Investors in non-traded REITs such as Steadfast Apartment REIT, Steadfast Apartment REIT III and Steadfast Income 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.
Steadfast Apartment REIT Inc. (“STAR”), a publicly registered non-traded real estate investment trust, has reportedly lowered its distributions to investors and and amended its share repurchase plan (SRP) to limit repurchase requests to investors who have died or have a qualifying disability.
As pf February 1, 2021, the annualized distribution payment for a share of common stock paid by STAR will be $0.5250. Prior to the change, STAR distributed $0.90 per share on an annualized basis. The lowered distributions will begin in March 2021, which is when the payment for February 2021 is remitted to investors.
STAR also reportedly has amended its share repurchase plan (or SRP) to limit repurchases of STAR shares from investors to instances of death and qualifying disability. This change will be in effect on the next repurchase date at the end of April 2021.
According to public filings with the Securities and Exchange Commission (SEC), on December 19, 2019, Steadfast Apartment REIT III, Inc. (STAR III) and Steadfast Income REIT (SIR) filed their respective definitive proxies seeking shareholder approval of a proposed merger with STAR. Investors who originally invested in STAR III and SIR now hold shares in STAR as a result of the mergers. Under the terms of the mergers, STAR III shareholders reportedly received 1.43 shares of STAR common stock as consideration for each STAR III share, and SIR shareholders received 0.5934 shares for each SIR share.
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. Sponsors of non-traded REITs almost universally reserve the right to cancel or curtail share repurchase plans (or SRPs), as STAR has recently announced it will do.
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 email@example.com 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).
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