combined and converted into one share of common stock. A corresponding reverse split of the outstanding OP units will also be effective at that time.

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NorthStar Healthcare Income, Inc. (“NorthStar Healthcare”) a public, non-traded REIT, has lowered its estimates net asset value or “NAV” to $3.89 a share.  Shares were originally sold for $10.00 a share.   NorthStar Healthcare had last reported a $6.25 NAV per share, as of June 30, 2019.

money blowing in wind
NorthStar Healthcare reportedly engaged Duff & Phelps, a third-party independent valuation and consulting firm, to assist with the 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, 2020.  Based on the valuation, the estimated value of NorthStar Healthcare’s healthcare properties, joint venture investments and healthcare debt investment was reportedly approximately $2.06 billion, or about 25 percent lower than the properties’ total cost.

In April 2020, NorthStar Healthcare’s board suspended all repurchases under the share repurchase program in order to preserve capital and liquidity. Distributions were suspended in February 2019.

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Investors in Resource Real Estate Opportunity REIT (“Resource REIT”) and  m Resource Real Estate Opportunity REIT  II (“Resource REIT II”) 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.

Money Maze
Resource REIT and Resource REIT II shares have reportedly traded in private transactions at significantly lower prices than their reported NAVs (net asset values).  Resource REIT shares are listed at an estimated NAV of $11.10 a share, but reportedly have changed hands for between $6.50 and $6.66 a share.  Resource REIT II shares, with a reported NAV of $9.08 a share, reportedly have changed hands for between $4.50 and $5.00 a share.

Resource REIT reportedly raised $645.8 million in investor capital prior to closing its offering in December 2013. As of June 30, 2020, the company’s $920 million portfolio reportedly included 28 multifamily properties and one performing loan.  Resource REIT II’s primary offering reportedly launched in February 2014, closed in February 2016 and raised $645 million in investor capital. As of June 30, 2020, the REIT’s $717 million investment portfolio reportedly included 17 multifamily properties.

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Investors in Moody National REIT II (“Moody II”)  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.

Money Whirlpool
Moody II is a non-traded real estate investment trust (non-traded REIT).  According to secondary market quotes, Moody II shares have decreased in value   Investors who were relying on Moody II’s most recent estimated NAV (net asset value) of $23.50 a share announced by its sponsor could be in for an unwelcome surprise, as shares have reportedly been sold on the limited secondary market for prices as low as between $7.50 and $8.00 a share.

Moody II was formed in July 2014 to acquire a portfolio of hospitality properties (a/k/a hotels and resorts) focusing primarily on the select-service segment of the hospitality sector with premier brands including, but not limited to, Marriott, Hilton and Hyatt. According to the investments’ Fact Sheet, Moody REIT’s objectives are to “Preserve, protect and return stockholders’ capital contributions. Pay regular cash distributions to stockholders. Realize capital appreciation upon the ultimate sale of the real estate assets acquired by Moody National REIT II, Inc.”

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Investors in Healthcare Trust, Inc. (“HTI”) 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 a stockbroker or advisor.

Piggybank in a Cage
HTI,  a publicly registered non-traded real estate investment trust, announced that it has amended the company’s distribution policy and share repurchase program to end cash distributions and suspend redemptions.   Future distributions to shareholders will be paid in shares of common stock instead of cash, and share repurchases under the REIT’s share repurchase plan (or “SRP”) were suspended.  These announcements leave investors with no cash income from the REIT, and limited options if they wish to sell shares.

HTI states that it made these changes to preserve liquidity and maintain additional financial flexibility in light of the COVID-19 pandemic.  In a filing with the U.S. Securities and Exchange Commission (“SEC”), HTI indicated that any future distributions, if and when declared, will be paid on a quarterly basis in arrears in shares of common stock valued at the net asset value per share.  The number of shares paid will continue to be based on the prior cash distribution rate of $0.85 per share per year, the company said.

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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.

Wastebasket Filled with Crumpled Dollar Bills
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.

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Investors in Terra Income Fund 6 (“Terra 6”) may be able to recover losses on their investment through initiating an arbitration proceeding with FINRA Dispute Resolution, if a broker or financial advisor made the recommendation to invest in Terra 6 without a reasonable basis, or misled the investor as to the nature of the investment.  Terra 6 is a non-traded business development company headquartered in Kansas City, Missouri.  Formed on May 15, 2013 and commencing operations on June 24, 2015, Terra 6 is a non-traded business development company (“BDC”).

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As an investment vehicle, BDCs first emerged in the early 1980’s following legislation passed by Congress making certain amendments to federal securities laws.  These legislative changes allowed for BDC’s — types of closed end funds — to make investments in developing companies and firms.  Many brokers and financial advisors have recommended BDCs as investment vehicles to their clientele, touting the opportunity for retail investors to earn enhanced dividend income while participating in private-equity-type investing previously unavailable to the average “Mom and Pop” investor.

While non-traded BDCs may offer an attractive investment opportunity for certain investors, non-traded BDCs, such as Terra 6, are complex and risky investment products.  Non-traded BDCs, as their name implies, do not trade on a national securities exchange, and are therefore illiquid products that are hard to sell (investors can typically only sell their shares through redemption with the issuer, or through a fragmented and illiquid secondary market).  Further, non-traded BDCs often entail high up-front fees and commissions (typically 10% or more in the aggregate), which are apportioned to the broker, his or her broker-dealer, and the wholesale broker or manager.  Finally, although they are frequently sold as steady income investments, non-traded BDCs do present the risk of loss of principal.

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Investors in Phillips Edison & Company, Inc. (“PECO”) 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.

Money Maze
PECO was formed in Maryland in October 2009 as a non-traded real estate investment trust (or “REIT”), to acquire grocery-anchored shopping centers. In November 2018, PECO officially merged with Phillips Edison Grocery Center REIT II (“Phillips Edison II), a move that caused significant loss to its investors. Investors who purchased shares in PECO at the initial offering acquired shares at $10.00 per share, and while PECO’s sponsor has said that it currently has an estimated net asset value (“NAV”) of $8.75 per share, shares on the limited private secondary market have reportedly traded between $4.50 and $5.50 per share in recent months.

Making matters worse, in March 2020 PECO announced that it would suspended monthly distributions, as well as share repurchases or redemptions, albeit indicating that these  suspensions will be temporary.  As measures to guard against liquidity issues, PECO also reportedly borrowed $200 million from a revolving credit facility and announced plans to reduce expenses.

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