The White Law Group continues to investigate Cornerstone Real Estate Funds’ various REITs and other investments.
According to its website, Cornerstone Real Estate Funds is a real estate company based in Irvine, California that primarily deals with the acquisition and management of healthcare real estate.
Over the past few years, Cornerstone has had several private placement offerings that have been problematic for investors. Those offerings include the following: Cornerstone Core Properties REIT, Sentio Healthcare Properties, Inc (formally Cornerstone Healthcare REIT) and Cornerstone Realty Fund, LLC.
Cornerstone Ventures Inc appears to manage both the and Cornerstone Reality Funds and another problematic investment, CIP Leveraged Fund.
The Problem with Private Placement Offerings
Some of the general problems with these investments include the lack of liquidity. Non-traded REITs are not sold on the public market, therefore they are typically illiquid and shares are sometimes inaccurately valued. The lack of a secondary market prevents shares from being sold quickly and the redemption programs are often very limited and priced significantly below the purchase price.
The lack of liquidity also limits distributions to investors, which are not guaranteed, and can be suspended indefinitely at the company’s discretion.
Another problem with non-traded REITs is the extremely high commission fee broker-dealers receive. Sales commission and up-front fees can be as high 15% making these types of investments one of the highest selling commission products.
When recommending non-traded REITs, brokers, motivated by the high commission, often market these investments as safe and secure, putting their own interests ahead of their clients.
The following is a breakdown of the status of the most problematic Cornerstone offerings:
(1) Cornerstone Core Properties
Cornerstone Core Properties REIT, Inc., incorporated in 2004, is a non-trade REIT that primarily invests in commercial real estate through the United States. The majority of the REITs properties are multi-tenant industrial properties and healthcare facilities. Cornerstone REIT is sponsored by Cornerstone Realty Advisors, LLC.
According to the REITs’ most recent quarterly report (form 10-K), as of Sept. 30, 2012, the common stock value is $0.001 on approximately 290 million authorized common stock shares.
The current suspension on the stock repurchase program has denied 14, 528 requests during the nine months ending in Sept. 30, 2012. When repurchases will resume and on what terms has not yet been determined.
The White Law Group also recently received information from investors that they are being offered $1.10 per share by the affiliates of MacKenzie Capital Management, LP. This is less than half the value of the shares 11 months ago, and approximately 85% lower than the original offering price of $8.00 per share. According to their website “MacKenzie Capital Management and its affiliates have decades [of] experience in providing liquidity to investors in illiquid real estate securities.”
(2) CIP Leveraged Fund
According to an Investment News article, CIP Leveraged Fund was sold from January 2004 to May 2009.
Upon information and belief, CIP Leveraged Fund was established by Cornerstone to raise funds for other Cornerstone offerings.
Unfortunately for investors, it appears that the CIP Leveraged Fund was close to a total loss.
(3) Cornerstone Healthcare REIT
According to online reports, Cornerstone Healthcare Plus began raising capital in August 2007 and has raised an estimated$130 million in investor equity.
Now known as Sentio Healthcare Properties, Cornerstone Healthcare REIT is a real estate investment trust (REIT), which invests exclusively in healthcare related real estate, and is committed to delivering strong and reliable returns to investors. According to Sentio’s website, the current Sentio Healthcare portfolio features 15 properties, managed by 11 different operators, located in 10 different states.
This REIT has many of the same risks and issues as other high commission non-traded REITs. Unfortunately for investors, it appears that this REIT has also declined substantially in value.
Not only are these investments the subject of numerous FINRA arbitration claims, but they are also the subject of regulatory scrutiny.
In May of 2009, FINRA fined Pacific Cornerstone Capital, Inc (the broker-dealer for Cornerstone Real Estate Funds) $750,000. According to FINRA news release from Monday, Dec. 21, 2009 the company was fined “for failing to include full and complete information in private placement offering documents and marketing material.” Cornerstone Capital was also charged with advertising violations. It was alleged by FINRA that the misleading marketing material was used to sell private placements in two affiliate companies, Cornerstone Industrial Properties, LLC and CIP Leveraged Fund Advisors LLC (CLFA) between January of 2004 and May of 2008.
If you invested in a Cornerstone real estate investment and would like to discuss your litigation options, please call the securities attorneys of The White Law Group at 888-637-5510 for a free consultation.
The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.