REIT losses

Published on: July 20, 2018

Recent Tender Offer Pricing for CNL Healthcare Properties Suggests Investors May Have Incurred Losses

Building Demolished As recently reported, third party real estate investment firms Everest REIT Investors I LLC and Everest REIT Investors III LLC, two private affiliated entities, commenced an unsolicited tender offer to purchase approximately 8.8 million shares of CNL Healthcare Properties, Inc. (“CNL Healthcare”) common stock for $7.50 each. Unless amended, this unsolicited tender offer will expire on August 31, 2018. As of December 31, 2017, CNL Healthcare reported a net asset value (NAV) of $10.32 per share. Thus, the recent tender offer pricing represents an approximate 27% discount on CNL’s recent NAV pricing and suggests that investors may have incurred principal losses on their investments.

Headquartered in Orlando, FL, CNL Healthcare is a Maryland REIT incorporated in June 2010 for the purpose of acquiring a portfolio of geographically diverse healthcare real estate real estate-related assets, including certain senior housing communities, medical office buildings, and acute care hospitals.

Investors in CNL Healthcare may have claims to bring in FINRA arbitration, if the investment was recommended by a broker or financial advisor who lacked a reasonable basis for the recommendation, or if the financial advisor misrepresented the nature of the investment, including its risk components.

Published on: May 22, 2018

Cole Credit Property Trust IV Tender Offer Suggests Investors Have Substantial Principal Losses

by InvestorLawyers

Money in Wastebasket Investors in Cole Credit Property Trust IV, Inc. (“Cole Credit IV”) appear to have incurred substantial principal losses, based on the pricing of a recent tender offer. Recently, third party real estate investment firm MacKenzie Realty Capital, LP (“MacKenzie”) initiated a tender offer to purchase shares of Cole Credit IV at a price of $6.01/share. Therefore, investors who invested in Cole Credit IV through the offering at $10/share will incur substantial losses on their initial investment of approximately 40% (exclusive of commissions paid and distributions received to date).

Cole Credit IV’s real estate portfolio is geographically diverse, and is focused on investments in “income-producing, necessity single-tenant retail properties and anchored shopping centers subject to long-term net lease,” as stated on the company’s website. As a publicly registered non-traded REIT, Cole Credit IV was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the IPO upon the recommendation of a broker or money manager. Cole Credit terminated its offering on April 4, 2014.

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 Cole Credit IV generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%.

Published on: May 15, 2018

Phillips Edison Grocery Center REIT II Investors Face Losses – Mini-Tender Offer at $14.89/Share

by InvestorLawyers

Piggy Bank in a Cage Investors in Phillips Edison Grocery Center REIT II (“Phillips Edison II”) were recently solicited by third-party real estate investment management firm MacKenzie Realty Capital, Inc. (“MacKenzie”) in relation to a mini tender offer to purchase Phillips Edison II shares at $14.89 per share. Investors who purchased Phillips Edison II shares through the initial offering acquired their shares at $25 per share (and at $23.75 per share for shares subsequently acquired through the dividend reinvestment program). Accordingly, investors seeking immediate liquidity who elect to participate in the MacKenzie tender offer will incur substantial losses of approximately 40% on their initial investment (excluding commissions and fees, as well any dividend income received to date).

Phillips Edison II was incorporated in June 2013 and is a publicly registered, non-traded REIT. As set forth in its prospectus, Phillips Edison II was “formed to leverage the expertise of our sponsors… and capitalize on the market opportunity to acquire and manage grocery-anchored neighborhood and community shopping centers located in strong demographic markets throughout the United States.” As a publicly registered non-traded REIT, Phillips Edison II was permitted to sell securities to the investing public at large, and as such, the non-traded REIT was marketed nationwide to numerous unsophisticated retail investors. In certain instances, some investors were not fully informed by their financial advisor as to the complex nature and risks associated with non-traded REITs.

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. To begin, one significant risk associated with non-traded REITs has to do with their high up-front commissions, typically between 7-10%; in the case of Phillips Edison II, its prospectus indicates that investors were charged a “selling commission” of 7%. In addition to high commissions, non-traded REITs like Phillips Edison II generally charge investors for certain due diligence and administrative fees, ranging anywhere from 1-3%; as set forth in its prospectus, Phillips Edison II charged investors a 3% dealer manager fee of up to 3% of gross offering proceeds. Such high commission and fees act as an immediate “drag” on an investment.

Published on: May 10, 2018

Investors in Illiquid REITs and Real Estate Limited Partnerships May Encounter Considerable Difficulty in Redeeming Shares for Cash

by InvestorLawyers

investing in real estate through a limited partnership Investors in numerous non-traded REITs and real estate limited partnerships may have recently encountered difficulty in exiting their investment position through redemption of shares with the sponsor. As we have highlighted in several previous blog posts, non-traded REITs and similar limited partnership investments (often sold via private placement), are extremely complex and risky investments.

Unlike exchange traded REITs that trade on deep and liquid national securities exchanges, publicly registered non-traded REITs are sold through an offering or successive offerings to the retail investing public, often over the course of several years. Once the offering has closed, investors may find that their ability to redeem shares with the sponsor is severely restricted, or in some instances, outright suspended. This is particularly problematic for retail investors who quite often were steered into the investment by a financial advisor who, in some instances, may have failed to fully disclose the nature of the investment, including its illiquid nature.

In the same vein, investments in real estate limited partnerships are often conducted via a private placement, pursuant to Regulation D as promulgated by the SEC. As a general rule, a private placement investment in real estate carries with it many of the same risks embedded in investing in non-traded REITs. These risks include: (1) high fees and commissions, (2) a general lack of transparency concerning the investment (while publicly registered non-traded REITs will typically provide more information than a private placement, the fact remains that many non-traded REITs are structured as blind pools, and accordingly an investor will not be able to readily ascertain the nature of the underlying property portfolio), and (3) difficulty exiting an illiquid investment position.

Published on: April 19, 2018

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

by InvestorLawyers

investing in real estate through a limited partnership Investors 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.

Published on: April 4, 2018

Benefit Street Partners Realty Trust Net Asset Value Reported As $19.17/Share: Sale Options Limited

by InvestorLawyers

Apartment Building Investors in Benefit Street Partners Realty Trust, Inc. (“Benefit Street” or the “Company”) may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“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 financial advisor. Benefit Street was formerly known as Realty Finance Trust; however, in September 2016, Realty Finance appointed Benefit Street Partners (“BSP”) as its new advisor, replacing former sponsor AR Global Investments.

Benefit Street is a publicly registered, non-traded real estate investment trust (“REIT”) that originates, acquires and manages a diversified portfolio of commercial real estate debt secured by properties located in the United States. Benefit Street is managed by BSP, a credit-focused alternative asset manager with over $20 billion of assets under management. Benefit Street commenced its operations in November 2012, and raised $786 millions in investor equity prior to closing its offering in January 2016. As of September 2016, the Company’s portfolio consisted of 73 loans and 7 CMBS investments.

In the years following the 2008 financial crisis, many retail investors were steered into investing in non-traded REITs such as Benefit Street by their broker or money manager based on the investment’s income-producing potential, in addition to the investment’s purported negative correlation to market volatility. Unfortunately, however, many investors were not informed of the complexities and risks associated with non-traded REITs, including the investment’s high fees (as high as 15% of the initial capital investment in some instances) and illiquid nature.

Published on: March 26, 2018

The Parking REIT, Inc. Announces Immediate Suspension of Cash Distributions

by InvestorLawyers

Money in Wastebasket As recently reported, the Board of Directors of The Parking REIT, Inc. have unanimously authorized a suspension of the company’s cash distributions and stock dividends, effective immediately. In conjunction with filing a Form 8-K with the SEC on March 23, 2018, the company issued a press release indicating, inter alia, that “The Board is focused on preserving capital in order to maintain sufficient liquidity to continue to operate the business and maintain compliance with debt covenants, including minimum liquidity covenants…”

Headquartered in Las Vegas, NV, The Parking REIT (f/k/a MVP REIT II, Inc.) holds a real estate investment portfolio consisting of 44 parking facilities across 15 states, with an estimated aggregate asset value of $280 million. As a publicly registered non-traded REIT, The Parking REIT is a particularly complex and risky investment vehicle. Among the risks associated with non-traded REITs are their characteristically high up-front fees and commissions (as high as 15% in some instances), as well their illiquid nature.

Unlike exchange traded REITs, non-traded REITs do not trade on a national securities exchange, and therefore cannot be readily sold and resold on a liquid exchange. Further, as is the case with The Parking REIT, investors may unfortunately encounter a scenario where the Board elects to reduce or altogether suspend distributions and/or dividends. For many investors in non-traded REITs, one of their primary reasons for investing in the first instance has to do with the enhanced yield often associated with non-traded REITs. However, when the prospect of steady income through distributions disappears, the investor is left with an illiquid investment position that cannot be easily or readily exited.

Published on: March 7, 2018

Investment Firm Offers $12.17/Share For The Parking REIT, Inc. Shares

by InvestorLawyers

Money Maze Real estate investment firm MacKenzie Realty Capital (“MacKenzie”) is offering to purchase shares of The Parking REIT, Inc. (f/k/a MVP REIT II, Inc., hereinafter “The Parking REIT”) for $12.17 per share. The pricing of MacKenzie’s unsolicited tender offer suggests that investors who wish participate in order to generate liquidity will lose money on their investments based on their initial purchase price.

As recently reported, The Parking REIT has merged with MVP REIT, Inc. (“MVP REIT I”), and as a result of the merger, the newly formed entity holds a real estate investment portfolio consisting of 44 parking facilities across 15 states, with an estimated aggregate asset value of $280 million.

The Parking REIT is a publicly registered non-traded real estate investment trust (“REIT”). Unlike exchange traded REITs, non-traded REITs are particularly complex and risky investment vehicles that — as their name implies — do not trade on a national securities exchange. Unfortunately, retail investors are often uninformed by their broker or money manager of the illiquid nature of non-traded REITs. Investors may be unaware that their options to sell shares are limited and often disadvantageous as to pricing and timing, and generally include direct redemption with the issuer, potential sale of shares through a fragmented and illiquid secondary market, or in limited instances — a tender offer by a third-party.

Published on: March 5, 2018

Strategic Realty Trust May Give Rise to Arbitration Claims

by InvestorLawyers

House in Hands Investors in Strategic Realty Trust, Inc. (“SRT”) may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“FINRA”), if their SRT 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 financial advisor. SRT, formerly known as TNP Strategic Retail, is a San Mateo, CA based non-traded real estate investment trust (“REIT”) that seeks to invest in certain West Coast urban and street retail properties.

Over the past several years, many retail investors were steered into investing in non-traded REITs such as SRT by stockbrokers or financial advisors. Frequent selling points for non-traded REIT investments include presenting these securities as steady income-producing investments and as solid long-term investments due to their underlying investments in real estate. Some investors may not have been informed of the complexities and risks associated with non-traded REITs, including the investment’s high fees and illiquid nature.

Currently, investors who wish to sell their shares of SRT have limited options available to exit their investment position. For example, SRT suspended its share redemption program effective as of January 15, 2013. During the years ended 2013 and 2014, SRT did not redeem any shares under the redemption program. Thereafter, on April 1, 2015, SRT’s Board approved the reinstatement of the share redemption program, but only as it relates to the death or qualifying disability of the shareholder.

Published on: March 2, 2018

American Realty Capital NYC REIT Suspends its Distributions Effective March 1st

by InvestorLawyers

Building Demolished Investors in American Realty Capital New York City REIT (“ARC NYC REIT”), may have arbitration claims to be pursued before the Financial Industry Regulatory Authority (“FINRA”), if their ARC NYC REIT 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 or financial advisor. According to its website, ARC NYC REIT is structured to provide its investors with a combination of current income and capital appreciation through strategic investments in high-quality commercial real estate located throughout the five boroughs of New York City.

As recently reported, the Board of ARC NYC REIT has elected to suspend distributions, effective March 1, 2018. According to the Board, the suspension of future distributions was made in order to enhance the non-traded REIT’s ability to execute on acquisitions, as well as conduct repositioning and leasing efforts related to its property portfolio. As a publicly registered non-traded REIT, ARC NYC REIT was incorporated in December 2013 and is registered with the SEC. Accordingly, ARC NYC REIT was permitted to sell securities to the investing public at large, including numerous unsophisticated retail investors who bought shares through the initial public offering (“IPO”) upon the recommendation of a broker or money manager at $25 per share. Secondary market transactions in ARC NYC REIT shares have reportedly taken place at prices of between $13.75 and $14.25 a share (although the sponsor indicates the NAV of ARC NYC REIT shares is $20.26 a share).

Unlike traditional stocks and publicly traded REITs, non-traded REITs do not trade on a national securities exchange. Therefore, many investors in non-traded REITs like ARC NYC REIT, have limited options when it comes to exiting their investment position. For example, investors in non-traded REITs typically can only redeem shares directly with the sponsor on a limited basis, and often at a disadvantageous price. Or, investors may be able to sell shares through a limited and fragmented secondary market. Finally, investors may be presented with limited market-driven opportunities — such as a tender offer — to sell their shares at a disadvantageous price.