Stoltmann Law Offices, P.C. has represented investors in arbitration claims against brokerage firms involving non-traded REITs hundreds of times. We understand these products better than the brokers who sell them, which is what makes us effective advocates for our clients. If you invested your hard-earned money in the NorthStar Healthcare REIT and would like to discuss your options to recover your investment losses, please contact Stoltmann Law Offices at 312-332-4200.
On December 23, 2020, it was reported that the NorthStar Healthcare REIT was reducing its share price from $6.25 to $3.89. The facts on the ground for this non-traded REIT do not portend well for investors. According to published reports, the REIT retained a valuation expert to determine how the REIT can get out of the debt it is buried in. Unfortunately, the value of the REITs portfolio is only $1.6 billion but cost $2.2 billion.
Non-Traded REITs are the darlings of brokers and financial advisors. They are perfect investments from their perspective. They offer huge selling commissions, are not “volatile” because they do not trade on the open market, and offer a high income rate. Brokers do not need to “manage” a position in a non-traded REIT like they do a well-managed portfolio. Even though they get paid 7X more for selling a non-traded REIT than they do for managing an account, (1% fee versus 7% commission), brokers love non-Traded REITs because they get to sell it and forget it. The investor is left holding the bag when the REIT stops paying distributions, freezes redemptions, and cuts the share price by 70%. Then once the investor looks a little closer, you come to realize that “dividend” you’ve been paid all of these years was actually, mostly, just a return of your money – the REIT takes your money, shells out at least 10% for commissions and fees, puts the rest of it into its real estate portfolio, then shells out distributions that are mostly your own money given back to you.
Brokers always argue that investors need a real estate component for their portfolio. This could be true, but it is critical to realize that most retail investors’ single largest asset is their home and property. So before you buy the sales pitch that you need exposure to “real estate” for a well-balanced investment portfolio, take a step back and ask your broker why that is since your largest single asset is the home you are living in. Assuming a well-managed portfolio does need exposure to real estate, be careful about the percentage of the portfolio your broker is advising you to put into real estate. When real estate was added to the S&P 500 in 2016, it comprised about 3% of the index. Of course, not one dollar of the S&P 500 is allocated to non-Traded REITs.
If you buy the sales pitch that a well-managed account has to have real estate exposure, then buy any of the hundreds of available, publicly-traded REITs, ETFs, and other investments that will expose your portfolio to the real estate sector. Do not buy a non-Traded REIT. Suitability issues for investors in non-traded REITs are many. These investments are by definition speculative and high risk. They are illiquid. They are extremely complicated and usually ridden with internal conflicts. They carry huge internal debt loads. And when you least expect it, they drop their share price by 50%.
If you invested your hard-earned money in the NorthStar Healthcare REIT based on the advice of your broker, you could have claims to pursue through FINRA Arbitration to recover your losses. Please contact Stoltmann Law Offices at 312-332-4200 for a free, no obligation initial consultation with a securities attorney. Our Chicago-based law firm offers representation to investors nationwide on a contingency fee basis, which means we do not get paid until you do!