Several years ago the board of The Parking REIT announced that it would be suspending the company’s distributions. The Board claimed that the move would preserve capital in order to maintain sufficient liquidity to continue to operate the business and maintain compliance with debt covenants.
In a letter dated April 13, 2020, The Parking REIT provided more bad news for investors. The company stated that “The company faces significant legal expenses related to pending lawsuits, an SEC investigation, and legal and consulting fees in connection with our exploration of potential strategic alternatives to provide liquidity to stockholders.” Further, in order for the directors and officiers to protect themselves from increasing threates of liability the REIT paid “directors & officers liability insurance premiums added approximately $2.0 million to our general and administrative expenses in 2019.” In addition, the REIT announced that “increasing expenses and general economic conditions are expected to prohibit The Parking REIT management and board of directors from considering a reinstatement of common stock and preferred stock distributions for the foreseeable future.”
Finally, the REIT claimed that no liquidity event may occur stating “there can be no assurance that the company will cause a liquidity event to occur in the near future or at all.”
Our firm often handles cases involving direct participation products (DPPs), private placements, Non-Traded REITs, and other alternative investments. These products are almost always unsuitable for middle class investors. In addition, the brokers who sell them are paid additional commission in order to hype inferior quality investments providing perverse incentives for brokers to sell high risk and low reward investments.
According to studies, non-traded REITs have historically have underperformed even safe benchmarks, like U.S. treasury bonds – meaning that non-traded REITs provide paltry investment returns considering the risk an investor takes. Alternative investment products like oil and gas partnerships, REITs, and equipment leasing programs are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed at all.
However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them. These products have become so popular among brokers without providing any benefit to investors that many states now limit investors from investing more than 10% of their liquid assets in Non-Traded REITs. Many states impose these limitations because its understood that that they provide virtually no benefit to investors in relationship to their risks.
Investors often fail to understand that they have lost money until many years after agreeing to the investment. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. The investment lawyers at Gana Weinstein LLP represent investors who have suffered investment losses due to allegations of wrongdoing. The majority of these claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.