Securities Lawyers Blog
The securities lawyers of Gana Weinstein LLP are investigating recommendations by brokerage firms for their clients to invest in Hospitality Investors Trust – a non-traded real estate investment trust (non-traded REIT). Hospitality Investors Trust REIT, formerly known as American Realty Capital Hospitality Trust, originally sold shares for $25.00. As of December 31, 2019, the fund has approved an estimated net asset value per share of $8.35 as massive loss to initial investors. Even worse, secondary market trading sources cite a far smaller value at only $.75 a share – implying that the trading markets anticipate that Hospitality Investors Trust is virtually worthless.
Hospitality Investors Trust states that it is a publicly registered non-traded real estate investment trust (REIT) which owns a diversified portfolio of strategically-located hotel properties throughout North America within the select service and full-service markets of the hospitality sector.
Even prior to the recent recession and COVID-19 related market issues, Hospitality Investors Trust suspended the company’s share repurchase program effective February 28, 2019. Thus, well before recent market events investors could not redeem their shares even at the prices the fund stated the investment was worth.
Recently, the REIT stated that “the Company has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about its ability to meet its obligations arising within one year after the date that the financial statements are issued. Due to the existence of certain events of default under the Company’s debt obligations…the Company is unable to conclude with certainty that it is probable that it will be able to meet its obligations arising within twelve months of the date of issuance of these financial statements…” In other words, Hospitality Investors Trust REIT is questionable as a going concern at this point.
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.