Non-traded REITs have been a source of income for quite some time, but there are various risks involved, especially concerning the choice of REIT. Northstar Healthcare Income was incredibly popular for some time, but recent events have led to an array of complaints and investigations.
The value of Northstar Healthcare Income REITs has dropped by over 30%, and the board has suspended payments to shareholders, leaving investors to suffer substantial losses. Many have pursued legal action against financial advisors and brokerage firms through class actions and FINRA arbitration.
Although complaints have been piling up against Northstar Healthcare Income for huge losses on shareholders’ and investors’ parts, the allegations still take time to be processed and reviewed. Join us as we discuss Northstar Healthcare Income and Non-Traded REITs to find out why numerous law firms are investigating them.
Numerous broker-dealer firms and financial advisors made recommendations to their clients to make substantial investments in NorthStar Healthcare Income Inc., (NorthStar Healthcare REIT). These investments were often improperly recommended and/or improperly concentrated for public investor customers who were unfamiliar or not entirely knowledgeable regarding the nature of the investment as a non-traded real estate investment trust (often referred to as a REIT or non-traded REIT).
The investment fraud lawyers at Haselkorn & Thibaut, P.A. have clients who are pursuing claims based on this and similar non-traded REIT securities investments. Matthew Thibaut, Esq., a partner at Haselkorn & Thibaut, P.A. states: “We continue to investigate the NorthStar Healthcare non-traded REIT, as our research has indicated that investors may have suffered substantial losses.”
If you or someone you know has a Northstar Healthcare Income REIT, please contact our attorneys at 1-800-856-3352 for a free consultation and options to recover your losses.
Why did Northstar Healthcare Suspend Dividends
- Why did Northstar Healthcare Suspend Dividends
- Definition of Non-Traded REITs
- Northstar Healthcare Income REIT Description
- Northstar Value Decreases
- Investors Recovering Losses
- Northstar Healthcare Income Timeline
- Non-Traded REIT Lawsuit and Claims
- Northstar Healthcare Income Lawsuits
- Who Is To Blame for Northstar Healthcare Non-Traded REIT Losses?
Last year, NorthStar reported to investors that it was discontinuing dividend distributions. It is important to note that the structure of many non-traded REITs provides for distributions to include a return of the original investment, thus it is not always easy for public investors to determine if the distributions they are receiving are truly a return on their investment or a partial return of their investment.
Many financial advisors and broker-dealer firms selling these investments to public investor customers often fail to fully disclose the material facts surrounding the specific nature of the distributions and unfortunately over-simplify the explanation and disclosures as a purported income stream that investors can supposedly rely upon in the future.
Sometimes the broker-dealer firms fail to properly supervise the sales practices including the disclosures, concentration, and suitability of the investments, and other times financial advisors seem to lack a full comprehension and understanding of the unique nature of these investments which all too often leads to material misrepresentations and omissions that may harm the public investor customers.
What drives these sales and these types of behaviors in many examples? Often it comes down to the incentives available to the broker-dealer firms and their financial advisors.
Investments such as private placements, and non-traded REITs often include a high commission structure that significantly benefits the broker-dealer firms and the financial advisors right up front, while leaving the public investor with an unsuitable or inappropriate investment that is poorly explained (at best) and often misunderstood by the investors.
It is believed that NorthStar Healthcare began as an investment focused on originating, acquiring, and managing equity and debt investments in healthcare real estate, including investments in the senior housing sector such as independent living facilities, assisted living, memory care, and skilled nursing facilities.
Definition of Non-Traded REITs
A Non-Traded REIT is a type of real estate investment with company shares unlisted on public exchanges. Northstar is a non-traded REIT. The Non-Traded REIT may include various properties, such as multifamily properties, hotels, warehouses, office spaces, shopping centers, and much more. Investors would benefit from profit over time according to the company’s success and usually gain a return on investment through rental income.
Non-Traded REITs Pros and Cons
It’s designed so that taxes can be reduced or eliminated when providing returns on real estate. The primary downfall is that they can be fairly illiquid for lengthy timeframes. There are still ways to combat the potential for illiquid holdings, such as using the secondary market or selling back to the REIT when it’s applicable.
But, there are numerous restrictions, limitations, and additional fees to consider. Although there are numerous risks concerning the potential for losses and return on investment, Non-Traded REITs still pose benefits for shareholders. They afford retail investors access to generally inaccessible real estate investments with tax benefits.
These approaches allow investors to diversify their investment portfolios by holding shares outside the stock market. Non-Traded REITs must be registered with the Securities and Exchange Commission, make regular filings, and adhere to the same IRS requirements, including taxable returns to all shareholders with specific minimums.
Northstar Healthcare Income REIT Description
Northstar Healthcare Income Inc (otherwise known as Northstar Income) was designed to acquire, build, and manage a diverse portfolio of healthcare-related real estate equity, debt investments, and securities. They have a particular focus on senior housing.
Full-time nursing homes and old-age communities fall under these groups of properties. The REIT also invests in rehab clinics, hospitals, and other healthcare-related properties, most of which are situated in the Midwest United States.
According to Northstar Healthcare’s website, they are backed by Colony Capital, which is publicly traded. But, the REIT is privately traded. Back in 2013, Northstar Healthcare had an offering and managed to acquire approximately $1.8 billion in total. Around $2 billion was raised between 2013 and 2018, which was used to purchase real properties within their targeted categories.
Northstar Healthcare REIT Investments
The prospectus for Northstar Health Income REITs establishes minimum standards for investors, making them unsuitable for most potential investors. Additional requirements were also imposed by numerous states before investors would be permitted to purchase shares of the Northstar Health Income REIT.
Northstar Healthcare became highly recommended by various financial and investment advisors, with numerous illogical and highly improbable promises of high returns on investment. These sales pitches included promises of safe and fixed income or the prospect of the REIT going public.
These claims had no backing or evidence, but they resulted in many investors placing their trust in these advisors. Unlike many other Non-Traded REITs, Northstar Health paid financial advisors and brokers significantly high upfront commissions, with estimated Selling Commissions of around 7% upfront to the prospectus and an additional 6% in other fees and costs.
Overall, only 86.5% of investors’ capital (or less) was available for investment by the manager. A significant fraction of the investment money would immediately be diverted to the broker or financial advisor and the manager.
Many investors had gotten their hopes up under false pretenses and had no idea what they could expect from their Non-Traded REITs. Sadly, as time would reveal, they would not be getting much back on their investments.
Northstar Value Decreases
In December 2018, only five years after the initial offering, Northstar’s upper management announced that their units’ value had decreased by over 30% from its initial value. Investors could not be aware of this drastic decline in value without being informed by Northstar, leaving many shareholders shocked and bewildered by the sudden announcement.
There were many questions and not many answers for those who had suffered exponential losses. Northstar’s management was equipped with many excuses for the decline in value, such as employee cost increases, cash flow issues, and occupancy problems.
In June 2019, Northstar Healthcare claimed to have a portfolio of over 630 properties, flaunting a collective value of approximately $2.4 billion. Still, there has been substantial evidence that the Non-Traded REIT was never profitable.
Investors Recovering Losses
Since 2015, Northstar Healthcare has been making attempts to repay investors who have suffered immeasurable losses. However, payments that have been made returned the invested money without profits. There has been plenty of debate surrounding this approach, as investors did not necessarily know that they were not making money over time.
The company’s financial data revealed that although they had raised approximately $1.8 billion, accumulated losses totaled around $1 billion. Unfortunately, there was no silver lining waiting just around the corner for shareholders, as management decided to suspend payments to clients in 2019, further decreasing the value of units.
The decision to suspend dividend distributions to shareholders and investors was made by the Northstar Healthcare REIT board, following an in-depth analysis of the company. They considered the entity’s business, liquidity sources, capital requirements, and financial health, opting to preserve capital by suspending monthly payments to stockholders.
This brought a problem for investors, as Non-Traded REIT companies are at will to make changes on payments and dividends to shareholders. The entire situation left Non-Traded REIT investors perplexed and stressed about what the future would hold.
Liquidating or Selling Northstar Healthcare Income REITs
The situation left investors with little to no distributions and stuck in an illiquid scenario. The only hope was to find a third-party buyer on the secondary market and sell the REITs for a fraction of what they were bought for initially.
Bids for the Northstar Healthcare Income REIT purchase were as low as $1.50 or less on the Secondary Market by March 2021. Some investors were lucky to find bids sitting at prices slightly higher than others, such as a few bids offering approximately $2.20 for Northstar Healthcare Income REITs.
Since the initial offering price was $10.20 for investors, the losses suffered by these shareholders were nothing short of exponential. To make things even worse, some were completely unaware that the distributions made over the previous years primarily returned the investment and did not reflect returns on investment.
Some investors had taken out loans to purchase shares in the Northstar Healthcare Non-Traded REIT. This meant that, unlike they may have believed for the past few years, they may not even be able to pay these loans back with the generated interest, having only received fractions of the initial investment.
Northstar Healthcare Income Timeline
|2013||Northstar Healthcare Income raises $1.8 billion|
|December 2017||Distribution rate decrease for Northstar Healthcare shareholders (from 6.67% to 3.31%)|
|October 2018||Announced that they would only buy back shares from investors if qualifying disability or death were factors.|
|December 2018||Northstar Healthcare’s upper management announces that the net asset value of shares had declined by over 30%, sitting at a value of $7.10 per share.|
|February 2019||Northstar Healthcare distributions updated, deciding to suspend dividend distributions to investors.|
|June 2019||Northstar Healthcare claimed to have acquired a portfolio of over 630 properties with a collective value of approximately $2.4 billion.|
|December 2019||The value of Northstar Healthcare’s net asset value of shares dropped even further, sitting at $6.25 per share.|
|March 2021||Northstar Healthcare Non-Traded REIT bids at approximately $1.50 or less on the Secondary Market, compared to an initial offering price of $10.20.|
Non-Traded REIT Lawsuit and Claims
Although such a situation is riddled with confusion and grief, investors may be able to pursue legal claims. Depending on the situation and eligibility, investors may be able to join a class action against the Non-Traded REIT or file an arbitration claim. However, it is not always possible to hold the REIT company accountable for losses, as this is the risk and nature of Non-Traded REITs.
Technically speaking, investors are expected to be aware of the related risks before purchasing the REIT. However, there is still a complex that may be applicable in a court of law. Financial advisors and broker firms are not supposed to take advantage of their clients’ ignorance and are supposed to provide full transparency concerning the risks of investment and other details.
Northstar Healthcare Income Lawsuits
In the case of Northstar Healthcare Income investors, they happened to tick many of the boxes needed to pursue legal action. Broker-dealer firms and investment advisors would have likely pitched these REITs to prospective investors inaccurately or improperly represented, without making them aware of the real-world risks for such REITs and the nature of expected distributions.
While many investors were wise enough to sell their REITs before the plummet in 2019, many shareholders were advised by professionals to keep their REIT under false interpretations and misunderstandings. All of these situations may allow investors to hold professional financial advisors and brokers accountable.
Even throughout the initial stages of investment, there were far too many cases of stockholders being completely unaware of the Non-Traded REITs details and potential for return on investments. Many terms may have been misinterpreted or intentionally shrouded with confusion, creating false perceptions of expectations to benefit from the lucrative commissions being offered by Northstar Healthcare.
Who Is To Blame for Northstar Healthcare Non-Traded REIT Losses?
Although there has been plenty of debate concerning Northstar Healthcare’s honesty and transparency with shareholders over the years, many aspects seem to fall within their rights. Non-Traded REITs are always risky, and the governing board does hold the right to make changes to distributions and dividends on certain grounds.
Northstar Healthcare cannot necessarily be blamed for offering these high commissions to brokers and financial advisers. It is likely that the influential brokers and financial advisors were entirely aware of the risks, but chose to keep investors blissfully unaware to ensure they profited off of poor investment choices.
When cases are filed for losses incurred by the Northstar Healthcare Non-Traded REIT, the primary focus is on these firms. To date, the investment was primarily sold by independent broker-dealers, including First Allied, LPL, Woodbury, Cetera, Financial, and many more.
Cases are investigated and legally pursued by experienced lawyers and firms, some on behalf of individuals and others on behalf of groups of investors who have incurred losses. Some of the lawyers and firms investigating claims for Northstar Healthcare REIT losses include Levin Papantonio Rafferty, Sonn Law Group, Shepherd Smith Edwards & Kantas, Vernon Litigation Group, and The White Law Group.
FINRA warns investors of the related risks concerning Non-Traded REITs for any company, cautioning that the illiquid nature of these products should always be considered. The investor’s total return may be diminished somehow, whether through additional fees incurred by valuating, selling, or by other means.
If you have incurred losses for Northstar Healthcare Income Non-Traded REITs due to an advisor or brokerage firm failing to fulfill the profession’s obligations, you may be able to recover losses through FINRA arbitration. These individuals and firms are bound to consider various aspects before advising others to invest their money.
Losing money is never easy, especially for those who rely on steady income through Non-Traded REIT dividends and distributions. Thankfully, there are many law firms dedicated to holding these professionals accountable for their irresponsible recommendations. Those who have suffered losses may be able to pursue legal action by contacting reputable firms that will represent them in their case.