The law firm of Oakes & Fosher is currently interested in hearing from investors who believe they were financially harmed by an investment called Highlands Real Estate Investment Trust, or Highlands REIT.
What Are Non-Traded REITs?
Non-traded REITs, or Real Estate Investment Trusts, are privately traded securities that do not trade on public exchanges. Rather, they are private investment funds designed to purchase and manage real estate. Because these products are privately traded, there is a significant lack of oversight that often leads to investors becoming harmed by them. This is because, despite what your broker may tell you, non-traded REITs are often highly unsuitable for investors. This is because of their speculative nature, their illiquidity, and their extremely high cost structure.
Securities brokers who recommend non-traded REITs to their customers often do so out of significant conflicts of interest. These conflicts occur because of the excessively high commissions brokers receive when recommending these products to their customers. Broker commissions for recommending non-traded REITs can be as high as ten percent of the investor’s principal. This percentage compounded with other upfront fees can drain an investor’s principal of up to 17 percent right off the bat. These costs make it almost impossible for investors to see any returns under anything besides the most exceptional real estate market. Commissions for these products often cause brokers to make material misrepresentations and omissions about these investments to customers that are financially unsuited for them.
Highlands REIT was founded in 2016 to house almost all of the “non-core” assets from another non-traded REIT called InvenTrust Properties Corp. The latter transferred ownership and control of all “non-core” assets over to Highlands in 2016 as a way of protecting itself from any liabilities or losses that may have occurred as a result of the assets that were transferred. These “non-core” assets included mainly real estate assets held in undesirable locations, assets facing unresolved legal issues, assets that are aging and/or functionally obsolete, real estate designated for special use, single tenant assets, and assets with suboptimal leasing metrics. Essentially, Highlands REIT was designed to house all assets that InvenTrust Properties Corp. no longer wanted to deal with.
Why Is This A Problem?
Privately traded alternative investments are by their nature incredibly illiquid. This is especially true for non-traded REITs. In laymen’s terms, liquidity means having ready access to one’s funds. Many people might assume this only means funds held in private bank accounts; however, publicly traded equities are also very liquid. This is because these types of investments are accompanied by a guaranteed redemption. This means share holders can liquidate their shares for the stated market value at a moments notice. This is not the case with alternative investments like non-traded REITs. Investors looking to withdraw funds from these investments find it very difficult to do so. Those managing these REITs often expect investors to remain invested until the product actually enters its liquidation phase. However, if an investor wishes to withdraw before that point, they may only be offered a buy out by a third party company at a price significantly less than what they are told their shares are actually valued at. Essentially, investors have to decide between exiting early at a substantial loss, or waiting until the company’s liquidation phase; however, if the REIT was unsuccessful in its ventures, the shares may be completely worthless by that point.
The problem with InvenTrust’s strategy was that it created a non-traded REIT even more illiquid than itself. This was a direct result of the type of assets it transferred ownership of to Highlands. While most real estate is already considered illiquid due to the time it may take to sell, the unsuitable real estate owned by Highlands was especially so. Aging or obsolete real estate, real estate in undesirable areas, and assets facing legal trouble are incredibly difficult to liquidate or make profitable–at least before investing lots of money to resolve the issues. This led to a lot of the assets held by Highlands being foreclosed on, which disqualifies the REIT from the capital it was receiving in mortgage or rent payments. Essentially, Highlands REIT was the complete worst part of InvenTrust. Despite this, Highlands REIT was recommended to investors while simply being advertised as an InvenTrust Properties Corp. subsidiary. Most of these recommending brokers failed to disclose that Highlands was essentially InvenTrust’s garbage pile. Due to the conflicts of interest associated with most non-traded REITs, many of these recommending brokers made these material misrepresentations and omissions about Highlands in search of the excessively large commissions.
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 being invested in Highlands REIT, 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.