Articles Tagged with Non-traded REITs

Did you invest with Centaurus Financial, Inc. or J.P. Turner & Co., Inc. and suffer losses in Structured CDs, Structured Notes, Non-Traded Real Estate Investment Trusts (“REITs”), or other investments?  If so, we may be able to help you recover your losses.

The Doss law firm and Shepherd, Smith, Edwards & Kantas are investigating claims on behalf of investors, many of which are retired and current Flour Corp. employees, who have suffered losses at the hands of Centaurus financial advisors who were formerly with J.P. Turner.  Those advisors, in many cases, mismanaged client investment accounts by placing them in high-risk and illiquid structured CDs, structured notes, non-traded REITs and other complicated investments.

Structured products, such as structured CDs and notes, are very complex and highly risky investments that are rarely suitable for most investors.  Similarly, non-traded REITs and other private placement investments are illiquid and risky investments that are not appropriate for most individual investors, especially retirees.  These investments are often sold as being safe and paying higher interest rates than most other investments.  However, the promised higher rates are often only guaranteed for a short time – typically a year – and are much riskier than more traditional investments.  Additionally, with most private placements, the supposed interest payments are often just a return of the investor’s own money, not a rate of return for the investment.  Ultimately, these investments typically lock investors into them long-term, resulting in limited income and often substantial losses.

If you are an investor in NorthStar Healthcare Income, you very likely received a letter last month notifying you that monthly distributions from this investment have been suspended. According to NorthStar’s board, the publicly registered nontraded real estate investment trust’s (nontraded REIT) portfolio has been undergoing “operational and performance challenges” that as of the end of June 2017 has resulted in a “lower estimated value/share” of the NorthStar Healthcare’s common stock. The nontraded REIT has since determined that in order to protect both capital and its financial state, suspension of these distribution payments is necessary.

The NorthStar Healthcare Inc. nontraded REIT was set up to originate, acquire, and oversee healthcare industry-related investments, including debt, equity, and securities investments involving healthcare real estate. Sources note that between 2013 and 2018, it raised about $2B and set up a portfolio involving more than 650 properties.

However, NorthStar Healthcare Income began reducing distribution rates in December 2017. By October of last year, it had notified investors that it would only buy back shares from an investor if qualifying disability or death were factors. In December 2018, the nontraded REIT reduced its net asset value from $8.50/share to $7.10/share. Now, with the distribution suspension, some investors are standing to lose not just their monthly distributions, but also they could see a substantial decline in value on their principal that they originally invested.

A Financial Industry Regulatory Authority Inc. panel says that AIG Advisor Group (AIG) subsidiary Royal Alliance Associates Inc. must pay $1.4 million to three retirees who claim that the brokerage firm was negligent when supervising the sales of variable annuities and nontraded real estate investment trusts.

The investors, who were former AT & T Inc. employees, claim that ex-broker Kathleen Tarr recommended that they take a lump-sum buyout from the communications company instead of a lifetime annuity. The money was then put into non-traded REIT company Inland Real Estate, as well as different variable annuities.

Tarr’s BrokerCheck record shows that she has been named in about forty customer disputes and complaints. She was let go from Royal Alliance in 2010.

The claimants, who are low-wealth, low-income seniors, believe that they should not have been encouraged to take a lump sum and place their funds into non-traded REITs and variable annuities involving an IRA. Even though they did not sustain out-of-pocket losses from the investment recommendations, the retirees purportedly lost out on earnings they would have made if only they had invested their money more reasonably or opted for the lifetime annuity. With the latter, an investor would have given over a lump sum figure in return for a guaranteed payout for the duration of his/her life.
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According to the amended complaint of an investor class action securities case, American Realty Capital Properties Inc. made over $900 million in commissions, fees and payments issued to company insiders after it started an acquisition binge to raise its share price and capital. The non-traded real estate investment trust purportedly started the buying frenzy, which lasted for three years, after completing its $69.8M IPO in 2011 and discovering that its share price was wallowing under the initial public offering price. The lead plaintiff in the case is the Teachers Insurance and Annuity Association of America, which is a retirement and annuities plan behemoth.

The securities lawsuit contends that because the lower than desired price was holding up ARCP’s ability to raise a significant amount of capital, the acquisition strategy allegedly involved artificially raising adjusted operation funds—a key metric for investors when evaluating an REIT’s performance. The plaintiffs believe that senior insiders at ARCP knew that the tactic was the only way to make the hefty fees. Over $917 million in payments went straight to ARCP insiders and the company’s affiliates.

Because of the acquisition binge, ARCP went from owning 63 properties and having $13 million in assets to owning over 4,400 properties and $21.3 billion in assets. The complaints claims that indirect and direct payments to ARCP insiders purportedly included $186.6 million subordinated distribution fees, and $333 million in fees and commissions. Some of the fees were allegedly triggered by ARCP’s buying of non-traded REITs American Realty Capital Trust IV Inc. and American Realty Capital Trust II, both defendants in the case. Other payments included $21.6 million for sales purportedly made to ARCP for equipment, fixtures, and furniture, $63.4 million for strategic advisory services, and $17.7 million for financing coordinating fees.

Three more firms have decided to suspend trades of nontraded real estate investment trusts managed and backed by companies under Nicholas Schorsch’s control. The suspension comes following news of a $23 million accounting error involving American Realty Capital Properties Inc. (ARCP) which is Schorsch’s publicly treated REIT. ARCP owns Cole Capital Advisors Inc. and Cole Capital Partners.

The mistake was disclosed at the end of the month. ARCP revealed that the error occurred during the first half of the year and then was purposely left uncorrected. The latest firms to announce suspensions are Charles Schwab (SCHW), Pershing and Fidelity.

Schwab said it would suspend sales of Cole and American Realty Capital nontraded real estate investment trusts. Fidelity noted that it was going to stop facilitating subscriptions for certain Cole and Realty Capital Securities-affiliated nontraded REITs. Pershing told broker-dealers that use its clearing services that it would stop facilitating purchases of Cole Capital-sponsored investment products. More than thirty of the leading independent brokerage firms have clearing deals with Pershing.

National Planning Holding, a broker-dealer network, says that it has temporarily stopped offering American Realty Capital Properties Inc.’s (ARCP) non-traded real estate investment trusts for sale. The move comes after the real estate investment trust, run by Nicholas Schorsch, disclosed a $23 million accounting mistake. American Realty Capital is the top sponsor of nontraded REITs. Schorsch is its chairman.

The National Planning Holding suspension impacts just one Schorsch product, the Phillips Edison – ARC Grocery Center REIT II. This is a new REIT with about $207 million in total assets.

The four brokerage firms who are temporarily suspending sponsorship and distribution of the nontraded REITs by American Realty Capital Properties and its affiliates are SII Investments Inc., National Planning Corp, Investment Centers of America Inc., and INVEST Financial Corp. They are asking for Realty Capital Securities, the wholesaling broker-dealer for ARC products, to return unprocessed sales orders from INVEST advisers. They don’t want the brokerage firm to process related new business.

The non-traded real estate investment trusts industry wants to delay the implementation of the Financial Industry Regulatory Authority disclosure rule until the end of 2015. The rule would require that investors be given more accurate data about the valuation of direct participation programs and non-traded REITs.

This should provide investors with a more accurate picture of how much it costs to buy non-traded REIT shares. Currently, the self-regulatory authority’s proposal would put the rule change into effect at the end of 2014, which would be about six months after obtaining Securities and Exchange Commission approval.

Almost all non-traded REIT vendors are independent brokerage firms. Generating close to $20 billion in sales last year, which is twice as much as the year prior, broker-dealers and their representatives have gotten commission boosts due to their typical 7% commission.

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