INVESTORLAWYER_6Q17_2012-11-12_Mon_Recovery of Desert Capital REIT Losses

Many investors who purchased Desert Capital REIT, a non-traded REIT, are consulting securities fraud attorneys in order to recover their REIT losses. Claims by investors include unsuitable recommendations and misrepresentations of Desert Capital REIT. In addition, many investors suffered losses as a result of overconcentration of funds in Desert Capital REIT.

Typically, REITs carry a high commission which motivates some brokers to make the recommendation to investors despite the investment’s unsuitability. The commission on a non-traded REIT is often as high as 15 percent. Non-traded REITs carry a relatively high dividend or high interest, making them attractive to retired investors. However, non-traded REITs are inherently risky and illiquid, which limits access of funds to investors. The most common complaints regarding the recommendation of Desert Capital REIT mention valuations, prospects, performance, liquidity, redemption and distribution of the investment. Many investors assert that they were not aware of the truth regarding these aspects and their decision to invest would have been affected if they’d had all of this information.

Desert Capital REIT is a non-traded real estate investment trust that invested in loans to developers and builders that would build on residential or commercial land, as opposed to traditional residential mortgages. These loans were structured in a way that would provide monthly interest payments to the REIT during the life of the loan. The REIT would then receive a balloon principal payment at the time of the loan’s maturity. These types of loans are considered much riskier than traditional mortgages. Desert Capital was put into involuntary Chapter 11 bankruptcy in 2011 with $43 million in claims by creditors.

Investors who suffered significant REIT losses as a result of their investment in Desert Capital REIT could recover losses through FINRA arbitration. To find out more about your legal rights and options, contact a securities fraud attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.

Investment fraud lawyers note that independent broker-dealers have a responsibility to perform adequate due diligence when selling any investment, especially complex, illiquid products. Since the 2008 market collapse, FINRA has been aggressive with broker-dealers who failed to do so. Axelrod stated to the Securities Industry and Financial Markets Association’s Complex Products Forum that, “FINRA examiners have noted that in the instances of REITs that have experienced financial difficulties, red flags existed and should have been considered by firms prior to the product being offered to firm clients.”

Another problem with non-traded REITs, according to Axelrod, is that “non-traded REITs may also borrow funds to make distributions if operating cash flow is insufficient, and excessive borrowing may increase the risk of default or devaluation. In addition, non-traded-REIT distributions may actually be a return on principal.”

Some of the non-traded REITs currently being investigated by the stock fraud lawyers at Christopher J. Gray are Inland Western, Inland American, KBS REIT, Cornerstone Healthcare REIT, Behringer Harvard REIT, Paladin Realty Income Properties REIT, Wells REIT, Apple REIT, Desert Capital REIT, TNP Strategic Retail Trust, Dividend Capital REIT, Whitestone REIT, ArciTerra National REIT and CNL Lifestyle Properties REIT.

If you suffered significant losses as a result of your investment in a non-traded REIT, you may be able to recover your losses through securities arbitration. To find out more about your legal rights and options, contact an investment fraud lawyer at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.