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Can Northstar Healthcare Income REIT Investors Recover Their Losses?
Financial advisors and broker-dealer firms who unsuitably recommended investments in Northstar Healthcare Income Real Estate Investment Trust (REIT) may be liable for damages. The public non-traded REIT has undergone multiple developments in recent years, including the suspension of distributions, the decline of its net asset value (NAV), and the limiting of its share repurchase program, according to news reports.
What Are Non-Traded REITs? Are They Risky?
As their name suggests, non-traded REITs are real estate investment trusts—investment vehicles that pool funds from a group of investors to purchase and operate real estate properties—that are not traded on securities exchanges. Unlike private non-traded REITs, public non-traded REITs, like Northstar Healthcare Income, are registered with the Securities and Exchange Commission.
As Investopedia explains, non-traded REITs are “quite illiquid for long periods of time” and can come with front-end fees of up to 15 percent. There is no guarantee that investors in non-traded REITs will receive distribution, and if they attempt to redeem their investments early, they may face substantial costs. In a 2016 investor alert, the Financial Industry Regulatory Authority warned investors that non-traded REITs may be illiquid for eight years or longer, and that they are “rarely, if ever, suitable for short-term investors.”
What Is Northstar Healthcare Income REIT?
According to its website, Northstar Healthcare Income is an REIT “formed to acquire, originate and asset manage a diversified portfolio of equity, debt and securities investments in healthcare real estate, directly or through joint ventures.” It focuses on what it calls “the mid-acuity senior housing sector,” which includes assisted living facilities, memory care facilities, skilled nursing facilities, independent living facilities, and continuing care retirement communities. The REIT’s other investments include hospitals, medical office buildings, and rehabilitation centers. Its initial public offering concluded in February 2015, with a follow-on offering in January 2016. The offerings raised $1.8 billion in aggregate gross proceeds.
2018: Northstar Healthcare Income Narrows Share Repurchase Eligibility
In October 2018, Northstar Healthcare Income amended its share repurchase program such that it would “only repurchase shares in connection with the death or qualifying disability of a stockholder,” according to a report by The DI Wire. The change was made in consideration of Northstar’s “current financial condition, liquidity sources and capital needs,” its board said, asserting that limiting share repurchases would allow the company to “deploy capital in a way that is better aligned with the long-term interests of its stockholders.” The move followed a December 2017 reduction of the REIT’s distribution rate, “from 6.67 percent to 3.31 percent on its $10.20 final offering price.” As The DI Wire notes, Northstar’s shares were initially sold at a price of $10/share; as of June 30th, 2017, they had a net asset value of $8.50/share.
2018: Northstar Healthcare Income Reduces Net Asset Value
A few months after limiting its share repurchase program, Northstar Healthcare Income announced the reduction of its net asset value. According to The DI Wire, it reduced the figure from $8.50/share to $7.10 /share, citing “occupancy challenges in select markets, increased labor costs, restructuring leases, replacing tenants, and capital expenditures while continuing to make consistent distributions to its shareholders.” The REIT’s vice chairman, CEO, and president, Ronald Jeanneault, expressed the company’s disappointment, as well as its belief that the move would “facilitate the continued effort to enhance the performance of our investments.”
2019: Northstar Healthcare Income Suspends Distributions
In February 2019, Northstar Healthcare Income announced the immediate suspension of its monthly distribution payments. Citing the company’s financial condition and capital preservation needs, Northstar’s board said it “expects that cash retained by the distribution suspension will allow it to reinvest in its assets through maintenance and strategic capital expenditures and reduce leverage in order to drive long-term value for stockholders,” according to a report by The DI Wire.
2019-2020: NAV Keeps Falling
In June 2019, Northstar Healthcare Income REIT reduced its NAV to $6.25/share; in June 2020, it reduced the NAV to $3.89/share, according to The DI Wire. A few months earlier, in April 2020, the REIT had completely “suspended all repurchases under the share repurchase program in order to preserve capital and liquidity,” a little over a year after it suspended distributions. Its properties were worth an estimated $1.6 billion as of June 30, 2020, “compared with an aggregate cost, including purchase price, deferred costs, and other assets of nearly $2.2 billion.” The value of its joint venture investments was estimated at $389.3 million, meanwhile, “compared with a total equity contribution of $511.1 million.”
What Can Investors Who Suffered Northstar Healthcare Income REIT Losses Do?
Northstar Healthcare Income’s prospectus, filed with the Securities and Exchange Commission in 2015, states that the REIT’s common stock shares “are suitable only as a long-term investment for persons of adequate financial means and who have no need for liquidity in this investment.” The document warns that given the lack of a public market for the REIT’s shares, an investment in them would be illiquid. “You should not buy shares of our common stock if you need to sell them immediately or if you will need to sell them quickly in the future,” it cautioned.
Northstar’s prospectus laid out more specific suitability standards, requiring that investors who purchase its shares have either a net worth of at least $250,000 or a gross annual income “of at least $70,000 and a net worth of at least $70,000.” (It also described state-specific suitability standards.) As the prospectus explained, broker-dealers recommending investments in the REIT had a duty to ensure prospective investors met the suitability standards and that they understood the investment’s risks, including its illiquidity and the potential for investors to lose their entire principal. If your broker-dealer did not fully explain Northstar Healthcare Income REIT’s features and risks—and/or if they provided misleading information about the REIT—they may be liable for any losses you have suffered.
Call Carlson Law for a Free Consultation About Your REIT Investment
Carlson Law represents investors involved in claims against financial advisors and investment firms throughout the United States. If you or a loved one have suffered losses investing with Northstar Healthcare Income REIT, please call us at 888-976-6111 or complete our contact form for a free and confidential consultation.