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.