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.