Update on Securities Fraud Investigation Involving TNP Strategic Retail Trust and Thompson National Properties Investments

Monday, March 18th, 2013

Have you suffered investment losses in TNP Strategic Retail Trust or a Thompson National Properties investment? If so, the following information may be of assistance to you.

TNP Strategic Retail Trust, Inc is a non-traded REIT sponsored by Thompson National Properties, LLC and launched in 2008. According to their website, TNP Strategic Retail Trust primarily invests in income producing retail properties throughout the Western United States, and in real estate assets such as mortgages, mezzanine, bridge, and other commercial real estate loans. “TNP Strategic Retail Trust has acquired 21 shopping centers in 14 states containing approximately 2.2 million square feet at an overall purchase price of more than $290 million since November 2009.” As of January 11, 2013, the REIT has issued 10,944,230 shares of common stock from the initial public offering of 100 million common shares.

The TNP Strategic Retail Trust is organized as an UPREIT and operates through an operating partnership, TNP Strategic Retail Operating Partnership, LP.  According to the prospectus, the advisory company, TNP Strategic Retail Advisor, LLC, selects investments for the REIT based on specific investment objectives and criteria approved by the board of directors.

The term UPREIT is short for Umbrella Partnership Real Estate Investment Trust. The UPREIT structure allows owners of commercial real estate property to form a REIT by combining the properties from existing limited partnerships.  By transferring property to the operating partnership, as opposed to selling directly to the REIT, property owners exchange the property for limited partnerships units and are able to put off capital gains taxes.

According to TNP Strategic Retail Trust’s website, the “UPREIT structure gives us an advantage in acquiring desired properties from persons who may not otherwise sell their properties because of unfavorable tax results.”

However, many concerns have been raised about the future of TNP Strategic Retail Trust as a result of several major changes the REIT has gone through in 2013.

January alone was an active month for TNP Strategic Retail Trust. According to SEC Filings, the REIT announced that they “may not be in compliance with certain provisions related to two secured loans totaling approximately $67.2 million.”  As a result of the loan default the redemption program was suspended, and distributions were reduced to quarterly payments as opposed to monthly payments. In addition, the REIT is actively negotiating with Glenborough, LLC to become their new advisor.

February 7, 2013 marked the end of TNP Strategic Retail Trust initial offering with 88,966,650.25 common shares unsold. Since then, TNP has withdrawn a proposed follow-on public offering of $900 million in common stock due to current market conditions.

According to TNP Strategic Retail Trust’s website, as of November 9, 2012, the board of directors estimated the value of common stock at $10.60. Unfortunately, it is unlikely that investors would be able to sell their shares for the estimated value because of the lack of a secondary market. The prospectus notes that “You should not rely on the estimated value per share as being an accurate measure of the current value of our shares of common stock or in making an investment decision.”

Some of the risk factors discussed in the prospectus are listed below:

  • “We may incur debt exceeding 75% of the cost of our assets in certain circumstances.”
  • “There is no trading market for shares of our common stock and we are not required to effectuate a liquidity event by a certain date. As a result, it will be difficult for you to sell your shares of common stock and, if you are able to sell your shares, you are likely to sell them at a substantial discount.
  • “You may be more likely to sustain a loss on your investment because our sponsor does not have as strong an economic incentive to avoid losses as does a sponsor who has made significant equity investments in its company.”
  • “All of our cash distributions to date have been made from proceeds from this offering. Distributions are not guaranteed, may fluctuate, and may constitute a return of capital or taxable gain from the sale or exchange of property.”
  • “To date, all of our cash distributions paid have been made from offering proceeds and constituted a return of capital.”

The lack of liquidity and secondary market are inherent problems of non-traded REITs.  Despite the numerous risks many broker-dealer may have misrepresented TNP Strategic Retail Trust to clients.

Non-traded REIT’s offer extremely high sales commission to broker-dealers. TNP offers 7% sales commission, which is 3 to 4 times higher than more tradition investments sold on stock exchange.  This higher commission may explain broker-dealers motive for recommending this investment to unsuitable investors.

The White Law Group continues to investigate the liability that brokers-dealers may have for making unsuitable investment recommendation and misrepresenting the risks of non-traded REITs like TNP Strategic Trust.

Broker-dealers have a fiduciary duty to perform adequate due diligence on any investment. The Financial Industry Regulator Authority (FINRA) requires that broker-dealer fully disclose all the risk in any investment when making recommendations, and ensure that the investment is suitable given their clients age, risk tolerance, financial objectives, net worth, and investment experience.

If you feel that your broker-dealer misrepresented TNP Strategic Retail Trust or another investment offering with Thompson National Properties, the securities attorneys of The White Law Group may be able to help you recover your losses through FINRA Arbitration. For a free consultation please call The White Law Group at 312-238-9650.

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.

To learn more about The White Law Group, visit http://www.whitesecuritieslaw.com

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