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Secondary Market Pricing for NorthStar Healthcare Income REIT Suggests Investors Have Principal Losses

investing in real estate through a limited partnershipInvestors in NorthStar Healthcare Income, Inc. (“NHI REIT”) are likely facing substantial principal losses based on recently reported transactions.  Although liquidity is limited, NHI REIT investors may be able to sell shares through a limited and fragmented secondary market.  Recently, NHI REIT shares were listed for sale on a secondary platform at $6.70 per share.  Thus, for investors who bought in through the IPO at $10 per share, it would appear that they have sustained losses of roughly 1/3 on their initial capital outlay (these losses are exclusive of distribution income received to date).

NHI REIT investors also may have arbitration claims to be pursued before FINRA, 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 broker.  According to its prospectus, NHI REIT was formed as a Maryland corporation in October 2010 for the purpose of acquiring, originating and managing a “[d]iversified portfolio of equity and debt investments in healthcare real estate, with a focus on the mid-acuity senior housing sector.”

Headquartered in New York, New York, NHI REIT is a publicly registered non-traded real estate investment trust.  As of November 2015, NHI REIT’s portfolio consisted of 20 investments, including 16 equity investments with a total cost of $942.7 million, and 4 debt investments with a principal amount of $145.9 million.  Pursuant to its offering, which closed December 17, 2015, NHI REIT offered up to $500,000,000 in shares of its common stock at a price of $10.20 per share, in addition to $200,000,000 in shares offered under the REIT’s amended and restated distribution reinvestment plan, at a price of $9.69 per share.

Non-traded REITs like NHI REIT pose many risks that are often not readily apparent to retail investors, or adequately explained by the financial advisors recommending these relatively obscure investments.  To begin, non-traded REITs are typically characterized by very high fees and up-front commissions (as high as 15% in some instances).  For example, as set forth in its prospectus, NHI REIT charges a selling commission of up to 7% of gross offering proceeds (except on shares acquired through reinvestment), a dealer-manager fee of up to 3%, an acquisition fee of 2.25% for properties acquired by the REIT, as well as additional organizational and offering fees.

Aside from their high fee structure, non-traded REITs are illiquid in nature, and under most circumstances cannot readily be sold for a number of years after purchase.  Unlike traditional stocks and mutual funds, non-traded REITs do not trade on a deep and liquid national securities exchange.  Therefore, many investors in non-traded REITs come to learn too late that their ability to exit their investment position is limited.  For instance, non-traded REIT investors typically can only redeem shares directly with the sponsor on a limited basis, and even then, often at a disadvantageous price.

Investors with questions about an investment in NHI REIT, or similar non-traded investment products, may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at for a no-cost, confidential consultation.

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