The investment fraud lawyers of Erez Law represent investors nationwide that were sold certain products referred to as non-traded real estate investment trusts (REITs) and business development companies (BDCs).
A REIT is a company, modeled after mutual funds, that owns or finances income-producing real estate and provides investors of all types of regular income streams, diversification, and long-term capital appreciation. Unlike other real estate investments, non-traded REITs are often entirely illiquid. Non-traded REITs hold additional risks for investors because they often feature limited redemption programs, high fees and commissions (on average 13.2 percent), and internal conflicts of interest. Unlike stocks on the New York Stock Exchange (NYSE), non-traded REITs are not publicly traded and cannot be sold through an exchange, only through secondary market auctions.
REITs are entities that generally own and often manage income-producing real estate. BDCs are entities that generally invest in small and mid-sized businesses. Investors in diversified portfolios of traded REITs bear less liquidity and market risk and earn substantially higher returns than investors in non-traded REITs. Non-traded REITs and non-traded BDCs are typically illiquid, and they have no public trading market and a liquidity event typically occurs within five to seven years of an offering’s inception.
According to the Securites and Exchange Commission, “Investors may be attracted to non-traded REITs by their relatively high dividend yields compared to those of publicly traded REITs. However, investors should consider the total return of a non-traded REIT – capital appreciation plus dividends – instead of focusing exclusively on the high dividend yield. Unlike publicly traded REITs, non-traded REITs frequently pay distributions in excess of their funds from operations. To do so, they may use offering proceeds and borrowings. This practice, which is typically not used by publicly traded REITs, reduces the value of the shares and reduces the cash available to the company to purchase additional assets. In considering an investment in a non-traded REIT, you should assess the extent to which distributions have been paid from sources other than funds from operations.”
At least $116 billion has been invested in non-traded REITs in the past 25 years, mostly to unsophisticated investors. Non-traded REITS come “full cycle” and experience a liquidity event when they list on an exchange or are acquired in a transaction that allows its investors to receive cash for their shares of non-traded REITs. Most successful non-traded REITs experience a liquidity event, which results in truncated return distribution. However, that is not always the case as many on-traded REITs fail completely.
Despite the initial lure due to regular distributions and low volatility, some non-traded REITS have been significantly cut or reduced to $0, such as Hospitality Investors Trust in 2017. Additionally, unbeknownst to investors, the published NAV price is often or usually very different than the market price. When it comes time to sell, this would require investors to sell at significant discounts in the secondary market.
Unlike publicly-traded REITs and publicly-traded BDCs, non-traded REITs and non-traded BDCs have certain characteristics that make them riskier for investors. They may contain higher commissions and fees, are generally illiquid as they have no public trading market, and pay distributions from invested capital back to investors, or from debt, as opposed to providing distributions of earnings from real estate holdings. These characteristics make them inherently riskier for investors.
Investors seeking recourse for losses in REITs and BDCs are required to file their disputes in FINRA arbitration. Erez Law has been retained by many investors to file FINRA arbitration claims against brokerage firms to recover their losses. Our firm has been very successful in making recoveries for our clients throughout the United States.
At Erez Law, many of our clients come to us because of our specialization in recovering investment losses due to losses in REITs and BDCs. We use considerable legal resources to help investors who trusted reckless and unethical financial advisors. We hold brokerage firms accountable for dishonest investment advisory practices, unsuitable recommendations, misrepresentation, and over-concentration in connection with their investment recommendations.
If you invested in REITs and BDCs without understanding the risks associated with your investment, you may be able to recoup your losses. Our team of ton-traded REIT and BDC fraud attorneys have experience with FINRA arbitration, and we know how to hold brokerage firms and advisers liable for their indiscretions.
Recovering Losses Through FINRA Arbitrations
Across the United States, investors are filing FINRA arbitration claims against their brokerage firms for investments made due to recommendations by their broker to invest in unsuitable real estate investment trusts and business development companies.
Many of these investors were not adequately warned about the high-risk nature of the investments, and have suffered serious financial losses as a result. Investors may have a claim against the brokerage firm based on misrepresentation, unsuitability, breach of fiduciary duty, and state and federal securities laws.
A broker must have reasonable grounds for each recommendation made to investors considering such factors as the customer’s other securities holdings, financial situation, and risk tolerance. In addition, before a financial advisor recommends a security to his customers, the financial advisor must conduct due diligence, investigating the facts surrounding the security, to confirm that it is suitable for the customer. The suitability of an investment for a particular individual is at the center of the investment process and one of the key duties owed by a broker to the customer. A firm may be held liable for its broker’s failure to recommend suitable investments to its customers.
In addition, pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, the brokerage firm may be liable for investment or other losses suffered by financial advisors who worked for the firm.
Erez Law Cases for Non-Traded REIT and BDC Losses
In October 2019, Erez Law filed a FINRA arbitration against Axa Advisors, LLC for losses due to unsuitable investments in Corporate Capital Trust, Inc. and Northstar Real Estate Income Trust II by broker Andrew Krakauer (CRD #1613159), a registered representative of Axa Advisors, LLC in Woodbury, New York since 1987. According to the claim filed by Erez Law, Krakauer recommended that the clients invest in two non-traded alternative investments: Corporate Capital Trust, Inc. and Northstar Real Estate Income Trust II. Corporate Capital Trust, Inc. and Northstar Trust were unsuitable, high risk and illiquid alternative investments that paid an exceptionally high commission. However, it is alleged that Krakauer told the clients that they were investing in high-quality real estate.
In May 2019, Erez Law filed a FINRA another arbitration against Centaurus Financial, Inc. related to investments with Ricky Mantei (CRD# 1098981), Cindy Chiellini (CRD# 1015592) and Katherine Nishnic (CRD# 2499553), who were registered representatives of Centaurus Financial, Inc. in Lexington, South Carolina. It is alleged that Mantei, Chiellini and Nishnic recklessly recommended that the family over-concentrate their accounts in complex, high risk, and illiquid investments including unsuitable structured products, structured CDs and high risk and unsuitable non-traded real estate investment trusts (REITs) in Hospitality Investors Trust and Northstar Healthcare Income, two non-traded REITs. Both of these are non-listed and illiquid investments. These investments have declined in value, can only be sold at a significant discount or loss and the yield has declined as well. Mantei, Chiellini and Nishnic failed to adequately disclose the risks attendant to these investments.
In March 2020, Erez Law filed a FINRA arbitration against Presidential Brokerage, Inc. and broker Gregory Williams (CRD# 1561089), who has been a registered representative of Forta Financial Group (also known as Presidential Brokerage, Inc.) in Greenwood Village, Colorado since 2011. According to the claim, Williams recommended the Erez Law clients invest in the high-risk energy sector, as well as, UITs and BDCs, including Cion Investment Corp. Fund, FS Energy and Power Fund, and the Sierra Income Corp. These three alternative investments are business development companies (BDCs) that primarily make loans. Each one of these is a non-traded fund that is illiquid in other words, there is no ready market to sell them. However, Williams represented that these BDCs were conservative investments that would generate consistent income while preserving capital. Williams failed to adequately disclose that their illiquid nature of the BDCs and that they could lose a significant amount of their capital, amongst other things. The FS Energy and Power Fund is an energy-focused BDC and as such further increased the clients’ exposure to the energy sector thereby further increasing risk.
Investors Were Sold Unsuitable Non-Traded REITs and BDCs
Erez Law is currently investigating the following brokers who have allegedly recommended their clients invest in unsuitable REITs and BDCs:
- Adam Lunceford (CRD# 4686499) of LPL Financial LLC in Scottsdale, Arizona and Securities Service Network, Inc. in Scottsdale, Arizona
- Andrew Krakauer of Axa Advisors, LLC in Woodbury, New York
- Austin Dutton Jr. (CRD# 2739167) of Newbridge Securities Corporation in Doylestown, Pennsylvania
- Bryon Martinsen of Centaurus Financial, Inc. in Kings Park, New York
- Cindy Chiellini of Centaurus Financial, Inc. in Lexington, South Carolina
- Gloria Barbier (CRD #5719709) of Axa Advisors, LLC in Miami, Florida
- Gopi Vungarala (CRD# 4856193) of Purshe Kaplan Sterling Investments in Midland, Michigan
- Gregory Williams of Forta Financial Group (also known as Presidential Brokerage, Inc.) in Greenwood Village, Colorado
- Katherine Nishnic of Centaurus Financial, Inc. in Lexington, South Carolina
- Kevin Dooley (CRD #2513153) of Axa Advisors, LLC in Miami, Florida
- Michael Pellegrino (CRD# 5900843) of Taylor Capital Management, Inc. in Oakbrook Terrace, Illinois
- Michele Boyer (CRD# 5046676) of Concorde Investment Services, LLC in Parker, Colorado
- Ricky Mantei of Centaurus Financial, Inc. in Lexington, South Carolina
- Robert Ginsberg (CRD# 5177531) of Woodbury Financial Services, Inc. in Wallingford, Connecticut
- Yvonne Silguero (CRD# 3211495) of LPL Financial LLC in Mcallen, Texas
- Ismael Retana (CRD# 3250007) of LPL Financial LLC in Laredo, Texas
- Enrique Lopez (CRD# 2209385) of Arkadios Capital in Mcallen, Texas and LPL Financial LLC in Mcallen, Texas
- Stephen Williams (CRD# 2395948) of Next Financial Group, Inc. in Madison, Alabama
- Craig Sherrer (CRD# 5972142) of Janney Montgomery Scott LLC in Garden City, New York and Newbridge Securities Corporation in New York, New York
- Mark Kolta (CRD# 5324620) of National Securities Corporation in New York, New York
- James Flynnof Voya Financial Advisors, Inc. in Greenville, South Carolina
- Allen McKell (CRD# 2494700) of FSC Securities Corp. in Valencia, California
- Ryan McKell (CRD# 5386486) of FSC Securities Corp. in Valencia, California
- Richard Poston (CRD# 2623641) of H. Beck, Inc. in Plano, Texas
- Donna Hines (CRD# 4275524) of Cetera Advisors LLC in Weston, West Virginia
- Tom Parks Jr. (CRD# 1558909) of Ameriprise Financial Services, Inc. in Stephenville, Texas
- Kenneth Guerra (CRD# 1337062) of Independent Financial Group, LLC in Grants Pass, Oregon
- Dennis Hayes (CRD# 4403550) of Newbridge Securities Corporation in Boca Raton, Florida
- Leslie Goldstein (CRD# 1300590) of Securities America, Inc. in Park Ridge, Illinois
- Eric Erb (CRD# 4595068) of Liberty Partners Financial Services, LLC in Babylon, New York and Securities America, Inc. in Babylon, New York
- Jerry McCutchen, Sr. (CRD# 1076678) of Berthel, Fisher & Company Financial Services, Inc. in Mobile, Alabama
- Daniel Raupp (CRD# 4079107) of Concorde Investment Services, LLC in Port Jefferson, New York
- Jason McBride (CRD# 1875972) of Presidential Brokerage, Inc. in Greenwood Village, Colorado
- William Richardson (CRD# 721293) of Investacorp, Inc. in Houston, Texas
- Christopher Burtraw (CRD# 4670431) of J.P. Turner & Company, L.L.C. in Lake Wood, Colorado
- Austin Dutton Jr. (CRD# 2739167) of Center Street Securities, Inc. in Doylestown, Pennsylvania
- Christopher Burtraw (CRD# 4670431) of J.P. Turner & Company, L.L.C., Summit Brokerage Services, Inc., LPL Financial LLC, Purshe Kaplan Sterling Investments, Inc. and CS Planning Corp.
- David White (CRD# 1382131) of Centaurus Financial, Inc. in Bloomfield Hills, Michigan
Erez Law’s non-traded REIT fraud attorneys are currently investigating the following brokerage firms who have brokers who allegedly recommended their clients invest in unsuitable REITs and BDCs:
- Ameriprise Financial Services, Inc.
- AR Capital LLC
- Axa Advisors, LLC
- Berthel, Fisher & Company Financial Services, Inc.
- Centaurus Financial, Inc.
- Center Street Securities, Inc.
- Cetera Advisors LLC
- Concorde Investment Services, LLC
- Forta Financial Group
- FSC Securities Corp
- H. Beck, Inc.
- Independent Financial Group, LLC
- Investacorp, Inc.
- J.P. Turner & Company, L.L.C.
- LPL Financial LLC
- Next Financial Group, Inc.
- National Securities Corporation
- Newbridge Securities Corporation
- Purshe Kaplan Sterling Investments
- Securities America, Inc.
- Securities Service Network, Inc.
- SII Investments
- Taylor Capital Management, Inc.
- Woodbury Financial Services, Inc.
- Voya Financial Advisors, Inc.
Erez Law is interested in speaking with investors that invested in the following types of REITs and BDCs, including but not limited to the following:
- American Funds Mgdrskasstalloc P2
- American Realty Capital Daily Net Asset Value Trust
- American Realty Capital Trust III
- American Realty Capital Trust IV
- American Realty Capital Trust V
- American Realty Capital New York City REIT, Inc. (NYC REIT)
- Apple Hospitality Five
- Apple Hospitality REIT
- Apple Hospitality Two
- Apple REIT Eight
- Apple REIT Seven
- Apple REIT Six
- Apple REIT Ten
- Apple Residential Income Trust
- AR Global
- Behringer Harvard Opportunity REIT I
- Behringer Harvard Opportunity REIT II
- Benefit Street Partners
- Blackstone Real Estate Income TR CL T
- Blackstone Real Estate Income Trust, Inc.
- Boston Capital Real Estate Investment Trust
- BSP Realty Trust, Inc.
- Business Development Co. of America
- Cantor Fitzgerald Investors, LLC
- Carey Institutional Properties
- Carey Watermark Investors
- Carter Validus
- Carter Validus MC Reit II Class A
- Carter Validus Mission Critical
- Carter Validus Mission Critical REIT II, Inc.
- Cion Investment Corp. Fund
- CNL Growth Properties
- CNL Healthcare Properties
- CNL Hotels & Resorts
- CNL Lifestyle Properties
- CNL Restaurant Properties
- CNL Retirement Properties
- Cole Corporate Income Trust
- Cole Credit Property Trust III (CCPT III)
- Cole Real Estate Income Strategy (Daily NAV)
- Colony Capital
- Cornerstone Core Properties REIT Inc.
- Corporate Capital Trust, Inc.
- Corporate Property Associates 10
- Corporate Property Associates 12
- Corporate Property Associates 14
- Corporate Property Associates 15
- Corporate Property Associates 17
- Cottonwood Residential
- CR II 2016 Preferred
- Dividend Capital Diversified Property Fund
- Fidelity VIP Mid Cap Services Class 2
- FIDVIP Energy Services Class 2
- Franklin Templeton Franklin Income VIP Fund – Class 2
- FS Credit Real State Income Trust-I
- FS Energy and Power Fund
- FS Investment Corp. III.
- Global Income Trust
- G REIT
- Griffin-American Healthcare REIT II
- Griffin Capital
- Griffin Capital Essential Asset E
- Griffin Capital Essential Asset REIT
- Griffin Captial
- Hines Global REIT
- Hines Real Estate Investment Trust
- Hospitality Investors Trust, Inc.
- Industrial Income Trust
- Inland American Real Estate Trust, Inc.
- Inland Diversified Real Estate Trust
- Inland Real Estate Income Trust
- Inland Real Estate Investment Corporation
- Inland Retail Real Estate Trust
- Jones Lang LaSalle Income Property Trust
- KBS Legacy Partners Apartment REIT
- KBS Real Estate Investment Trust
- KBS Real Estate Investment Trust II
- KBS Real Estate Investment Trust III
- KBS Strategic Opportunity REIT
- Landmark Apartment Trust
- Lightstone Value Plus REIT, Inc. (closed to new investors)
- Lightstone Value Plus REIT II, Inc. (closed to new investors)
- Lightstone Value Plus REIT III, Inc.
- Lightstone Real Estate Income Trust, Inc.
- Lightstone Value Plus Real Estate Investment Trust
- MacKenzie Realty Capital
- MacKenzie Realty Capital, Inc.
- Moody National DST Sponsor, LLC
- Moody National REIT II, Inc.
- Multi-Strategy Alternative Fund
- Nationwide American Funds Variable Insurance Trust Funds (NVIT) Global Growth II
- Nationwide Variable Insurance Trust Funds (NVIT) S&P 500 Index II
- Northstar Health / Colony
- NorthStar Healthcare Income
- Northstar Healthcare Income, Inc.
- NorthStar Real Estate Income Trust
- Northstar Real Estate Income Trust II Benefit Street
- Northstar Real Estate Income II
- Paladin Realty Income Properties
- Putnam Investment Management, LLC
- Rodin Global Property Trust – T
- RREEF Property Trust
- Sealy Strategic Equity Partners, LP
- SEI Institutional Managed Trust
- Sentio Healthcare Properties
- Sierra Income Corp
- Signature Office REIT
- SmartStop Self Storage
- Spirit Realty Capital
- Steadfast Income REIT
- Stira Alternatives
- Stira Capital Markets Group
- Strategic Realty Trust
- Summit Healthcare REIT
- T. Rowe Price Health Sciences II
- The Parking REIT, Inc.
- The Parking REIT, Inc. Pref Series 1
- TIER REIT
- T REIT
- United Development Funding (UDF)
Contact Us for a Free Consultation
If you have experienced investment losses or financial irregularities as a result of investments in real estate investment trusts (REITs) or business development companies (BDCs), we are here to help. We are not afraid of taking on corrupt firms, and we can and will combat some of the largest brokerage firms in the United States. Count on our experience to successfully take you through the FINRA arbitration process.
Please call us at (888) 840-1571 for a free consultation or complete our contact form to investigate your recourse for losses in REIT and BDC investments. Erez Law is a nationally recognized investment fraud protection law firm representing individuals, trusts, corporations, and institutions in claims against brokerage firms, banks and insurance companies. If you have more questions about investment fraud, you can visit our securities fraud frequently asked questions page, or contact our firm to speak with one of our qualified REIT investment fraud attorneys.