Hospitality Investors Trust
Hospitality Investors Trust, previously known as ARC Hospitality Trust, is currently being investigated by Oakes & Fosher regarding the suitability of the security. Hospitality Investors Trust, also referred to simply as HIT, is a non-traded real estate investment trust that deals with the purchase of hotels and other lodging around the United States. While it is a registered security, it is privately traded and not sold on any public securities exchanges. Oakes & Fosher has reason to suspect that HIT is unsuitable for investors based on the risks, illiquidity, and extremely high cost structure associated with non-traded REITs.
Non-traded REITs are, by nature, highly speculative and risky investments. This is, in part, due to the fact that they are not sold on any public securities exchanges. Due to their private nature, it is difficult for investors to adequately determine the true value of non-traded REITs–a fact which brokers can use this to their advantage. Those managing these trusts may set share prices of these products to something other than what they are actually valued at. This is usually done to raise more capital during the security’s initial offering period.
Conflicts Of Interest Can Lead To Hard Pressure Sales Tactics
Non-traded REITs can prove to be alluring to brokers as they generate exorbitantly high commissions when sold. This can create a substantial conflict of interest as brokers now have a motivation to push securities on potential investors that they would otherwise be unsuited for. These commissions can be as high as ten percent of the investor’s principal investment. This is compounded with other upfront fees that can drain an investor’s principal investment of as much as 17 percent. This reduces the security’s potential for growth and lowers the investor’s chances of making money on the product.
These commissions often motivate brokers to use more hard pressure sales techniques that would otherwise not be employed for publicly traded equities. This could include creating an aura of exclusivity around the product. If an investor believes they are being offered an investment that does not get offered to that many investors, then they may begin to have delusions about what type of investor they actually are. Another technique is making the investor think there is a “time crunch.” If a broker makes an investor believe that a decision needs to be made quickly, then they may purchase the non-traded REIT before fully having the opportunity to determine if the investment is suitable for them.
Hospitality Investors Trust Is Illiquid
Another significant flaw with these products is their illiquid nature. When an individual purchases a security on a public exchange, they are able to sell the security for whatever the market value listed is. However, since non-traded REITs are not sold on public exchanges, investors may find it far more difficult to liquidate these assets should the need arise. This is because non-traded REITs only operate for a finite amount of time before they either become publicly traded or are liquidated. Investors in these products are expected to remain invested until that time. However, if the non-traded REIT was unsuccessful, then its shares may be completely worthless by the time it reaches its liquidation phase. If this is the case, investors can quite easily find themselves trapped in a failing investment. Some non-traded REITs offer buy outs on a scheduled basis; however, they may only offer a finite amount of buy outs and the offers are usually significantly less than what investors are told the shares are currently valued at.
HIT originally valued its shares at $25 per share. The trust originally paid distributions to its investors, a fact that would prove alluring to many potential investors, until such time in 2017 that the distributions were suspended. Many securities brokers use the promise of high income distributions as their major selling point; however, often misrepresent the fact that these distributions are entirely dependent upon the success of the REIT. The value of HIT eventually dropped to $13.87 per share. However, investors were not simply able to sell their shares of the trust and receive that amount. Rather, HIT instituted a share repurchase program where they offered investors $9 per share. This amount was a whopping 35% percent less than what HIT valued their shares at. This buy back program was indefinitely suspended in early 2019, making it even more difficult for investors to liquidate their HIT shares.
Oakes & Fosher Can Help
Oakes & Fosher believes that the Hospitality Investors Trust is a highly risky, speculative, and illiquid investment. It’s private nature creates a substantial lack of over-sight that in turn allows many investors to be taken advantage of by over-zealous securities brokers. Non-traded REITs are so detrimental to customers that large wire house firms like Edward Jones and Wells Fargo do not allow their brokers to sell them. Securities brokers have a legal obligation to recommend securities to potential investors that they believe to be suitable based on the individual’s financial situation, risk tolerance, and investment objectives. Oakes & Fosher is interested in speaking with individuals who purchased HIT shares and feel that their securities broker did not have their best interests at heart. Oakes & Fosher handles cases on a contingency basis, which means there are no fees charged unless we collect for you.
