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Moody National REIT II Suffers Losses over Pandemic

Moody National REIT II, a non-traded real estate investment trust, has undergone financial difficulties over the course of the Covid-19 pandemic, according to public filings and news reports. Investors who were unsuitably advised to recommend in Moody National REIT may be able to recover losses by filing a FINRA arbitration claim. 

What Are Real Estate Investment Trusts?

A real estate investment trust is an investment company that combines funds from a pool of investors and uses them to purchase and operate real estate. In theory, REITs promise investors access to real estate investments and the income streams they generate. Publicly traded REITs—that is, those traded on major stock exchanges—can be highly liquid investments that offer stable cash flow, though they are not immune to the general ebb and flow of the real estate markets. Non-traded REITs, meanwhile, are generally illiquid investments that offer little transparency, posing risks to short-term investors as well, in some cases, as long-term investors.

What Are the Risks of Non-Traded REITs?

The Financial Industry Regulatory Authority warned in a 2016 investor alert that non-traded REITs are “generally illiquid, often for periods of eight years or more.” The products often do not have many early redemption opportunities, while requiring investors to pay significant fees and costs. FINRA stated that they are “rarely, if ever, suitable for short-term investors,” and that they may pose liquidity challenges to long-term investors as well. As FINRA noted in a 2011 investor alert, non-traded REIT distributions “are not guaranteed and may exceed operating cash flow.”

What Is Moody National REIT II?

Moody National REIT II is a non-traded real estate investment trust that chiefly invests in the hospitality sector. It is the product of a merger with Moody National REIT I, whose portfolio included Marriott, Hilton and Hyatt hotels, according to The DI Wire. Prior to the 2017 merger, Moody National REIT II had raised $60 million from investors at an initial price of $25/share. Both Moody National I and Moody National II were sponsored by the Moody National Companies, a commercial real estate firm with more than $2 billion under its management. Commercial Property Executive reported in 2017 that once the merger completed, Moody National REIT II’s portfolio was “worth more than $450 million with select-service hotels under the major brands in major metro markets across the country, though somewhat concentrated in Texas.” 

In addition to its Texas holdings, the REIT also included hotels in Pennsylvania, Tennessee, South Carolina, and New Jersey. CEO and Chairman Brett Moody said in a statement about the merger: “REIT I delivered income for its shareholders, paying an annual distribution of 8 percent for a span lasting approximately 6 years while maintaining the original invested capital and appreciating thereon… In expanding its portfolio, REIT II will also continue to focus on delivering income along with asset preservation and appreciation.”

Why Has Moody National REIT II Lost Value?

As the hotel industry suffered reduced demand during the early months of the Covid-19 pandemic. Moody National REIT took various measures to adapt. In a letter to investors, the company pointed to Covid-19’s effects on the hospital sector as the reason for these steps. “The Board approved the foregoing actions based on the rapidly deteriorating demand across the hotel sector, which is expected to continue to negatively impact bookings and occupancy levels at the Company’s properties, stemming from the social distancing, travel restrictions and other policies implemented to combat the COVID-19 pandemic,” he wrote. “In these uncertain times, the Board and management believe that cash preservation is of critical importance and that the temporary suspension of the payment of distributions and the SRP, as well as the suspension of the Company’s public offering, are prudent measures to ensure the long-term health of the Company.”

Where Does Moody National REIT II Stand Now?

That was in March 2020. In February 2021, Moody announced in a letter to the Securities and Exchange Commission that it had indefinitely suspended the public offering of its securities. In March 2021, it disclosed in an SEC filing that its board was “unable to determine” an estimated net asset value (NAV) per share as of December 31, 2021. As of December 31, 2019, this figure had been estimated at $23.50. 

“As a result of the continuing effects of the COVID-19 pandemic, including extreme volatility and lack of liquidity in the commercial real estate market which makes accurate property values difficult to discern, as of the date of this Annual Report our board of directors remains unable to determine an updated estimated NAV per share,” the company stated. “We cannot provide any assurance as to when our board of directors will be able to determine an estimated NAV per share.” 

In its March 30, 2022 annual report, Moody National REIT II noted its most recent NAV per share estimate as $19.40. 

Was Moody National REIT II a Suitable Investment?

Moody National REIT II is a non-traded real estate investment trust whose initial public offering was a “blind pool.” What that means, as the company told investors in a 2018 SEC filing, is that “you will not have the opportunity to evaluate our future investments prior to purchasing shares of our common stock.” These features suggest that Moody National REIT II was likely not a suitable investment for the majority of retail investors, especially those whose broker-dealers charged high commissions and fees when selling the products. If your financial advisor recommended the REIT to you as a safe, liquid investment, you may have grounds to file a FINRA arbitration claim and pursue damages. 

Carlson Law Offers Free Moody National REIT II Consultations

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 Moody National REIT II, please call us at 888-976-6111 or complete our contact form for a free and confidential consultation.

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