The law firm of Oakes & Fosher is interested in hearing from investors who may have suffered investment losses after being sold an investment trust called Carter Validus Mission Critical Reit II, which is a non-traded REIT.
What Are Non-Traded REITs?
Non-traded REITs (Real Estate Investment Trusts), are private securities that do not trade on public exchanges. Instead, they are private investment funds that specialize in the purchase of real estate. However, because these products do not trade on any public exchange, and do not have the same oversight of publicly traded investments, they are replete with internal conflicts of interest, very high commissions, and very high ongoing fees. Non-traded REITs are unsuitable for most, if not all, investors due to their speculative nature, illiquidity, and high cost structure. Because of the high upfront commissions, securities brokers who recommend non-traded REITs to their investors may be doing so out of a significant conflict of interest. Brokers often receive higher-than-usual commissions when recommending these products to their customers, often reaching as high as ten percent of the investor’s principal. This high commission coupled with other unexpected upfront fees can drain an investor’s principal of up to 17 percent immediately. These drawbacks are difficult for customers to understand due to the products being often misrepresented by the selling broker.
Carter Validus Mission Critical REIT II
According to its website, Carter Validus Mission Critical REIT II is a non-traded, publicly registered REIT that intends to employ a long-term, net lease strategy in order to help mitigate risk, provide greater certainty of rental income and maximize value for fund shareholders. In April 2019, Carter Validus Mission Critical REIT I and Carter Validus Mission Critical REIT II entered into a merger agreement, creating an entity totaling approximately $3.2 billion in value. Once the merger was completed, the board of directors approved a Net Asset Value (NAV) of $8.65 per share. However, the shares were originally sold at $10.00 per share. A Net Asset Value (NAV) is the assigned value given to the REIT by its own sponsor. There are no independent pricing services, and since there is no public market, this NAV is often set at unrealistically high level. Although Carter Validus Mission Critical REIT II’s real estate portfolio increased in value as a result of the merger, its NAV was negatively impacted by transaction costs incurred from Carter Validus Mission Critical REIT I’s debt payoff and other merger-related fees.
Why Is This A Problem?
Investors can buy shares in non-traded REITs, which those REITs in turn use to borrow money to make investments in multiple properties specific to a certain sector: retail, industrial, office, residential apartments, etc. This lack of a say on the investor’s part over which properties the REITs choose to invest in or the way those properties are managed is only one of the risks those that invest in non-traded REITs uniquely experience. For one example that is specifically relevant to Carter Validus Mission Critical REIT II, because non-traded REITs often borrow money to fund their operations, they are subject to leverage risks and a potential lack of sufficient cash flow and access to additional financing. This coupled with a lack of a guaranteed trading market makes non-traded REITs very illiquid and high risk investment options.
Oakes & Fosher Can Help
Many investors are unaware of the legal recourse available to them after losing money due to securities broker fraud and/or negligence. The truth is that investors who have lost money in this fashion may actually be entitled to damages.
Oakes & Fosher dedicates its entire legal practice to helping investors across the nation. If you, or someone you know, have lost money due to investments in Carter Validus Mission Critical REIT II please contact Oakes & Fosher for a free and private consultation. Oakes & Fosher handles cases on a contingency basis, which means there are no fees charged unless we collect for you.