Posts tagged ‘REIT attorney’
Update on Proposed REIT Regulations
For nearly two years, the Financial Industry Regulatory Authority (FINRA) has been working on revisions to Rule 2340 which would change how brokerage firms value per-share REITs on client account statements. According to Investment News, FINRA proposed to two options on how brokerage firms could use to report per-share estimated value.
“In the first scenario, a broker-dealer simply would not be required to include a per-share estimated value of an unlisted private placement or REIT in a customer account statement.
In a second, a broker-dealer could rely on a valuation if done by one of three methods: an independent, outside valuation service performed at least once every three years; a valuation handled by any service conducting valuations according to a methodology disclosed in the prospectus; or, for two years after first investing, a “net investment,” valuation that consisted of the offering price minus cash distributions to investors, and “organization and offering expenses” funded through borrowing or offering proceeds. ”
This is a step in the right direction. Currently, the value reported for a REIT can remain the same for many years, despite the actual performance of the REIT. The first scenario, which excludes per-share estimated vales on clients account statements, would help prevent investor from having a false sense of security.
The various options available with scenario two would require the per-share estimated value to be updated every two to three year, and would take expenses and other costs into consideration. Ultimately, this would provide clients with a more accurate value of their investment.
The White Law Group has been following FINRA’s regulation proposal for nearly two years (here) and will continue to provide updates on all regulation changes that aim to protect investors.
KBS REIT I Valuation Drops Again and Signals More Trouble for Investors
Investors in the popular non-traded REIT, KBS Real Estate Trust Inc. (KBS REIT I), were reportedly notified on Monday that the value of their shares is now estimated by the company at $5.16. The new valuation represents a 29% drop from the last change to the valuation in late 2009 and a nearly 50% drop since shares of KBS REIT I were initially offered at $10.00. Additionally, KBS investors were told that they would no longer be receiving any distributions. KBS REIT I is just the latest major non-traded REIT to see a drop in its valuation in recent months as many of these investments have struggled with a difficult real estate market over the last couple of years.
This most recent valuation will likely be troubling to many investors in the KBS non-traded REIT. If you invested in KBS REIT I and are wondering if you may have recourse to recover your investment, The White Law Group may be able to assist you in pursuing recovery of your nontraded REIT damages through FINRA arbitration process. The Financial Industry Regulatory Authority (FINRA) continues to pay close attention to issues related to non-traded REITs, including how they are sold and valuated.
The White Law Group has represented many investors who have struggled with non-traded REIT investments, including KBS Real Estate Investment Trust, Inc. (KBS REIT I), over the past few years in the FINRA dispute resolution claims.
The firm has seen several issues commonly arise around how non-traded REITS are sold and represented to investors. In many cases the risks associated with nontraded REITs were not adequately represented before purchase and investors have often been over-concentrated in this type of real estate investment. In some cases, the fact that advisors receive relatively high commissions for the sale of nontraded REITs compared to other products may have contributed to some investors being unsuitably invested in non-traded REIT investments. Finally, it seems common that the illiquid nature of non-traded REITs has not been made clear to some investors. Investors in nontraded REITs, like KBS REIT I, that have had redemption programs suspended may have difficulty selling their investments or suffer a serious loss on the secondary market.
Brokerage firms and financial advisers have a fiduciary duty to perform due diligence on any investment and to insure that an investment is appropriate in light of the investor’s age, investment experience, and investment objectives. If a broker or brokerage firm fails in this responsibility, investors may have an actionable claim to recover their investment losses in a claim through FINRA dispute resolution.
If you are concerned about your investment in KBS Real Estate Investment Trust, Inc. (KBS REIT I) or another nontraded REIT investment and would like to speak to a securities attorney about potential to recover your investment losses through FINRA dispute resolution please call our Chicago office at 312-238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.
Investigation into potential for recovery of David Lerner and Apple REIT investment losses (Update)
The White Law Group is continuing to investigate and analyze how investors have been sold the Apple series of REITs by David Lerner Associates, Inc. The firm has spent the last few months reviewing documents and information regarding the Apple REIT investments sold by David Lerner and determining how best to assist investors in recovering losses incurred as a result of their investing in Apple REIT.
Here is a recap of the major points that our investigation has uncovered:
(1) In May 2011, FINRA launched an investigation into David Lerner’s sales practices with respect to Apple REITs;
(2) In June 2011, multiple class actions were filed against David Lerner and Apple REIT raising similar allegations as those raised by FINRA;
(3) David Lerner recently changed the way Apple REITs are valued on their account statements – stating only that the REITs are “unpriced,” and acknowledging for the first time that the value may not be what the investor paid for the shares;
(4) Apple REIT investors have received offers of $3/share and the alleged book value of certain Apple REITs is approximately $7/share.
FINRA has paid particularly close attention to its regulations with regards to non-traded REITs since they initially launched their investigation into David Lerner’s sales practices in May. They have recently discussed and proposed changes in regulations revolving around the valuation of non-traded REITs and also how the price of the shares are to be listed on customer account statements.
Additionally, Bruce Kelly of the investmentnews.com in a recent article states, “An eye-opening analysis of the “distributions” of nontraded REITs sold exclusively by David Lerner Associates Inc. shows the REIT’s property investments largely underperformed the level required to pay promised dividends to investors. Indeed, the analysis claims that the REITs consistently borrowed from a line of credit and used distributions investors were recycling back into the real estate investment trust to meet the targeted dividend payout.”
The analysis mentioned above by the investmentnews.com is based on an amended class action complaint filed by investors recently in New Jersey federal court. The original class complaint was filed in June. The complaint alleges that “…the distribution paid to investors did not match the level of income generated from the various Apple REITs…” and that “Brokers at David Lerner allegedly told clients that the Apple REITs were safe conservative investments that would protect their savings from the volatility of the stock market.”
The complaint reportedly further alleges that David Lerner Associates and the other named defendants, “paid distributions without regard to profitability, even as they acquired properties at prices they knew could not conceivably justify the level of distributions they were paying.”
Based on the foregoing, The White Law Group is reviewing claims against David Lerner on behalf of investors in Apple REIT for fraud, negligence, negligent supervision, and breach of fiduciary duty. These claims are based on (1) David Lerner’s alleged failure to perform the necessary due diligence on the Apple REITs prior to offering them for sale to investors, (2) its alleged failure to adequately disclose the relationship between the firm and Apple REIT; (3) its alleged failure to disclose the decline in value of the previous Apple REITs sold to investors when offering Apple REIT 9 and Apple REIT 10 to investors; and (4) the alleged unsuitability of a non-traded REIT for certain investors (including retirees, investors interested in liquidity, and investors adverse to risk).
To determine whether you may be able to recover investment losses incurred as a result of your purchase of an Apple REIT, please contact The White Law Group at 312-238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.
FINRA Continues their Focus on Non-traded REITs with an Investor Alert
FINRA released an investor alert for public non-traded REITs “to help investors understand the benefits, risks, features and fees of these investments.”
This year FINRA has paid particularly close attention to the sale of non-traded REITs. In May, FINRA charged David Lerner & Associates “…with Soliciting Investors to Purchase REITs Without Fully Investigating Suitability.” David Lerner & Associates sell the Apple series of non-traded REITs. More recently, there has been discussion of proposals to modify regulations pertaining to how non-traded REITs are valued and how the prices of the products are listed on customer statements.
This most recent move by FINRA to shed light on non-traded REITs, by way of this investor alert titled Public Non-Traded REITs-Perform a Careful Review Before Investing, is a call for investors to be better educated about this type of investment vehicle.
Non-traded REITs are a legitimate investment option for the right investor, but it important for investments to be suitable for each individual investor.
In a public release FINRA noted that, “While investors may find non-traded REITs appealing due to the potential opportunity for capital appreciation and the allure of a robust distribution, investors should also realize that the periodic distributions that help make non-traded REITs so appealing can, in some cases, be heavily subsidized by borrowed funds and include a return of investor principal. Additionally, early redemption of shares is often very limited, and fees associated with the sale of these products can be high and erode total return.”
Sometimes unscrupulous or uniformed financial professionals have emphasized the positive attributes of non-traded REITs and encouraged unsuitable investors to purchase them. Non-traded REITs also often pay a high commission to brokers, sometimes as much as %10, which may in some cases motivate them to sell the products to unsuitable investors.
FINRA investor education official Gerri Walsh was quoted on FINRA.org as saying, “Confronted with a volatile stock market and an extended period of low interest rates, many investors are looking for products that offer higher returns in turbulent times. However, investors should be wary of sales pitches that might play up non-traded REITs’ high yields and stability, while glossing over the lack of liquidity, fees and other risks.”
The full text of the alert (available here http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/REITS/P124232) outlines a breadth of important information about non-traded REITs that all prospective investors should be encouraged to read. In their release about the alert FINRA highlights 4 “features, complexities, risks and costs associated with non-traded REITs.”
- “Distributions are not guaranteed and may exceed operating cash flow. In newer programs, distributions may be funded in part or entirely by cash from investor capital or borrowings. Distributions can also be suspended for a period of time or halted altogether.”
- “Lack of a public trading market creates illiquidity and valuation complexities. Most non-traded REITs are structured as a “finite life investment,” meaning that at the end of a given timeframe, the REIT is required either to list on a national securities exchange or liquidate. Many factors affect the valuation of non-traded REITs, including the portfolio of real estate assets owned, strength of the trust’s balance sheet, overhead expenses and cost of capital.”
- “Early redemption is often restrictive and may be expensive. Most non-traded REITs place limits on the amount of shares that can be redeemed prior to liquidation. These limits can be as restrictive as 5—or even 3—percent of the weighted average number of shares outstanding during the previous year. Additionally, the redemption price is generally lower than the purchase price, sometimes by as much as 10 percent.”
- “Non-traded REITs can be expensive. State and FINRA guidelines limit front-end fees to 15 percent, but a 15-percent front-end fee on a $10,000 investment means that only $8,500 is going to work for an investor.”
The White Law Group is currently involved in many cases involving non-traded REITs on behalf of damaged investors.
If you are concerned about your investment in a non-traded REIT and would like to speak to a securities attorney, please call our Chicago office at 312/238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.
Recovery of Prime Group Realty Trust Investment Losses
Have you suffered investment losses in Prime Group Realty Trust? The White Law Group may be able to help.
The White Law Group is investigating potential securities fraud claims on behalf of investors involving broker-dealers recommendation that investors purchase risky real estate investments, including investments in Prime Group Realty Trust.
Prime Group Realty Trust, formed in 1995, is a REIT incorporated under Maryland law and based in Chicago, Illinois. As of December 31, 2009, the REIT owned only 8 office properties, and appears to have reduced its holdings today down to only one wholly owned property, a commercial office space, and 2 joint ventures that share 2 other commercial buildings. This concentration of properties exposes investors in the REIT to a high degree of risk in the event that any of these properties performs poorly.
Prime Group Realty Trust has a long history of financial difficulties. In 2003, the Chicago Tribune reported that auditors doubted Prime Group’s ability to remain solvent.
To determine whether you may be able to recover investment losses incurred as a result of your purchase of a risky REIT investment, please contact The White Law Group at 312-238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, visit http://www.whitesecuritieslaw.com.