Recent pricing on shares of Cole Credit Property Trust V, Inc. (“CCPT V” or, the “Company”) – at reported prices of $17.25-$17.75 – suggests that investors who chose to sell their shares on a limited secondary market may have sustained considerable losses of up to 30% (excluding any distributions received to date). Formed in December 2012, CCPT V is structured as a Maryland corporation. As a publicly registered, non-traded real estate investment trust (“REIT”), CCPT V is focused on the business of acquiring and operating “a diversified portfolio of retail and other income-producing commercial properties.” As of October 31, 2018, the Company’s real estate portfolio consisted of 141 properties across 33 states, with portfolio tenants spanning some 26 industry sectors.
The shares of CCPT V, a publicly registered, non-traded REIT, were offered to retail investors in connection with CCPT V’s initial offering, which was priced at $25 per share. The Company launched its initial offer in March 2014, and as of the second quarter of 2018, had raised $434 million in investor equity through the issuance of common stock.
Some retail investors may have been steered into an investment in CCPT V by a financial advisor, without first being fully informed of the risks associated with investing in non-traded REITs. For example, one initial risk that is often overlooked concerns a non-traded REIT’s characteristic structure as a blind pool. In the case of CCPT V, its blind pool offering means that not only were shares issued to public investors for a REIT lacking any previous operating history, but moreover, CCPT V did not immediately identify any of the properties that it intended to purchase.
Aside from their typical blind pool structure, non-traded REITs also tend to charge investors high upfront fees and commissions (up to 15% in some instances). With regard to CCPT V, investors were charged selling commissions and a dealer manager fee of 9%, 2% for organization and offering expenses, as well as certain acquisition and development fees. In total, investors in the Company were charged 13.7% of their initial investment in commissions and fees. Unsurprisingly, such high fees act as an immediate drag on future investment performance.
Likely the greatest risk associated with non-traded REITs is their illiquid nature. Unlike publicly traded REITs, which trade on national securities exchanges at publicly quoted prices, investors in non-traded REITs such as CCPT V have limited options at their disposal when it comes to selling shares. While many non-traded REITs do have redemption programs, these share repurchase programs are typically restricted in nature, both as to timing (often, investors can only redeem their shares on a quarterly basis), as well as to amount (sponsors often curtail the number of shares available for redemption at a given time).
Non-traded REIT investors seeking immediate liquidity may elect to sell on a limited secondary market platform. In the case of CCPT V, shares have recently traded on such a secondary market at a considerable discount of approximately 30% less than the Company’s $25 per share offering price, or around $17.50 per share. Thus, investors who require immediate liquidity through a secondary platform may incur substantial losses in order to sell their shares.
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 business development companies (BDCs). Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at email@example.com for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York, New Jersey and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).