Articles Tagged with Alternative Investments

Stoltmann Law Offices, P.C., a Chicago-based investors rights and securities law firm offering nationwide representation on a contingency-fee basis, has represented hundreds of investors over the years who have suffered losses in non-Traded Real Estate Investment Trusts (REITs).  These investments are sold, not bought, meaning financial advisors push these products on investors because of the high commission rates they pay out. These investments are illiquid, meaning an investor cannot just sell out and get their money out, and they are on the speculative side of the risk scale.  Although they are sold by financial advisors as providing stable value and high income in a low interest rate environment, REITs are anything but stable and are certainly high risk.

Recently, the SmartStop Strategic Student & Senior Housing Trust sent a letter to shareholders, on behalf of the board of trustees, warning of the REITs financial problems.  The letter, as reported by TheDIWire, paints a dire picture about the REIT’s financials, including blaming Covid twice for its underperforming properties. The REIT only owns two student housing properties and four senior housing properties. The REIT came to market in 2017 through a private placement and then opened to the public market in May 2018, raising about $110 million from investors.  According to the letter sent to investors, the Strategic Student & Senior Housing Trust is mired in debt and does not have sufficient cash to make necessary payments on certain bridge loans, absent a restructuring of that debt. These are certainly dire times for this REIT and the investors could be left holding the empty bag if the REIT liquidates.

Non-Traded REITs are by nature illiquid and high risk. Although pitched by financial advisors as being “non-correlated” to the stock market, the only reason this is the case is because the non-traded characteristic means the price doesn’t reset every day, like publicly-traded funds, for example. These non-traded REITs are mired in conflicts of interest, are very complicated structurally, and are designed to do one thing: save the owner of the real estate on taxes.  That’s the entire purpose of the REIT structure – its a tax savings vehicle for SmartStop.

Stoltmann Law Offices, P.C, a Chicago-based investor-rights law firm, has recovered millions of dollars for investors who were sold shares in non-traded Real Estate Investment Trusts (REITs). We have filed over one hundred claims in FINRA arbitration against the brokerage and investment firms responsible for soliciting investors to invest in these illiquid, speculative, and high-commissioned investments. Usually, a common scam is used to justify the sale of these awful investment products to their clients – they are “non-correlated” to the stock market. The ruse is, they are non-correlated because they are non-traded!  They do not trade daily and reset their net-asset-value/share price. So, non-traded REIT investors have no idea how much what they own is worth because the investment has only a very thin secondary auction market. If your financial advisor wants to sell you a non-traded REIT, ask these two questions. 1) My home is one of my largest assets, why do I need more real estate in my portfolio? and 2) Why can’t I invest in publicly-traded REITs?

Hospitality Investors Trust, formally of the scandal-ridden American Realty Capital, has cost investors likely hundreds of millions of dollars. Now that the entity is formally in bankruptcy, it means investors can expect little to no return of the money they invested in this poorly-run REIT.  If you were solicited by a financial advisor to invest in Hospitality Trust, you may have a viable claim to recover these losses through the FINRA Arbitration process. When brokers sell alternative investments like non-traded REITs, most of their firms require them to limit the total exposure of the client’s net worth in these products to a maximum of 30%, and sometimes less.  This is a red-flag right off the bat that these investments are speculative and potentially unsuitable.  Brokers have for decades weaseled around these limitations imposed by their compliance department by inflating net-worth numbers on client new account forms or alternative investment trade tickets. The higher the net worth listed on these forms, the more the brokers can sell to their clients.

Brokers sell non-traded REITs like Hospitality Trust because they offer very high commissions, usually between 8%-12%. It is extremely rare for an investor to buy a non-trader REIT unsolicited; non-traded REITs are sold, not bought, goes the saying.  Our firm has written extensively on the foibles of Non-Traded REITs even as this sector gains popularity once again with brokers.  Regulators like FINRA have warned about non-traded REITs for more than a decade.  Hospitality Trust investors are now likely facing a near total-loss of their investment given the bankruptcy filing and need consider their options for securing some recovery.

Stoltmann Law Offices, P.C. is a Chicago-based investor rights law firm that offers representation nationwide on a contingency fee basis. We represent investors that lose money in bad investment products like Watermark Lodging Trust REIT in cases against brokerage firms and investment advisers. If you or someone you know has suffered investment losses in Carey Watermark n/k/a Watermark Lodging Trust REIT, please contact Stoltmann Law Offices for a no-obligation, free initial consultation.

In late November, Watermark Lodging Trust REIT reported its “NAV” or “Net-Asset-Value” as $5.51 per Class A share and $5.45 per Class T share. When this REIT was sold to investors, the NAV was $10 per share. Investors are looking at a loss on their December statement of nearly 50% of their principal investment. The Watermark Lodging Trust REIT was previously known as the Carey Watermark Investor and Carey Watermark Investors 1 REITs, which merged in April 2020.

If investors try to sell their shares on the secondary market, the bids are as low as $3 per share. Watermark Lodging REIT concentrates its real estate portfolio in hotels/hospitality which has been devastated this year by the COVID-19 pandemic. Although it is easy to blame the pandemic for these losses, an excuse brokers will certainly rely on, the fact is, this REIT has always been a high risk, speculative investment that concentrated investor money in a few properties in one narrow sector of the real estate world; hotels.  Non-Traded REITs are sold, not bought, by investors because financial advisors and brokers receive massive sales commissions for selling them.  These are “alternative” investments that offer higher income rates on paper, but in reality, usually distributed your own money back to you as a “distribution” and rarely generate enough income from the underlying portfolio to sustain their distribution rates. Most non-traded REITs are heavily indebted so that they can use debt to pay distributions to keep the flow of investor money coming in.

Chicago-based securities law firm Stoltmann Law Offices continues to investigate nationwide claims involving American Realty Capital (“ARC”) New York City REIT.  New York City REIT, Inc. is a non-traded real estate investment trust that owns a portfolio of high-quality commercial real estate located within the five boroughs of New York City, particularly Manhattan.  In order to induce clients to invest in the ARC New York City REIT, brokers pitched the REIT as maximizing total shareholder returns through appreciation and current income, maintaining a low loan to value rate, targeting liquidity events, acquiring high-quality New York City real estate and as having a diversified group of tenants. Stoltmann Law Offices is investigating claims against stockbrokers and investment advisors who recommended this complex high commission based product to investors.

Brokers sold the ARC New York City REIT to customers as having primary objectives of preservation and protection of capital and capital appreciation.  Unfortunately, the ARC New York City REIT ceased paying distributions on March 1, 2018.  Furthermore, the ARC New York City REIT paid substantial fees to advisors.  No public market existed for the ARC New York City REIT and the investment is illiquid pending its IPO.  As of December 31, 2017, ARC New York City REIT owned only six properties and therefore had limited diversification.  The value of the shares of ARC New York City REIT have declined substantially leaving investors stuck with the illiquid investment and a principal loss.

The New York City REIT is a “non-traded” REIT, which means it falls into a subset of the broader REIT investment class. REITs generally speaking are trusts designed to provide tax incentives to the owners of the underlying property. In order to maintain their status as a REIT, the REIT managers have to ensure that at least 90% of all taxable income generated by the REIT trickles down to the investors via dividends. REITs are concentrated investments in income producing property and are basically by definition non-diversified. The real issues investors have traditionally had with REITs are the liquidity and conflicts problems in the non-traded variety, of which the ARC New York REIT was a member.

Chicago-based Stoltmann Law Offices, P.C. is a securities investor protection law firm offering representation nationwide to investors seeking to recover investment losses.  Our team is monitoring and reviewing information in connection with former LPL  financial advisor Donald Stephen Woods. According to published reports, Mr. Woods, of Louisville, Kentucky and currently registered with Thurston Springer Financial, intentionally manipulated and changed documents at LPL to qualify non-traded REIT sales that would have otherwise not been approved. LPL has certain limitations on how much of an investor’s declared liquid net worth can be concentrated in alternative investments, like non-Traded REITs.  Typically, LPL limits this exposure to 25% of liquid net worth, but can be lower for elderly investors and those with more conservative investment objectives. Brokers like Woods get around this limitation by inflating the client’s net worth numbers adjusting them upwards by a few hundred thousand dollars can be the difference between compliance approving the transaction and the broker getting paid his massive commission, and not approving it, leaving the broker to find something else to sell the client.

Ultimately, the responsibility for this sort of amateur chicanery engaged in by Mr. Woods falls on his firm. Stoltmann Law Offices has represented hundreds of investors in cases just like this. Almost always, there is an obvious disconnect or contradiction between the net worth numbers on the alternative investment forms, and the client’s new account forms. Compliance has a responsibility to ensure that brokers like Mr. Woods are not artificially inflating client net-worth numbers on these forms in order to qualify them for the investment. Most of the time all it would take is a simple phone call from compliance to the client to determine the accuracy of these numbers and reveal that the broker either forged the documents altogether, or advised the client to ignore the net worth numbers included on the form, to trust their adviser, and not worry about it.

Non-Traded REITs have been selling at rates not seen since before the financial crisis in 2008. There is one reason for this – commissions.  Non-Traded REITs like those offered by Northstar, Cottonwood, Highlands REIT, KBS Growth & Income REIT, Resource Innovation Office REIT, and InvenTrust Properties Corp., pay brokers like Mr. Woods and their firms like LPL commission rates that are many times higher than if they just sold clients publicly-traded, liquid REITs.  The SEC, FINRA, and NASAA all warn about issues related to these non-traded REITs.  Scholarly articles decry them as being poor investments long term compared to their publicly-traded cousins. Some of the issues about these non-traded REITs include:

AdobeStock_82110313-1-300x125You may be able to bring a claim against FSC Securities for Brian Presley alternative investment recommendations. We are Chicago-based securities attorneys who represent investors who have lost money because of brokers like Brian Presley. A broker such as Presley has an obligation to only recommend a security that is suitable for his client. If he does not, his firm may be responsible for losses. Please call 312-332-4200 today to find out how to sue FSC Securities on a contingency fee basis. The call to us is free with no obligation. Mr. Presley was accused of allegedly breaching his duties to clients in illiquid investments including oil and gas and non-traded real estate investment trusts (REITs) and other alternative investments. These investments come with high costs and have historically underperformed even safe benchmarks, like U.S. Treasury bonds. These investments can be illiquid and high-risk. Your broker must take into account factors such as your age, net worth and investment objectives before recommending these investments. Otherwise, his firm may be liable for losses.
Brian Presley was registered with Cooper Street Securities from January 1983 until January 1987, and Advantage Capital Corp in Punta Gorda, Florida from January 1987 until February 2009. He is currently registered with FSC Securities in Punta Gorda, Florida and has been since February 2009. He has eight customer disputes against him, some of which alleged misrepresentation, negligence, sale of unsuitable securities and breach of various duties in sale of investments.

Stoltmann Law Offices is investigating VSR Financial Services because of claims that the firm is violating sales practices related to solicited investments in non-traded alternative investments. These include real estate investment trusts (REITs) and Business Development Companies (BDCs). We are pursuing securities arbitration claims against VSR for unsuitable recommendations, misrepresentations and omissions, securities concentration and failure to supervise. All of these are against securities rules and regulations and claims related to these can be brought against the firm. Non-traded alternative investments have risks and costs which make them unsuitable for many investors. Our investigation is related to alternative investments in non-traded REITs and BDCs that include:

America Realty Capital Properties (Vereit);

CNL Corporate Capital Trust;

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