NorthStar Healthcare Income REIT, (NorthStar Healthcare) is a non-traded real estate investment trust (Non-Traded REIT). These are direct investment (“DI”) vehicles that are often opaque products that are difficult for many investors to understand. According to the SEC, non-traded REIT investments pose risks different than publicly traded REITs. Some risks of non-traded REITs include a lack of liquidity which may mean the investment cannot be sold readily in the market. In some cases, these are also risky investments.
NorthStar Healthcare Income
Some financial advisors and broker-dealer firms recommend these investments by at least suggesting that planned or intended distribution income streams may help off-set that illiquidity risk. Other financial advisors and broker-dealers make recommendations of these and similar illiquid investments without properly disclosing the material risks by way of misrepresentations or omissions of material facts. In addition, some financial advisors and broker-dealer firms fail to properly conduct due diligence, fail to properly supervises the recommendations and transactions, and/or fail to properly assess suitability at the time of the recommendations.
NorthStar Healthcare REIT Distributions
NorthStar Healthcare has stopped income distributions to investors. Investors are now bracing for significant potential losses. Some research is suggesting that current valuations are leaving investors with less than 30 cents for every dollar invested. Some investors are only now finding out that the prior income distributions were not accurately or properly represented to them as returns on their investment, but rather were merely a return of their investment (in other words merely a return investor principal and not funds from any business operations).
Unfortunately for many investors, they are only now realizing that the financial advisor or the broker-dealer firm that recommended the investment did not fully understand the risks of the underlying investment or the flawed Non-Traded REIT business model, and they were simply motivated to promote the investment product based on the relatively high commission payouts to the financial advisors and the broker-dealer firms – not because they benefitted investors.
According to the NorthStar Healthcare website, the investment was formed to originate, acquire and asset manage equity and debt investments in healthcare real estate, particularly focusing on making investments in the senior housing sector including independent living facilities, assisted living, memory care, and skilled nursing facilities. NorthStar Healthcare launched in February 2013 and raised total gross proceeds of $2 billion. The company claims to have a $2.4 billion portfolio of 652 properties as of the third quarter of 2018.
More Bad News NorthStar Healthcare
According to The DI Wire, in December 2017, NorthStar Healthcare reduced its distribution rate from 6.67% to 3.31%. One year later NorthStar Healthcare lowered the net asset value of its common stock from $8.50 per share to $7.10 per share. In addition, in a letter to its investors, NorthStar Healthcare informed investors that it was suspending distributions effective February 1, 2019. That followed an October 2018 notice where NorthStar Healthcare told shareholders that it was suspending its repurchase program – unless the shareholder was dead or had a qualifying disability.
These are typically not the type of events or steps taken by a business that is on track for success. Not only are the above valuations suspect, NorthStar Healthcare’s disclosures reflect the company has not paid investors any return on investment in over three years and has instead merely returned investor’s original investment capital while taking on massive loans in order to return those funds. Accordingly, NorthStar Healthcare’s own financials as of March 2019 show an investor equity of only $900 million – where did the other $1.1 billion raised go? This potential massive loss of investor capital has caused secondary market sources for non-traded REITs to list NorthStar Healthcare for only $2.85 per share- which would translate into a massive loss for most investors.
NorthStar Healthcare Lawsuits
Our law firm handles cases involving these and similar direct participation products (DPPs), private placements, Non-Traded REITs, and other alternative investments. These investment products are often unsuitable for main street type investors. In addition, the financial advisors and brokers who sell these investments are often paid high commissions in order to hype inferior quality investments providing substantial incentives for financial advisors and brokers to sell high risk and low reward investments to clients who generally do not even understand what they are purchasing, or the material risks related to the product or the underlying investment.
According to various studies, non-traded REIT investments have historically underperformed even safe benchmarks, like U.S. treasury bonds – meaning that non-traded REITs provide many investors with low or negative investment returns, and often the returns are not worth the risk an investor takes with these products. Alternative investment products like oil and gas partnerships, REITs, and equipment leasing programs are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed at all – unfortunately the commission incentive often motivates financial advisors and broker-dealer firms to make recommendations they would not otherwise have considered.
These investment products often become popular among financial advisors and broker-dealers because of the added commission incentives, not because they are providing any benefit to investors. Some states and even some firms place limits or suggestions on investors from investing more than 10% of their liquid assets in Non-Traded REITs. Many states and some firms impose these limitations or suggestions because its understood that that they provide virtually no benefit to investors in relationship to their risks.
Because of the price reporting structure of the investments and the investor’s reliance upon the issuer and the financial advisor and broker-dealer, many investors often fail to understand that they have lost money on their investment until many years after the fact. Knowing this, some financial advisors and broker-dealer firms continue to recommend that investors “hold” and still others simply suggest investors just “hang in there.” While these recommendations help financial advisors and broker-dealers avoid customer complaints, or in other cases may intentionally or mistakenly cause investors to forego claims that might have otherwise been viable – these are often recommendations that are self-serving, and not in the investor’s best interest.
NorthStar Healthcare Holdings Investor Resources
The securities arbitration and investment litigation attorneys at InvestmentFraudLawyers.com represent investors who have suffered investment losses nationwide. The majority of these claims may be brought as a private, confidential securities arbitration before the Financial Industry Regulatory Authority (FINRA) Office of Dispute Resolution. Please contact our office for a free consultation. Our experienced attorneys are available to assist you and answer your questions free of charge. Our law firm handles these cases on a contingency fee basis and only received compensation if we are successful in obtaining a recovery of your losses.
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The sole purpose of this material is to investigate the manner in which Northstar Healthcare investments were approved for sale by broker-dealers to investor clients, including new product reviews, due diligence, etc. as well as the sales practice and supervision related to the recommendations in Northstar Healthcare and the transactions related to same. If you have any knowledge or experience with these matters, please contact Haselkorn & Thibaut, P.A. at 1-888-628-5590, or visit the law firm’s website at InvestmentFraudLawyers.com.
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Haselkorn & Thibaut, P.A. is a national law firm that specializes in investment fraud matters and FINRA arbitrations nationwide. They represent both individual and institutional investors seeking to aggressively pursue their claims and maximize their recovery of investment losses for victims of negligence or investment fraud. As former securities industry defense attorneys, they are an experienced group of lawyers that have moved from their side, to YOUR side and they are available to assist you today.
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