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Recovery Options For New York City REIT Shareholders

Feb. 12, 2021 1:47 PM ET
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  • New York City REIT, Investigation of Securities Claims.

The White Law Group continues to investigate potential claims involving broker dealers who may have unsuitably recommended New York City REIT to investors. If you are concerned about investment losses, the securities attorneys at The White Law Group may be able to help you.

New York City REIT, formerly known as American Realty Capital New York City REIT, was launched in 2014 as a publicly registered non-traded real estate investment trust, sponsored by AR Global. The REIT invests in properties located in the five boroughs of New York City, with a focus on Manhattan.

Unfortunately shareholders are seeing huge losses after a 2.43-to-1 reverse split in July and an August listing on the Nasdaq — as much as 80% from the initial sales price.

For example, if an investor originally purchased 1,000 shares of the REIT with a value of $25,000, after the reverse stock split, the number of those shares was reduced from 1,000 to 412. That means the client who invested $25,000 now has an investment worth close to $5,000, a deep decline of 80%.

According to a letter to investors on December 28, 2020 Mackenzie Realty Capital LP, extended an unsolicited tender offer to purchase shares of New York City REIT Class B shares for $6.50 per share. The original offering price of the REIT was $25.00 per share.

Mackenzie was apparently offering to purchase the shares that were not tradeable when the REIT began trading on the New York Stock exchange. Before listing 25% of its shares for trading, New York City REIT implemented a 2.43-to-1 reverse stock split and distributed 3 shares of Class B common stock for each post-split Class A share.

Class B Shares are apparently not tradeable until they are converted into Class A Shares.

Conversion of the Class B Shares was to occur at three equal intervals on December 16, 2020, April 15, 2021 and August 13, 2021, notes Mackenzie. While the first 1/3rd should have converted, Mackenzie was offering to buy the remaining 2/3rds, according to the letter.

Since listing, the Class A Shares have traded well under the REIT’s most recent estimated NAV, which was $49.23 per Share as of June 30. Class A Shares have had closing prices ranging from $9.12 to $17.60 per share since their August 18th listing date.

NYC’s shares closed at $9.86 per share yesterday, according to Market Watch.

Risks of Non-traded REITs

Non-traded real estate investment trusts (REITs) are complex and inherently risky products. Compared to traditional investments, such as stocks, bonds and mutual funds, REITs are significantly more complex. They are often better suited for sophisticated and institutional investors.

Lack of liquidity can also be a problem. Investors looking to sell these investments often have difficulty finding a buyer, and if they are able to find one may suffer significant losses on the sale.

Brokers have an obligation to make investment recommendations that are suitable for their clients. They must consider their risk tolerance, net worth, investment objectives and experience in the market.

Unfortunately, the high sales commission may provide some brokers with enough incentive to make unsuitable investment recommendations. Brokers earn as much as 15% commission for selling REITs.

Broker dealers are required to perform adequate due diligence on any investment they recommend and to ensure that all recommendations are suitable for the investor. Firms that fail to do so, may be held responsible for any losses in a FINRA arbitration claim.

Filing a complaint against your Brokerage Firm

If you are concerned about New York City REIT, The White Law Group may be able to help you by filing a FINRA Arbitration claim against the brokerage firm that sold you the investment.

For a free consultation with a securities attorney, please call The White Law Group at 888-637-5510.

The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois.

For more information on The White Law Group, visit www.whitesecuritieslaw.com.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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