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Franklin BSP Realty Trust/Benefit Street Partners Realty Trust Losses
On October 18th, 2021, the non-traded, publicly registered real estate investment trust (REIT) Franklin BSP Realty Trust completed its merger with the publicly traded REIT Capstead Mortgage Corporation. At the time of the merger’s completion, Franklin BSP Realty Trust, previously known as Benefit Street Partners Realty Trust, was “the fourth largest publicly-traded commercial mortgage REIT,” according to a press release.
Shares in Benefit Street Partners were originally sold at $25/share, according to the REIT’s prospectus. At the close of the first day of trading after the merger’s completion, October 19th, 2021, Franklin BSP Realty Trust (FBRT) was reportedly selling at $17.10/share. By the close of business on October 21st, FBRT was selling at $16.85/share, according to The DI Wire. As of September 23, 2022, FBRT was selling at $11.88/share.
Like all non-traded REITs, Benefit Street Partners Realty Trust was a highly risky investment that was likely unsuitable for retail investors with low risk tolerances, especially those in need of liquid investments. If your financial advisor did not fully or accurately disclose the risks associated with an Benefit Street Partners and you suffered losses on your investment, you may be entitled to recover damages.
What Were the Risks of Investing in Benefit Street Partners Realty Trust?
Benefit Street Partners Realty Trust’s prospectus did not mince the risks associated with the investment (formerly known as ARC Realty Finance Trust). “An investment in our common stock involves significant risk and is suitable only for persons who have adequate financial means, desire a relatively long-term investment and will not need immediate liquidity from their investment,” it states.
The suitability standards established in the document specify that investors can only purchase shares in the REIT if they had minimum net worth of at least $250,000, or a minimum annual gross income of at least $70,000 and a minimum net worth of at least $70,000. Conversely, the document warns that the REIT may be unsuitable for “persons who require immediate liquidity or guaranteed income, or who seek a short-term investment.”
The prospectus lays out a number of other risk factors associated with an investment in Benefit Street Partners Realty Trust. As a “blind pool” offering, the REIT did not give prospective investors any opportunity to assess its investments before it made them. It warned also that it may be unable to pay, maintain, or increase the distributions it would pay to investors. Perhaps one of the REIT’s most important risks was its non-traded nature: before it became a publicly traded REIT, there was no trading market for its shares. “[A]s a result,” the prospectus warned, “it will be difficult for you to sell your shares and, if you are able to sell your shares, you will likely sell them at a substantial discount to the offering price.”
What Conflicts of Interest Were Associated with Benefit Street Partners?
The REIT’s prospectus also describes several risks stemming the conflicts of interest faced by its investment advisor, ARC Realty Finance Advisors; its sponsor, American Realty Capital; and other affiliates. These include:
“Our advisor will face conflicts of interest relating to purchasing commercial real estate investments, and such conflicts may not be resolved in our favor, which could adversely affect our investment opportunities.”
“Our advisor will face conflicts of interest relating to joint ventures, which could result in a disproportionate benefit to the other venture partners at our expense and adversely affect the return on your investment.”
“The management of multiple REITs, especially REITs in the development stage, by our executive officers and officers of our advisor may significantly reduce the amount of time our executive officers and officers of our advisor and any service provider are able to spend on activities related to us and may cause other conflicts of interest, which may cause our operating results to suffer.”
“We will compete for investors with other programs of our sponsor, which could adversely affect the amount of capital we have to invest.”
“Our advisor faces conflicts of interest relating to the incentive fee structure under our advisory agreement, which could result in actions that are not necessarily in the long-term best interests of our stockholders.”
As the prospectus itself makes clear, these factors, among others, are why an investment in Benefit Street Partners Realty Trust (now known as Franklin BSP Realty Trust) was not suitable for investors seeking conservative and/or short-term investments, and/or investors who could not afford to lose their entire principal.
If your financial advisor did not disclose these risks—for instance, the many conflicts of interest faced by Benefit Street Partners’ investment advisor and sponsor—they may be liable for recommending an unsuitable investment, misrepresenting and/or omitting material facts, breaching their fiduciary duty to place your interests above their own, engaging in negligence, or other forms of fraud.
Call Us to Discuss Your FBRT Recovery Options
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 investment losses on your investment in Benefit Street Partners Realty Trust/Franklin BSP Realty Trust, please call us at 888-976-6111 or complete our contact form for a free and confidential consultation.