Once again, David Lerner and Associates (NYSEMKT:DLA) is on the hot seat for sales of Apple real estate investment trusts (REITs). This time around, investors who purchased Apple REIT 8 from DLA are beginning to doubt whether they are going to continue to receive distributions and be able to cash out their principal. Apple REIT 8 consists of 51 hotels, and DLA investors have invested $1 billion. For the past two years, Apple REIT 8 has been strapped for cash and is in default on 4 of its hotel properties. The REIT needed a $20 million loan to sustain its operations, which was provided when Glade Knight, the founder of the REIT, agreed to personally guarantee the loan if the REIT cannot pay it back. The Financial Industry Regulatory Authority (FINRA) is also inquiring into the REITs operations. FINRA recently filed a complaint describing how Apple REIT 8 is paying monthly distributions nearly 4 times over the net income its hotels are earning. Some secondary market makers have offered to pay investors only $3 per share - a more accurate value as opposed to the $11 share value that appears on monthly statements. This means that investors have lost more than 70% of their investment, and their distributions could very well be a return of their own investment or principal.
REITs invest in a diversified set of income producing real estate properties and mortgages, and they must distribute 90 percent of net earnings to investors. REITs allow investors to partake in real estate investing without directly owning property, which may lock up large amounts of money for long periods of time. The most popular REITs are publicly traded on a stock exchange such as the New York Stock Exchange (NYSE) - they are relatively transparent in their finances and operations and are covered extensively by investment analysts. Non-traded REITs are not listed or registered with securities regulators and are supposed to be available only to accredited investors - $1 million or more in assets or $200,000.00 in annual income. Non-traded REITs disclose their finances publicly and offer shares to the public, but they do not list their shares on an exchange, which is one of many risk factors associated with them.
To date, FINRA has not taken any formal action for restitution on behalf of investors in Apple REIT 8. This does not mean that Apple REIT 8 investors cannot make personal claims for their losses. Investors who have suffered losses in Apple REIT 8 are encouraged and are certainly entitled to file arbitration claims for damages against DLA in order to recover their lost principal.
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. Please see our Instablog profile (left column) for ways to contact us and get answers to any of your questions about this blog post and/or any related matter.