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Articles Tagged with Summit Healthcare REIT

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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.

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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.

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Summit Healthcare REIT Inc. (“Summit”), a publicly registered non-traded real estate investment trust, has recommended to shareholders that they reject a third-party tender offer by MacKenzie Realty Capital to purchase shares for $1.34 a share.  The REIT estimates its net asset value per share as $2.53, and therefore says that the $1.34 a share offer is lower than fair value.  Summit’s most recent estimated net asset value per share is $2.53, as of December 31, 2016.

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As a publicly registered non-traded real estate investment trust (“REIT”), Summit was permitted to sell securities to the investing public at large, including numerous unsophisticated investors who bought shares   upon the recommendation of a broker or financial advisor.  Unfortunately for many non-traded REIT investors, they may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.

One of the more readily-apparent investment risks with non-traded REITs are their high up-front commissions (usually at least 7-10%), in addition to certain due diligence and administrative fees (that can range anywhere from 1-3%).  These fees act as an immediate ‘drag’ on any investment and can compound losses.  Further, another significant and less readily-apparent risk associated with non-traded REITs has to do with liquidity.  Unlike traditional stocks and certain publicly- traded REITs, non-traded REITs do not trade on a national securities exchange, leaving investors with limited options if they wish to sell their shares after the initial purchase- especially if the issuer is not redeeming shares.

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