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Northstar Healthcare Income REIT Investment Losses

The Law Firm of Shepherd Smith Edwards & Kantas has decades of experience representing clients who have suffered losses in private placement or non-traded Real Estate Investment Trusts ("private REITs"). One such REIT that our firm is presently handling cases on is Northstar Healthcare Income REIT, a privately traded REIT. According to its website, Northstar Healthcare is backed by Colony Capital, which is publicly traded. Northstar had an offering in 2013. In total, about $1.8 billion was raised. The money was used to acquire real property.

Northstar Healthcare Income, as the name suggests, focuses on healthcare-related real estate but specializes in what is referred to as "senior housing". Basically, nursing homes, whether full-time nursing facilities or just assisted living communities, or simply communities limited to people over a certain age. The REIT further invests in hospitals, rehab clinics, and other health-related entities. Most of the facilities the REIT invests in are located in the Mid-West United States.

Publicly traded REITs can be suitable, in small quantities, for some investor portfolios assuming they are seeking real estate exposure. Sadly, many investment professionals recommend these privately traded REITs as safe fixed-income alternatives. They are not. These products are unproven and are usually not big enough to go public. In short, they are very risky investments. Sometimes the financial professional will use a sales pitch that involves the REIT going public. Such a tactic is misleading on many levels. Northstar Healthcare became a popular recommendation among many investment advisors mostly due to the large commissions. Because it had good distributions, many advisors made sales representing the product as similar to a bond fund. It is not. Unfortunately, many investors trusted their financial advisor who had clients sign voluminous disclosure documents created by Northstar. These boilerplate documents, as do most, paint a grim picture of the investment. Usually, the client never catches the language, or the financial professional brushes it off as legal jargon of little concern. The problem was that the investment was truly only suitable for aggressive investors, with no liquidity needs, and even then, only in small quantities.

By December of 2018, upper management for Northstar announced that the value of its units had declined by more than 30% from its initial price. Because it is privately traded, investors could not know the value without being told by Northstar. Management had a list of excuses such as occupancy problems, employee costs increases, and the often utilized, cash flow issues. If a public REIT had these issues it could be sold easily and well in advance of a 30% decline. To make matters worse, a couple of months later, management suspended the distributions to the investors. Once again, the client was stuck. There was little that could be done. Of course, after the suspension of payments to the clients, the value of Northstar depreciated substantially. As an investor in Northstar where are you now? No distributions, no liquidity, and the only hope is possibly finding a third-party buyer willing to pay pennies on the dollar. True, sometimes management at companies like Northstar make mistakes. Normally, as an investor, you would sell once the negative news came out and then you move on. The financial advisor that recommended this illiquid product is the one to blame. He or she misrepresented Northstar as safe or at the very least moderate in nature. They may have referenced a holding period or lock-up period akin to an annuity or CD, but those ARE liquid usually with a minor penalty. Not so with products like Northstar REIT. Worse, this same financial professional may have made many private REIT recommendations for your portfolio making it toxic and frozen.

Our brokerage firm misconduct lawyers at Shepherd Smith Edwards and Kantas represent low to high net worth individual investors, businesses, and retirees and retirement accounts throughout the US. We have recovered tens of millions of dollars on behalf of clients. We have already filed numerous cases against a variety of financial firms involving private REITs. If you suffered investment losses by investing in Northstar Healthcare Income REIT, contact one of our seasoned professionals for a free consultation.

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