Levin Papantonio Rafferty may be able to help you recover your losses in the Hospitality Investors Trust. Hospitality Investors Trust (HIT) is a publicly registered non-traded real estate investment trust (REIT), formerly known as American Realty Capital Hospitality Trust. Thousands of investors who were sold HIT have suffered severe losses. Shares were originally sold to most investors at $25 a share. The estimated current value of a share based on limited secondary trading values is less than $1, and HIT has now filed for bankruptcy. This means that investors could have suffered over 95% losses on their investment, or even worse. Despite a number of significant red flags dating back many years, HIT continued to be sold to many clients around the country.
According to Law360, the Hospitality Investors Trust received court approval for its Chapter 11 bankruptcy restructuring plans. This bankruptcy may be bad news for investors who were sold shares in HIT. Many debts under the plan are to be satisfied in full, including those of general unsecured creditors. Unfortunately, it appears that the shareholders and investors who bought the Hospitality Investors Trust may be left with little or nothing after the restructuring. The bankruptcy plan merely provides a “contingent value right” to shareholders that provides the potential for future payments that is dependent on the reorganized companies performance. Those payments, which are not guaranteed, are reportedly set at a maximum amount of $6.00 a share and are generally not transferrable. The bankruptcy could leave investors who were sold shares in HIT with no real recovery of their investments, and the bankruptcy will undoubtedly leave many investors with substantial losses. However, brokers and financial advisors who improperly recommended HIT or other similar products may be legally responsible for the losses suffered by their clients.
The Levin Papantonio Rafferty law firm is representing investors who were sold shares of the HIT REIT in claims to recover their losses. Our firm’s investigation has revealed that some brokers and financial advisors allegedly sold the HIT REIT as a conservative, safe, asset backed, or moderate risk investment. Further, some brokers allegedly sold the HIT REIT to retirees or elderly clients close to retirement. Unfortunately, the Hospitality Investors Trust was a high risk investment that carried a number of substantial risks. Brokers who failed to conduct adequate due diligence or did not appropriately disclose the risk of HIT to their clients may be liable for the losses suffered as a result of their failure. In addition, our investigation has revealed that some advisors who sold HIT REIT to their clients also sold other questionable or potentially unsuitable products to their clients.
One reason many brokers may have sold HIT REIT to their clients is because of the significant commissions paid to them as HIT charged high upfront fees and commissions. For example, the Trust charged 10% of the investment for selling commissions and dealer manager fee. Combined with other smaller fees and expenses, approximately 86% of an investor’s investment was actually being used for instruments by the Trust. At the moment an investor purchased HIT, they were automatically at a significant disadvantage due to the fees and commissions charged.
HIT was originally a “blind pool” offering, further making the investment highly speculative. This meant that the fund had not had any net income and did not own any properties. Further, the fund had not even identified any properties to acquire with the offering proceeds. Thus, investors and advisors were unable to evaluate the investment portfolio prior to the initial investment.
Advisors and brokers who improperly recommended the HIT to their clients may be held liable for the losses. These professionals are ethically bound to tell their clients about the risks associated with recommended investments. A broker also has an ethical obligation to consider an investor’s risk tolerance, age, investment experience, and net worth when determining whether a certain investment is suitable for the client. When a broker fails to fulfill these obligations, the firm that employs them may be held accountable for losses suffered by an investor to whom an unsuitable investment recommendation was made.
An REIT is a company that owns and operates large amounts of real estate. Unlike other reality companies, an REIT does not develop land to resell the land, but instead seeks to operate the prosperities as an investment. There are two types of REITs: publicly traded and non-traded. HIT is a non-traded REIT. The Securities and Exchange Commission (SEC) states that non-traded REITs have particular risks such as lack of liquidity, share value transparency, distribution of funds, and conflicts of interest.
Non-traded REITs are known to be risky investments suitable only for a narrow band of investors. FINRA cautions investors to carefully consider the fact that these products are generally illiquid. It can be extremely difficult to valuate or sell a non-traded REIT, especially as these shares are not listed on a national securities exchange. Even when a sale does transpire, the high fees commissions often diminish the investor’s total return.
The distribution of payments also carries risk. Distributions can be paid from any source, including unlimited amounts from offering proceeds and borrowings. These distributions could reduce the amount of capital invested in properties and could negatively impact the value of an investor’s investment.
There were numerous conflicts of interest within the trust. For example, several executives in the trust have financial interests in other REITs and other non-traded business development companies. The most clear and obvious example is William Kahane, the chief executive officer of the trust. Kahane is a director at Business Development Corporation of America, American Reality New York Recovery REIT, Inc., and several other American Reality companies. AR Capital is the now-infamous company that sponsored billions of dollars of non-traded REITs and other similar deals. AR Capital has been subjected to significant regulatory action and fines and the former CFO was even sentenced to federal prison.
If you suffered financial loss because your broker recommended HIT or any other similar programs to you, you may have a right to file a claim to recover your losses. If you are interested in a free and confidential case review, contact us at (800) 277-1193. Or you may email our attorneys directly, shareholder and attorney Michael Bixby may contacted at firstname.lastname@example.org.
The Securities and Business Litigation team at Levin, Papantonio, Rafferty, Proctor, Buchanan, O’Brien, Barr & Mougey, P.A. has handled claims involving HIT REIT and other similar products and can help you fight to recover your losses. We provide confidential and free initial consultations and case reviews. We do not charge any fees or costs unless you first recover.
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