Michael has over 20 years of experience representing individual and small business plaintiffs against the world’s large financial institutions, including Visa, Mastercard, and Chase.
Getting out of a non-traded real estate investment trust, or REIT, can often be rather difficult and expensive. Once a REIT is closed to new investors, the board of directors of the REIT can suspend the redemption policy. If this happens, investors have limited options available for selling their non-traded REIT shares. This can be extremely problematic if the value of the REIT begins to decline, and can cause investors to sell their shares on the secondary market at a discount; losing a substantial amount of their investment in the process.
With limited ways to recover their investment, many investors may feel as though they have no where to turn. That’s where they’re wrong. As an investor, you may have legal options to recover your losses. Get a free case evaluation from a securities lawyer to learn more.
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What is a Non-Traded REIT?
Real estate investment trusts, or REITs, are companies that own or finance income-producing real estate from a variety of property sectors. These trusts pool the money of many investors and invest in real-estate such as hospitals, healthcare facilities, hotels, office buildings, and even infrastructure.
Non-traded REITs are REITs that are not sold on a national securities exchange. Unlike publicly traded REITs, these funds are often illiquid, and can remain illiquid for up to eight years or more after the initial purchase date. Additionally, the board of directors of the REIT can suspend redemptions or stop distribution payments during this time, significantly harming investors in the process. According to Investopedia:
The value of the investment made into such an REIT could have decreased or become worthless at the time the program is liquidated.
While some non-traded REITs can pay high distributions, other non-traded REITs come with a variety of risks and have resulted in substantial losses. If you had your REIT distributions suspended, had your investment value decrease, or are unable to redeem your shares, you may have a claim. Contact us today to learn more about recovering your losses.
Non-Traded REIT Risks
Many investors have reported being sold non-traded REITs without fully understanding the risks associated with these investments. Here are a few key facts about non-traded REITs that many investors are unaware of:
- Non-traded REIT distributions are not guaranteed and can be suspended at any moment by the board of directors. In fact, REIT companies often pay distributions through loans, which can decrease the value of the investment and put the company at risk of suspending distributions.
- Non-traded REITs can go “underwater” if their liabilities exceed the value of their assets.
- Front-end fees can often be extremely high for non-traded REITs, with these fees reaching as high as 15%. This can give negligent financial advisors and stock brokers an increased incentive to sell these REITs, even if the investment is unsuitable for the investor.
- There is little secondary market to sell non-traded REITs, meaning investors are either stuck with their investments or forced to sell at a huge discount.
- While many investors may believe they are making money, some of the money they are given may simply be a return of part of their initial investment.
Stock brokers and financial advisors have a duty to disclose any risks related to an investment, and recommend only suitable investments for a person’s age, risk tolerance, and investment experience. If your financial advisor or stock broker recommended a non-traded REIT to you, and you ended up losing money or remain stuck in the REIT as a result, you may be a victim of REIT fraud. Speak with an experienced securities lawyer to learn how you may recover your losses.
Difficulty Selling Your Non-Traded REIT?
Since most non-traded REITs are illiquid, there are often restrictions to redeeming and selling shares. While a REIT is still open to public investors, investors may be able to sell their shares back to the REIT. However, this sale usually comes at a discount; leaving only about 70% to 95% of the original value.
Once a REIT is closed to the public, REIT companies may not offer early redemptions. If the REIT does offer early redemptions, these redemptions often result in high fees that may actually lower the total returns. Redemptions are also typically limited and may price shares below the purchase price, and even below the current price. Additionally, these redemptions can be suspended at any point by the REIT’s board of directors.
With limited redemption options, investors’ money can be tied up in the REIT for a long period of time. If the REIT suspends its redemption program, investors may have no option but to turn to selling their shares to third parties on the secondary market.
What To Do If Your REIT Stops Offering Redemptions: Selling Your REIT On The Secondary Market
A lot can happen in the amount of time that a REIT is illiquid. If a REIT begins to perform poorly, investors may seek to get their money back early. REITs that stop offering redemptions leave shareholders with limited options, often forcing investors to sell their shares on the secondary market at a steep discount.
The good news, however, is that this may not be the investor’s only option. Investors who remain tied up on their non-traded REIT, and lose a significant portion of their investment as a result, may be able to pursue legal claims to recover their losses. Investors may be eligible to join a class action against the non-traded REIT, or may even be able to file an individual arbitration claim. The legal options available vary depending on an investor’s individual case. Speak with an experienced attorney for free to learn how you can recover your losses.
Bad Non-Traded REITs: Low Tender Offers, Returns Down, Redemptions Suspended & Distributions Stopped
Recently, many investors have reported significant losses from certain REIT investments. Some of these investments reported decreased net asset values (navs) and many suspended distributions and redemptions. Additionally, these investments have received tender offers extremely below the original, and even current, value. Some of these investments include:
- Hospitality Investors Trust REIT: Hospitality Investors Trust was originally offered at $25 per share. As of December 31, 2018, the company estimated the REIT’s net asset value at $9.21 per share. Tender offers have ranged as low as $5.53 per share, and the company suspended distributions in 2017, significantly harming investors.
- Benefit Street Partners REIT: Benefit Street Partners REIT was originally priced at $25 per share. As of September 30, 2018, the REIT’s nav was estimated to be $18.75 per share. Unsolicited tender offers for this REIT, however, have reached as low as $12.05 per share.
- Northstar Healthcare Income REIT: Northstar Healthcare Income was originally offered at $10.20 per share in 2013. By 2018 the REIT had lost 30% of its value and tender offers ranges as low as $3.39 per share. Then, in 2019, the company cut its distributions, significantly harming investors.
- The Parking REIT: The Parking REIT was initially offered at $25 per share. Since then, tender offers have ranged as low as 48% below the purchase price.
If you invested in any of these REITs, or others, you may be eligible for monetary recovery. Find out how you can avoid selling your shares for a discount.
Non-Traded REITs Lawsuits & Investigations
Gibbs Law Group is currently investigating a number of non-traded REITs on behalf of shareholders. These REITs include:
- Northstar Healthcare Income
- Hospitality Investors Trust
- Benefit Street Partners Realty Trust
- FS Credit Real Estate Income Trust–I
- The Parking REIT
- Cole Credit Property Trust III (“CCPT III”)
If you invested in any of these REITs, or others, we may be able to help. Speak with a lawyer to learn more about our REIT lawsuits.
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Our Featured REIT Fraud Attorneys
Eileen is involved in the firm’s securities practice and has over a decade of experience in the legal world. She received her law degree from American University in 2005.
David’s advocacy has generated major recoveries for consumers impacted by financial fraud. He was named to the Top 40 Under 40 by Daily Journal and a “Rising Star in Class Actions” by Law360.
Amanda is spearheading a securities lawsuit against NantHealth concerning fraudulent statements to investors about the success of its key product.
Gibbs Law Group’s financial fraud and securities lawyers have more than two decades of experience prosecuting fraud. Our attorneys have successfully litigated against some of the largest companies in the United States, and we have recovered more than a billion dollars on our clients’ behalf.
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