Resource Real Estate Opportunity REIT (“Resource REIT”), Resource Real Estate Opportunity REIT II (“Resource REIT II”) or Resource Real Estate Opportunity REIT III (“Resource REIT III”) recently completed previously-announced stock-for-stock merger transactions. The three affiliated non-traded real estate investment trusts merged in early 2021, combining to form a $3 billion self-managed REIT named Resource REIT Inc. In the merger transaction, the surviving entity Resource REIT II acquired Resource REIT I and Resource REIT III in separate stock-for-stock transactions. The REITs also acquired their external advisors in a series of transactions and are now internally managed.
Resource REIT launched in June 2010 and raised $645.8 million in investor equity prior to closing in December 2013. Resource REIT II’s primary offering launched in February 2014, closed in February 2016 and raised roughly $645 million in investor equity. Resource REIT III’s offering was declared effective in April 2016 and raised roughly $111.4 million in investor equity. The offering closed in October 2019.
Prior to the merger, Resource REIT and Resource REIT II shares reportedly changed hands 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 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 changed hands for between $4.50 and $5.00 a share.
In February 2020, Resource REIT and Resource REIT II each announced the partial suspension of their share redemption programs.
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 generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.
Furthermore, non-traded REITs are generally illiquid investments. Unlike traditional stocks and mutual funds, non-traded REITs do not trade on a national securities exchange. Many uninitiated investors in non-traded REITs have come to learn too late that their ability to exit their investment position is limited. Typically, investors in non-traded REITs can only exit their investment through redemption directly with the sponsor on a limited basis, and often at a disadvantageous price, or through sales in a limited secondary market.
Investors in the Resource REITs 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.
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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