NorthStar Healthcare continues to report that it is not profitable. NorthStar Healthcare has reported massive investor losses on investor capital raised and currently trades at only 25 cents for every dollar purchased on the secondary markets. On November 29, 2019 investors received a letter from Comrit Investment 1, LP (Comrit) offering investors the opportunity to sell the REIT for only $2.86 a share – again reflecting the dire state of affairs for NorthStar Healthcare. According to the September 2019 financial data Northstar raised over $1.7 billion from investors and has accumulated losses of $1 billion of it leaving a net equity of less than $700 million. In fact, in the last 9 months since the end of 2018 Northstar reports that investor equity declined another 7% while it has not paid investors any distributions.
As investors are aware, NorthStar Healthcare no longer distributes a dividend. Further, a review of NorthStar Healthcare’s dividend history reveals that most distributions received were merely fraudulent returns of investor capital and not profits on investments. Indeed, not one penny returned to investors since 2015 was from the REIT’s profits. NorthStar Healthcare’s continuing return of capital to investors since 2015 served only to allow the company to raise more investor money and make it appear to investors as if the company was a profitable enterprise when it never was.
According to the NorthStar Healthcare’s website, the investment formed to originate, acquire and asset manage equity and debt investments in healthcare real estate. NorthStar Healthcare claims that it is focused on making investments in the needs-driven senior housing sector including independent living facilities, assisted living, memory care, and skilled nursing facilities. NorthStar Healthcare launched in February 2013 and raised total gross proceeds of $2 billion, including $225.3 million through its distribution reinvestment plan. The company claims to have a $2.4 billion portfolio of 633 properties as of the June 2019.
Unfortunately for retail investors the brokerage industry continues to deny the reality of the flawed Non-Traded REIT business model and only recommend these products to investors for their 7% commissions – not because they benefit investors. Our firm often handles cases involving direct participation products (DPPs), private placements, Non-Traded REITs, and other alternative investments. These products are almost always unsuitable for middle class investors. In addition, the brokers who sell them are paid additional commission in order to hype inferior quality investments providing perverse incentives for brokers to sell high risk and low reward investments.
According to studies, non-traded REITs have historically have underperformed even safe benchmarks, like U.S. treasury bonds – meaning that non-traded REITs provide paltry investment returns considering the risk an investor takes. Alternative investment products like oil and gas partnerships, REITs, and equipment leasing programs are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed at all.
However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them. These products have become so popular among brokers without providing any benefit to investors that many states now limit investors from investing more than 10% of their liquid assets in Non-Traded REITs. Many states impose these limitations because its understood that that they provide virtually no benefit to investors in relationship to their risks.
Investors often fail to understand that they have lost money until many years after agreeing to the investment. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.
The investment lawyers at Gana Weinstein LLP represent investors who have suffered investment losses due to allegations of wrongdoing. The majority of these claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.