Eccleston Law Offices, P.C. represents individual and institutional investors in litigation and arbitration proceedings to recover their investment losses caused by unsuitable investment recommendations, breach of fiduciary duty, negligence or other misconduct. We have extensive experience representing investors in arbitration and litigation disputes with securities broker-dealers and investment advisory firms, and have recovered tens of millions of dollars for investors.
Our attorneys are representing investors who have suffered losses in non-traded REITs such as Behringer Harvard, KBS REIT, G REIT, Inland Western Retail Real Estate Trust and NNN Healthcare Office REIT that were purchased upon the recommendation of Manitowoc, Wisconsin broker James J. Albright, Jr. (CRD: 2035269). If you have suffered losses in non-traded REITs recommended by James J. Albright, Jr., your losses may be recoverable through securities arbitration.
The Pending FINRA Arbitration Claim Against James J. Albright, Jr. (CRD: 2035269)
On July 5, 2011, Eccleston Law Offices, P.C. announced that it filed a securities arbitration claim before FINRA has been filed on behalf of eight (8) individuals residing in Wisconsin against James J. Albright, Jr., and Sagepoint Financial, Inc. f/k/a AIG Financial Advisers, with an office in Manitowoc, Wisconsin and additional activities in Racine, Wisconsin.
The arbitration action is based upon Mr. Albright’s recommendation to purchase unsuitable, risky and illiquid non-traded real estate investment trusts (“REITs”) for the accounts of the individual clients, while failing to adequately disclose the risks involved in those investments. As a result of Mr. Albright’s aggressive sales practices, the individual clients have suffered substantial losses and are unable to access their funds, which are locked into highly illiquid investments. The arbitration action alleges that Mr. Albright and his firm violated Wisconsin securities law, were negligent and breached their fiduciary duties. The action seeks recovery of the investment losses, interest, and other relief.
The non-traded REITs at issue include: Behringer Harvard, KBS REIT, G REIT, Inland Western Retail Real Estate Trust and NNN Healthcare Office REIT. Common problems, which make such REIT investments unsuitable for most investors, include: illiquidity, overconcentration in accounts, high commissions, lack of sector diversification, “income” or “dividend” that is not interest or yield but instead a return of an investor’s own capital, and artificially stable (misrepresented) share valuation. As a result of those and other problems, securities regulators have intensified their scrutiny of non-traded REITs, including their valuations, sales practices and suitability for investors. During the past several years, many non-traded REITs have declined in value, and have been forced to eliminate or reduce their monthly dividend and to restrict, suspend or eliminate their share redemption programs.
James Eccleston commented upon the arbitration action saying, “We have seen a ‘trail of tears’ among Mr. Albright’s trusted clients, as these unsuitable REIT investments have caused a great deal of financial hardship and ruin.” Moving forward, Eccleston stated, “We believe that tens if not hundreds more of his trusted clients were invested in those REITs, and we anticipate filing many more arbitration actions to seek damages and other relief for them.”
Recent Problems with Non-Traded REITs
Non-listed real estate investment trusts (“REITs”) are designed to allow retail investors to participate in large commercial real estate development projects, such as shopping malls or hotel properties, that they could not otherwise participate in.
These non-traded REITs are typically managed by a founding sponsor, who earns fees for services they render such as managing or acquiring properties. These non-traded REITs raise money for these acquisitions by selling shares in the REITs to retail investors.
Non-traded REITs trend to attract unsophisticated investors who do not understand the extent of the risks involved in the investment, such as lack of liquidity, conflicts of interest, and high fees. Brokers who sell non-traded REITs can earn anywhere from 6-15% in commissions for selling these products. In some cases, due to the high commissions brokers and financial advisors may ignore their duty to recommend investments that are suitable for the investor in order to profit off of the sale of a non-traded REIT.
Non-traded REITs are typically sold at $10 or $11 per share, which is an arbitrarily set price that does not change unless the REIT gets revalued. Other than limited exit windows, investors can only redeem (exit) the investment when the REIT lists publicly, is acquired, or if the investor can find a private buyer. Non-traded REITs are supposed to have a limited life, usually not exceed 10 years, after which they are supposed to distribute the proceeds from the investments.
Brokers selling unlisted REITs have raised more than $59 billion since 2000, which has caused securities regulators to examine the sales practices of those brokers. In particular, securities regulators are focused on whether or not the sales were suitable for investors and whether the brokers failed to fully disclose the risks, fees and liquidity of the investments.
As a result of the economic turmoil of the past few years, investors have been filing securities arbitration claims after being hurt by share devaluations along with the suspension of share buyback and dividend programs in non-traded REITs. Some of the non-traded REITs that were forced to respond to lower occupancy rates and falling rents with reduced dividends or suspension of redemptions.
In response to the dividend reductions and redemption suspensions in these non-traded REITs, investors have been filing FINRA arbitration claims against the securities brokers or financial advisors who sold them the non-traded REITs in an effort to try to recover some of their losses.
Non-traded REITs May Not Be Suitable For All Investors
Securities brokers and financial advisors have a duty to recommend investments that are "suitable" for, among other things, an investor's age, investment objectives, risk tolerance. In many cases, by recommending that an investor purchase a non-traded REIT, a breach of the suitability rule takes place as the financial advisor is not taking into account the client’s investment objectives in light of the risks involved in non-traded REITs. Some of the risks that make a non-traded REIT unsuitable for an investor include (but are not limited to) the following.
1. All non-traded REITs invest in various types of real estate properties. They buy the properties, manage and maintain the properties, attempt to rent the properties, and ultimately seek to sell the properties for profit. That raises the first concern: REITs are concentrated in one market sector – real estate. Whether the REIT invests in lodging, office, industrial, residential, health care facilities, or a combination thereof, the REIT portfolio neither is balanced nor diversified. As such, REITs are subject to all of the real estate related investment risks and economic risks.
2. Non-traded REITs suffer from conflicts of interest. For example, the sponsor’s chairman or president may own or have duties as an officer of a third-party advisor, a manager, contractor or a competitor. This problem is so widespread that the securities regulator FINRA has sent “targeted examination requests” to firms promoting non-traded REITs in order to investigate those conflicts of interest.
3. Non-traded REITs commit “highway robbery” in charging egregious upfront fees of 12% to 15%. One is hard-pressed to identify a higher-charging investment.
4.Non-traded REITs are illiquid. That means that there is no public market for sale. Sometimes, but certainly not often, these products can be sold through a “secondary market”, but only at a small fraction of the offering price in a kind of “fire sale.”
Recovery Options For Investors
Investors who have suffered losses investing in non-traded REITs and other unsuitable investments may be able to recover their losses through the securities arbitration process administered by the Financial Industry Regulatory Authority ("FINRA").
The attorneys at Eccleston Law are representing investors who have suffered losses investing in non-traded REITs recommended by Manitowoc, Wisconsin financial advisor James J. Albright, Jr. in FINRA arbitration proceedings. If you are investor who has suffered losses investing in a non-traded REIT that was recommended by Manitowoc, Wisconsin broker James Albright, Jr. (CRD: 2035269) and would like a free, no obligation consultation about your recovery options, please contact one of our attorneys at 312-332-0000.