Numerous broker-dealer firm 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.”
Why did Northstar Healthcare Suspend Dividends
Several months ago, 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 benefit 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.
Why did Northstar Healthcare REIT Value Drop?
In 2013, NorthStar Healthcare raised a total $2 billion, and as of third quarter 2018 it was reporting a total of over 650 properties and appeared to be on track with its original objectives. Despite such representations, Northstar Healthcare also reported a reduction in its distribution rates (which had already been reduced previously) along with a suspension of its repurchase program (unless investors died or could demonstrate a qualifying disability). As a result, many investors found themselves strapped with an illiquid non-traded REIT investment that had substantially reduced its distributions over the past two years.
If Northstar Healthcare was achieving its investment objectives, the illiquidity issues and reduced distributions were not adding up for public investors. In fact, upon closer investigation of NorthStar Healthcare disclosures, public investors had not received a return on their investment in several years, but rather only received a partial return of their original investment capital.
In order to free up cash to make those distributions, it appears that Northstar Healthcare may been taking on substantial debt in order to maintain the distribution schedule for public investors (many of whom were of the belief that they were receiving at least a partial return on their investment in thise distributions).
As of March 2019, what was once $2 billion of investor capital that was raised now appears to be valued as investor equity of only $900 million. Where are the disclosures or explanations to public investors that account for what appears to be a loss of $1.1 billion? This may reflect a substantial loss of public investor capital and the secondary markets for this Non-Traded REIT investment appears to provide limited liquidity and a pricing level that indicates there may be substantial principal losses for investors in Northstar Healthcare.
Northstar Healthcare REIT investors seeking more information and free case evaluation, call toll free 800-856-3352, or 561-585-0000.
Our experienced attorneys handle investment fraud cases nationwide. They have experience in handling claims for investors who suffered losses in Non-Traded REITs like Northstar Healthcare, as well as private placement or direct participation products (DPPs), and other alternative investments.
The sale of these products by broker-dealers and financial advisors may involve negligent or otherwise improper sales practice, negligent supervision, unsuitable or improper disclosures, overconcentration, and other issues that we can help you analyze in deciding whether or not you might have a potential claim to recover your investment losses.
According to our research, many Non-Traded REITs have a demonstrated history of weak performance, especially compared to the level of investment risk an investor takes on in making these investments. Alternative investments are typically only suitable or appropriate for certain limited public investors who are considered more capable of being able to assess the investment risks and details in light of the high costs, illiquidity, and redemption charges of the particular products (if they can be redeemed at all).
As it is often a relatively high commission motivating the recommendation and sale of such investments, public investors may find themselves investing substantially more than 10% or 15% of their overall investment portfolio in private placements or Non-Trade REITs.