Phillips Edison & Company
Phillips Edison & Company started out as a limited partnership founded in 1991 in Cincinnati, OH by Jeffery Edison and Mike Phillips–the former still serving as the company’s CEO. The purpose of this company was to invest in community grocery stores all over the country through a serious of private investment funds. The company established its first of three non-traded real estate investment trusts in 2010. The trust was called Phillips Edison–ARC Shopping Center REIT, Inc. The second non-traded REIT, Phillips Edison–ARC Shopping Center REIT II, Inc., was established in 2013. In 2014, in an effort to begin rebranding, the company changed the names of these two REITs to Phillips Edison Grocery Center REIT I and Phillips Edison Grocery Center REIT II. These two non-traded REITs made income by leasing out shopping centers to grocery related businesses all over the country. In 2017, Phillips Grocery Center REIT I acquired all of the parent limited partnership’s real estate assets and merged the companies into a singular non-traded REIT simply called Phillips Edison & Company, Inc. In 2018, Phillips Edison & Company, Inc. absorbed Phillips Edison Grocery Center REIT II, Inc. It did the same to Phillips Edison Grocery Center REIT III, Inc. in 2019.
The Truth About Non-Traded REITs
Non-traded real estate investment trusts (REITs) are privately traded investment funds that that make money through the purchase of real estate. These companies usually make their money by leasing out commercial or residential property that they have purchased. These products differ greatly from publicly traded equities as they do not trade on public securities exchanges, but are instead recommended directly to investors by their securities brokers. The fact that these products are privately traded provides these brokers with ample opportunity to misrepresent them as safe and consistently lucrative. The truth is that non-traded REITs are incredibly speculative and illiquid securities accompanied by extremely high cost structures that drastically drain investor principal investments.
Non-traded REITs have a limited shelf-life before they either become public, or enter what is known as the liquidation phase. While investors may be receiving income distributions for their investment, they may find it near impossible to liquidate their full investment until the REIT enters this liquidation phase. Some non-traded REITs offer quarterly or annual buyback programs; however, the companies usually only offer to liquidate a limited percentage of the company’s shares. If the amount of investors looking to liquidate exceeds the amount of buy outs offered, then a large majority of investors may find themselves completely out of luck. There is also no guarantee that a non-traded REIT would offer quarterly or yearly buy outs at all, or offer buy outs at market value. It is all entirely at the company’s discretion. There may be instances where third party investment companies offer investors tender buy out offers; however, these companies take advantage of investor desperation and usually only offer a portion of what investors believe their shares to be currently valued at. If a customer wants to withdraw from a non-traded REIT, they have to decide between exiting early at a substantial loss, or waiting until the company’s liquidation phase; however, depending on the success of the company, the shares may be completely worthless by that point. Alternative investments like non-traded REITs are very different than publicly traded equities, which come with guaranteed redemptions. This means that investors looking to liquidate their shares of a publicly traded equity can do so at moment’s notice for the full stated market value. Brokers who lead investors to believe that non-traded REITs are similar to publicly traded equities in this regard are guilty of either negligent or fraudulent misrepresentation/omission.
Despite their unsuitability for most investors, many securities brokers continue to recommend them due to the incredibly high commissions they receive when doing so. These commissions create substantial conflicts of interest that cause these products to be recommended to investors woefully unsuited for them. Recommending brokers can receive as much as ten percent of the investor’s principal when executing a REIT transaction. This commission compounded with other upfront fees can drain an investor’s principal of as much as seventeen percent. These fees and commissions make it near impossible for investors to see any profits under anything besides a booming real estate market.
Oakes & Fosher Can Help
Oakes & Fosher believes is very probable that financially unsuited investors found themselves invested in Phillips Edison & Company, Inc. Most instances of this would be a direct result of significant conflicts of interest created by the excessively high commissions brokers receive when recommending non-traded REITs. While non-traded REITs can cause significant harm to all investors, this is especially true for investors with higher liquidity needs, a lower risk tolerance, and more conservative investment objectives. Oakes & Fosher dedicates its entire legal practice to helping investors across the nation. If you, or someone you know, believe they lost money while invested in Phillips Edison & Company, 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.
