The Cornerstone Core Properties REIT Inc., once valued at $8 per share, is now worth $2.25, a decline of over seventy (70%) percent. This was confirmed by Cornerstone Core Properties' letter to its investors, "The estimated per-share value has been adversely affected by the recent global economic downturn, negatively impacting our small business tenant base, which has resulted in approximately $43 million of previously announced impairment charges recorded in the second and third quarters of 2011." Additionally, the sponsor of the REIT had some regulatory issues that precluded the sponsor from raising the necessary capital to properly fund the REIT. FINRA recently announced that it is paying close attention to the sale of non-traded REITs and, in particular, the ways in which broker/dealers marketed and sold the products to investors. Even though REITs can be risky and are often illiquid, in many cases, broker-dealers marketed these investments as safe and secure. Cornerstone Core Properties REIT suffered a sharp decline in tenant occupancy (tenant occupancy of the REIT's retail properties was 69% at the end of last year, compared with 92% at the end of 2008).
Many investors in the non-traded Cornerstone Core Properties REIT have inquired about their ability to recover their losses after learning that their fund is no longer valued as much as they were previously led to believe. As a result, many claims are being filed by Cornerstone Core Properties REIT and other REIT investors for misrepresentation, unsuitable recommendations and/or overconcentrations of their investment funds in Cornerstone Core Properties REIT and other REIT investments to recover their REIT losses.
At first blush, one may think that the best claim is against the Cornerstone Core Properties REIT itself and its management but one needs to remember why they first invested. Undoubtedly, the Cornerstone Core Properties REIT and other REIT investments were recommended by your brokerage firm and financial advisor who have a fiduciary duty to not misrepresent or omit to state important facts, perform due diligence on any REIT and first make sure that the investment is suitable at all for any investor and then specifically ensure that the investment is appropriate in light of the investor's actual age, investment experience, investment objectives, tax and financial condition. If the brokerage firm and its advisor fail in fulfilling any one of these duties under common law and under the FINRA Code of Conduct, investors will have the right to recover their investment losses against them through a FINRA arbitration proceeding and/or court if no arbitration agreement has been executed.
The most common misrepresentation and misleading statement claims that the Cornerstone Core Properties REIT and other REIT investors have been making relate to the risk associated with the non-traded REITs. Many investors have complained that the Cornerstone Core Properties REIT and other REITs were not adequately represented before purchase and that they did not know the real truth about the valuations, performance, prospects, liquidity, or distribution and redemption practices of management relating to their investment. Many elderly investors seeking income were overconcentrated in Cornerstone Core Properties REIT and other REITs because they needed income. Sadly they learned too late that there were no guarantees that distributions would be made. Some REIT investors have just learned that they would no longer be receiving distributions or that the distributions they actually received were derived from loans and not the true cash flow of the REIT. Brokerage firms and their financial advisors were eager to push REIT investments on their clients for the high commissions compared to other products. REITs typically pay a high commission - often as much as 10-15% (which often explains the stockbroker's motivation in recommending the REIT investment to the investor). Unfortunately, many investors are locked in and unable to sell their REIT investments without suffering without selling into deeply discounted secondary market for some other REIT investments.
Due to the relatively high interest or dividend offered by non-traded REITs like Cornerstone Core Properties REIT, many retired investors were attracted to these products. Unfortunately, in addition to being risky investments, non-traded REITs are also illiquid (limiting investors' ability to access their own money for unforeseen expenses). Another problem with non-traded REITs is that broker-dealers are not required to frequently update the current price of the investment. This often leads investors to believe that their REIT investment is doing well even though the widespread real estate market collapse would indicate otherwise.
If you are a Cornerstone Core Properties REIT investor with the same complaints, we believe we can help you recover your REIT losses!
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.