Northstar Healthcare Income is a non-traded real estate investment trust (REIT) focused on healthcare real estate. For nearly the past 18 months, the last stated estimated value from the sponsor was listed at $7.10/share, while the most recent trading range reported by a secondary market source was in the $2.45/share to $2.60/share range. For many investors, this is a big drop from the $10.00/share original sale price.
It was reported today that Northstar Healthcare is now reporting a lower estimated net asset value (NAV) as of June 30, 2019. The previous $7.10/share estimated stated value is being reduced to $6.25/share after Northstar Healthcare hired a third-party valuation and consulting firm to perform an updated valuation as the $7.10/share was stated as of June 30, 2018.
For investors, the latest estimated valuation not only reflects a decrease in the estimated NAV price (as of June 30, 2019), it also appears to be based on calculations that used third-party appraisals for at least 15 of the properties owned by Northstar Healthcare. This is, of course, following on the heels of the February 2019 decision by Northstar Healthcare to suspend distributions to investors (after previously cutting the distribution rate by more than 50%).
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The timeline here for investors includes a significantly reduced distribution rate followed more recently (earlier this year) by a suspended distribution, and, now, a reduction in the estimated NAV prices. According to Palm Beach, Florida investment fraud lawyer Matthew Thibaut, Esq. “this recent drop in estimated NAV value looks like more bad news for investors in Northstar Healthcare.”
Northstar Healthcare Income Investor Suitability – Sales of Non-Traded REITS
These investments are generally offered by financial advisors working at independent broker-dealer firms. They represent one type of Direct Participation Programs (DPPs). Non-Traded REITs are typically risky illiquid alternative investments that the United States Securities and Exchange Commission (SEC) define as a “Reg D” offerings also known as “private placement.” The reference to Regulation D provides exemptions from the typical registration requirements of Section 5 of the Securities Act of 1933.
A brokerage firm selling a private placement still has a duty to conduct a reasonable investigation of any securities it recommends. The types of problems that FINRA found in the past with regard to some private placements were significant and include outright fraud and sales practice abuse in Regulation D offerings. With private placements, the firm recommending the investment to a customer must also conduct a reasonable investigation into the issuer and its management, the business prospects of the issuer, the assets held by or to be acquired by the issuer, the claims being made by the issuer, and the intended use of the offering. Failure of a firm to adequately investigate a given private placement can result in a violation of antifraud provisions of federal securities law, as well as FINRA Rule 2010 (adherence to just and equitable principles of trade) and Rule 2020 (prohibiting manipulative and fraudulent devices). In addition to various cases and enforcement actions cited in Regulatory Notice 10-22 (and its endnotes), another sweep by FINRA resulted in more crackdowns on firms (and individuals) that did not conduct a reasonable investigation before selling private placements to customers.
Also, with respect to private placement investments, broker-dealer firms still must supervise their brokers in the investigation and recommendation being made to the customer. In addition to the typical supervision duties that a broker-dealer firm has over its registered representatives, as required by FINRA Rule 3010, private placements necessitate additional supervisory procedures. As reminded by FINRA Regulatory Notice 10-22, those additional supervisory procedures must be reasonably designed to ensure that a broker-dealer firm’s registered representatives: (1) engage in an inquiry that is sufficiently rigorous to comply with their legal and regulatory requirements; (2) perform the analysis required by FINRA Rule 2111 (formerly, NASD Rule 2310); (3) qualify their customers as eligible to purchase securities offered pursuant to Regulation D; and (4) do not violate the antifraud provisions of the federal securities laws or FINRA rules in connection with their preparation or distribution of offering documents or sales literature. Importantly, each Reg. D offering must be properly supervised “before it is marketed to other firms or sold directly to customers.”
How can Investors Recover Northstar Healthcare Income?
For some investors, a private FINRA arbitration customer dispute enables them to bring a claim and potentially recoup their investment losses from investments like Northstar Healthcare Income. These customer disputes typically involve only paper discovery and no depositions, and they are a faster and more efficient alternative to traditional court litigation, as they provide a private forum to resolve disputes more quickly and efficiently. For a free case review and source of information, check out InvestmentFraudLawyers.com.
Robert Thomas has over 14 years experience in the investments on the institutional side of markets and has an “insider” view on the markets. In addition, he is an futures day trader that focuses on analyzing fundamentals, specifically earnings reports and technical levels. He has a Masters Degree in Business and Economics.