Articles Posted in REITs

shutterstock_133513469-300x200The securities lawyers of Gana Weinstein LLP represent investors who have lost millions investing in American Realty Capital New York City REIT (ARC New York REIT, New York City REIT, or NYC REIT) (Ticker Symbol: NYC) a non-traded real estate investment trust (Non-Traded REIT) that recently went public.

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.

In 2018 NYC REIT ceased making distributions.  However, the REIT continued to tell investors that the investment was worth at least $20.26 a share on their initial $25 per share price investment while secondary market sources were projected massive losses.  In early 2020 NYC REIT announced that it would go public.  REIT investors would realize shares subject to a 2.43-to-1 reverse stock split.  Thereafter, 75% of client funds would be converted into Class B shares which could not be sold and would remain illiquid.  NYC REIT told investors that by the end of the first listing year all Class B shares would be converted into Class A shares which could be sold on the market.

Once NYC REIT went public and the true value of NYC REIT was revealed investors lost a significant portion of their investment seemingly overnight.  At the initial public offering (“IPO”), NYC REIT lost almost 44% of its value in that first trading session.  By the end of October 2020 NYC REIT had lost over 63% of its initial public offering price.  Investors in NYC REIT have suffered losses of approximately 85% of their initial investment in the Non-Traded REIT and still cannot liquidate the majority of their investment.

As a law firm that represents investors, we have watched the same story as NYC REIT play out over and over again where real estate and other assets are touted as safe and reliable investments only to realize significant losses when the true value is revealed.

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shutterstock_177082523-243x300The securities lawyers of Gana Weinstein LLP are investigating recommendations by brokerage firms for their clients to invest in RW Holdings NNN REIT Inc., formerly known as Rich Uncles NNN REIT Inc.,- a non-traded real estate investment trust (non-traded REIT).  RW Holdings originally sold shares for $10.00.  The fund claims to have an estimated net asset value per share of $6.00.  However, secondary market trading would likely value this REIT substantially lower in value.

As a background, RW Holdings NNN REIT’s real estate portfolio totals 2.4 million square feet, 45 properties divided into 19 retail properties, 14 office properties, and 12 industrial properties located in 14 states. The portfolio also includes approximate 72.7 percent tenant-in-common interest in an office property in Santa Clara, California.

In May 2020 The REIT said that it was suspended its offering and its plans to declare a revised net asset value per share later that month, as well as a revised distribution rate. RW Holdings expected that both will be lower due to the impact of the COVID-19 pandemic.

In a statement the REIT claimed “Given our inability to collect 100 percent of contractual rents, we are re-evaluating our current distribution rate…,”

More recently, the REIT published the new share valuation showing substantial losses and write downs and reduced its dividend ratio from $0.7 shares per ordinary share to $0.35 shares – a substantial decline.

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shutterstock_38114566-300x199The securities lawyers of Gana Weinstein LLP continue to investigate and represent investors who lost money in The Parking REIT (formerly known as the MVP REIT II) a non-traded real estate investment trust (Non-Traded REIT).  The Parking REIT claims to own parking lots and that an investment in the REIT provides benefits including, low operating and maintenance costs, potential for long-term capital appreciation, redevelopment opportunities, a fragmented Industry, and heavy demand.

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.”

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shutterstock_132704474-300x200Advisor Christopher Shaw (Shaw), currently employed by Pruco Securities LLC (Pruco) and formerly employed by Kalos Capital, Inc. (Kalos) has been subject to at least three customer complaints during the course of his career.  According to a BrokerCheck report the customer complaints concerns alternative investments such as direct participation products (DPPs) like business development companies (BDCs), non-traded real estate investment trusts (REITs), oil & gas programs, annuities, and private placements.  Shaw runs his securities business through a d/b/a called CJS Wealth Management.  The attorneys at Gana Weinstein LLP have represented hundreds of investors who suffered losses caused by these types of high risk, low reward products.

In February 2020 a customer complained that Shaw violated the securities laws by alleging that Shaw engaged in sales practice violations related to engaging in misrepresentations and unsuitable recommendations.  The claim alleges $500,000 in damages and is currently pending.

In November 2019 a customer complained that Shaw violated the securities laws by alleging that Shaw engaged in sales practice violations related to breach of fiduciary duty and unsuitable investments.  The claim alleges $350,000 in damages and is currently pending.

In July 2019 a customer complained that Shaw violated the securities laws by alleging that Shaw engaged in sales practice violations related to unsuitable investments in alternative securities between November 2012 and May 2017.  The claim alleges $450,000 in damages and is currently pending.

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shutterstock_123928846-300x268Advisor Mark Robare (Robare), currently employed by Triad Advisors LLC (Triad Advisors) has been subject to at least one customer complaint and one regulatory matter during the course of his career.  According to a BrokerCheck report one customer complaint concerns alternative investments such as direct participation products (DPPs) like business development companies (BDCs), non-traded real estate investment trusts (REITs), oil & gas programs, annuities, and private placements.  The attorneys at Gana Weinstein LLP have represented hundreds of investors who suffered losses caused by these types of high risk, low reward products.

In March 2020 a customer complained that Robare violated the securities laws by alleging that Robare engaged in sales practice violations related to an unsuitable investment strategy beginning in 2014. The claim alleges $500,000 and is currently pending.

In September 2014 the SEC alleged that Robare used Fidelity Investments for clearing services for its advisory clients whereby Robare entered into a revenue sharing arrangement with Fidelity Investments in 2004.  In this arrangement, Fidelity paid Robare to invest in certain mutual funds offered on Fidelity’s platform and Robare received nearly $400,000 from Fidelity from 2005 to 2013 as a result of the arrangement.  The SEC claimed that Robare modified its Form ADV disclosures in December 2011 after Fidelity advised Robare that it would cease making payments if the arrangements were not disclosed. The SEC fined Robare $50,000.

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shutterstock_132704474-300x200The securities lawyers of Gana Weinstein LLP are investigating recommendations by brokerage firms for their clients to invest in Carey Watermark Investors 2 aka Watermark Lodging Trust – a non-traded real estate investment trust (non-traded REIT).  Carey Watermark Investors 2 originally sold shares for $10.00.  The fund claims to have an estimated net asset value per share of $11.41.  However, secondary market trading sources cite a far smaller value at only $5.50 a share – implying that the trading markets anticipate that Carey Watermark Investors 2 has substantially dropped in value.

As a background, Watermark Lodging Trust claims to be a premier lodging REIT with a portfolio of high-quality lodging assets led by an internal management team with a distinctive record of stockholder value creation. WLT claims to have been formed to take advantage of current and future opportunities in the lodging industry and seeks to provide investors with attractive, risk-adjusted returns and long-term growth in value.

Thereafter, on April 13, 2020, Carey Watermark Investors 2 and Carey Watermark Investors 1 merged in an all-stock transaction to create Watermark Lodging Trust.  In addition, since March 2020 the REIT has suspended distributions due to the reduced travel demand and related financial impact resulting from COVID-19.

In May 2020 the company filed a notice with the SEC stating that “approximately $277 million of indebtedness is scheduled to mature after the date of this Form 8-K through December 31, 2020. This indebtedness is nonrecourse mortgage indebtedness and the Company has extension options with respect to a portion of such indebtedness. If the Company’s lenders do not provide covenant relief or if the Company is unable to repay, refinance or extend any such indebtedness, the lenders may declare events of default and seek to foreclose on the underlying hotels. We may also seek to give properties back to the lenders. We have begun active efforts to raise capital through a variety of strategies, including, without limitation, sales of assets, potentially at discounted prices; incurrences of debt; joint venture arrangements; and/or issuances of equity securities in transactions which may be dilutive to our stockholders.”

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shutterstock_156562427-300x200The securities lawyers of Gana Weinstein LLP are investigating recommendations by brokerage firms for their clients to invest in Strategic Student & Senior Housing Trust (SSSHT) – a non-traded real estate investment trust (non-traded REIT).  Strategic Student & Senior Housing Trust has stopped distributing a dividend leaving investors with no returns for the time being.  As is too common in the brokerage industry, firms fail to understand the flawed non-traded REIT business model and only recommend these products for their 7% commissions – not because they benefit investors.

Strategic Student & Senior Housing Trust has been particularly hard hit in the recent recession due to the nature of its investments properties.  Strategic Student and Senior Housing Trust is a public, non-traded REIT focused exclusively on assets in the student housing and senior housing areas. The fund is premised on investing in two areas “with strong demographic drivers from college students and baby boomers” according to its website.

The fund states that SSSHT intends to take advantage of the growing demand for recession-resistant asset classes and desirable demographic trends.  The REIT states that it believes that SSSHT can provide stability, diversification, income, and potential growth over the long-term.

However, in an April 2020 prospectus update, Strategic Student & Senior Housing Trust stated that it incurred a net loss of approximately $19.6 million for the fiscal year ended December 31, 2019. Further, the REITs accumulated losses are approximately $41.8 million as of December 31, 2019.  Moreover, due to the current recession the REIT suspended its primary offering while still early in its acquisition stage.  Strategic Student & Senior Housing Trust warned that its operations may not be profitable in 2020.

Further Strategic Student & Senior Housing Trust investors are now trapped in the REIT when in March 2020, when the REIT’s board of directors determined to suspend the share redemption program with respect to common stockholders effective as of May 3, 2020.  The REIT stated that until it can establish a net asset value per share it was not currently possible to determine accurately redeem or sell shares.

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shutterstock_20354401-300x200The securities lawyers of Gana Weinstein LLP are investigating recommendations by brokerage firms for their clients to invest in Moody National REIT II (Moody REIT) – a non-traded real estate investment trust (non-traded REIT).  According to secondary market quotes, Moody National REIT II has suffered massive losses and may only be worth less than 50 cents for every dollar purchased.  In addition, Moody National REIT II no longer distributes a dividend.  As is too common in the brokerage industry, firms fail to understand the flawed non-traded REIT business model and only recommend these products for their 7% commissions – not because they benefit investors.

Moody REIT has been particularly hard hit in the recent recession due to the nature of its investments properties.  Moody National REIT II, Inc. was formed in July 2014 to acquire a portfolio of hospitality properties (a/k/a hotels and resorts) focusing primarily on the select-service segment of the hospitality sector with premier brands including, but not limited to, Marriott, Hilton and Hyatt.

According to the investments’ Fact Sheet, Moody REIT’s objectives are to “Preserve, protect and return stockholders’ capital contributions. Pay regular cash distributions to stockholders. Realize capital appreciation upon the ultimate sale of the real estate assets acquired by Moody National REIT II, Inc.”

However, according to filings with the SEC, on March 24, 2020, the Company’s board of directors approved the suspension of: (1) the sale of shares in Moody REIT; (2) the payment of distributions to the company’s stockholders; (3) reinvestments; and (4) the operation of the share redemption program.

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.

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shutterstock_64859686-300x300The securities lawyers of Gana Weinstein LLP are investigating recommendations by brokerage firms for their clients to invest in Hospitality Investors Trust  – a non-traded real estate investment trust (non-traded REIT).  Hospitality Investors Trust REIT, formerly known as American Realty Capital Hospitality Trust, originally sold shares for $25.00.  As of December 31, 2019, the fund has approved an estimated net asset value per share of $8.35 as massive loss to initial investors.  Even worse, secondary market trading sources cite a far smaller value at only $.75 a share – implying that the trading markets anticipate that Hospitality Investors Trust is virtually worthless.

Hospitality Investors Trust states that it is a publicly registered non-traded real estate investment trust (REIT) which owns a diversified portfolio of strategically-located hotel properties throughout North America within the select service and full-service markets of the hospitality sector.

Even prior to the recent recession and COVID-19 related market issues, Hospitality Investors Trust suspended the company’s share repurchase program effective February 28, 2019.  Thus, well before recent market events investors could not redeem their shares even at the prices the fund stated the investment was worth.

Recently, the REIT stated that “the Company has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about its ability to meet its obligations arising within one year after the date that the financial statements are issued.  Due to the existence of certain events of default under the Company’s debt obligations…the Company is unable to conclude with certainty that it is probable that it will be able to meet its obligations arising within twelve months of the date of issuance of these financial statements…”  In other words, Hospitality Investors Trust REIT is questionable as a going concern at this point.

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shutterstock_189006551-207x300Advisor Scot Fairchild (Fairchild), currently employed by Lucia Securities, LLC (Lucia Securities) has been subject to at least two customer complaints during the course of his career.  According to a BrokerCheck report one of the customer complaint concerns alternative investments such as direct participation products (DPPs) like business development companies (BDCs), non-traded real estate investment trusts (REITs), oil & gas programs, annuities, and private placements.  The attorneys at Gana Weinstein LLP have represented hundreds of investors who suffered losses caused by these types of high risk, low reward products.

In December 2019 a customer complained that Fairchild violated the securities laws by alleging that Fairchild engaged in sales practice violations related to breach of fiduciary duty, misrepresentations and omissions, negligence and unsuitable investments in high risk, illiquid investments purchased between 2013 and 2014 and in violation of Nevada Securities Laws. The claim alleges $214,335 and is currently pending.

In January 2019 a customer complained that Fairchild violated the securities laws by alleging that Fairchild engaged in sales practice violations related to breach of fiduciary duty, negligence, breach of contract, and unsuitable investment recommendations related to Real Estate Investment Trusts purchased between on or around 2013 and 2014.  The claim alleges $500,000 and settled for $175,000.

DDPs include products such as non-traded REITs, oil and gas offerings, equipment leasing products, and other alternative investments.  These alternative investments virtually never profit investors and are almost always unsuitable for investors because of their high fee and cost structure.  Brokers selling these products are paid additional commission in order to hype these inferior quality investments providing a perverse incentives to create an artificial market for the investments.

Several studies have confirmed that Non-traded REITs underperform publicly traded REITs with some showing that Non-Traded REITs cannot even beat safe benchmarks, like U.S. treasury bonds.  Brokers selling these products must disclose to the investor that non-traded REITs provide lower investment returns than treasuries while being high risk and illiquid – but almost never do.  Because investors are not compensated with additional return in exchange for higher risk and illiquidity, these kinds of alternative investment products are rarely, if ever, appropriate for investors.  Continue Reading

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