Summit Healthcare REIT is a non-traded real estate investment trust (REIT) that provides a full range of services to purchase, lease, and manage healthcare housing properties. It has suspended the repurchase program several years ago and has not indicated when that program might resume in the future.
In May 2018, Mackenzie Realty Capital, Inc. made a tender offer at $1.56/share. That tender offer price is well below the Summit Healthcare REIT stated current value based on the sponsor’s representations reporting $2.80/share. Notwithstanding those estimates by the sponsor, the most recent trading range reported by a secondary market source was in the $1.75/share to $1.83/share range according to Central Trade and Transfer, which appears much closer to the tender offer pricing. For buyers who paid at or near the original share price level, or those accepting the recent tender offer, this could reflect a significant loss!
This is the opposite experience of many investors who have seen excellent returns in traded REITs the past could of years. An example would be the Vanguard Real Estate ETF, which has had a 9.04% return since it’s inception on 9/23/2004. A ten thousand investment would be worth over thirty thousand dollars!
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Problems with Non-Traded REITs Similar to Summit REIT
These types of 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 and BDCs 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.
One of the biggest problems investors face with non-traded REITs is when investors try to liquidate their shares. These type of investments can’t be quickly sold on exchanges like the NYSE, but rather secondary exchanges.
Jason Haselkorn, Esq. A partner with Haselkorn & Thibaut (InvestmentFraudLawyers.com) commented that his office has received several calls from investors who have incurred losses in non-traded REIT investments, many of which are not appropriately represented at the point of sale, or investments that are the result of negligent supervision.
Not being to sell on the exchanges creates huge pricing transparency and issue because the investor may have to sell his investments for substantially less than the original purchase price. Unfortunately, this is a widespread problem with non-traded REITs. Most financial advisors have their clients invest in ETF REITS that allow investors to buy or sell them on the exchanges.
Investors Seeking to Recover Losses from Summit REIT
There are a couple of options for investors that investors can do to out of non-traded REITs. Investors can:
- Try and redeem the non-traded REIT from the investment company, which may not accept it back.
- Sell the non-traded REIT on a secondary market, which will over you substantially less money than you paid.
- File a FINRA claim on the broker-dealer to attempt to recover losses.
For some investors, a private FINRA arbitration customer dispute enables them to bring a claim and potentially recoup their investment losses. 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.