Investors Summit Healthcare REIT, Inc. (“Summit”) 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.
Headquartered in Lake Forest, CA, Summit is structured as a Maryland corporation that qualifies as a real estate investment trust (“REIT”) for tax purposes. Formed in 2004, Summit was formerly known as Cornerstone Core Properties REIT, Inc. Following a strategic repositioning of the Company’s property portfolio to focus on healthcare real estate and related assets, the name change was formally adopted in October 2013.
Investors who purchased shares in Summit at the initial offering acquired shares at $8.00 per share, and while it currently has an estimated net asset value (“NAV”) of $2.82 per share, shares of Summit have reportedly traded on the limited secondary market for between $1.23 and $1.30 per share. Recently, CMG Partners LLC, a known purchaser of distressed nontraded securities, sent Summit investors letters offering to purchase shares for $0.60 per share.
In response to the tender offer, Summit’s COO/CFO told investors in a letter December 2020 as follows: “We understand that CMG is offering to purchase up to 500,000 of Summit’s shares for $0.60 per share in cash. We believe that CMG’s offer price is less than the current and potential long-term value of Summit’s shares and recommend against selling shares at those prices.”
A previous tender offer in May 2018 by a different third party company was priced at $1.56 a share. According to a Securities and Exchange Commission filing, Summit did not redeem any shared pursuant to its Share Repurchase Program (SRP) during the first nine months of 2020. Therefore, Summit itself has not recently provided a source of liquidity for investors who wish to sell shares.
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 like Summit 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 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. 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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