Investors in NorthStar Healthcare Income, Inc. Have Limited Liquidity Options and Likely Face Substantial Losses
Investors in NorthStar Healthcare Income, Inc. (NorthStar or the Company) who invested on the advice of a financial advisor may be able to recover their losses through FINRA arbitration, if the recommendation to invest lacked a reasonable basis or if the investment was sold through a misleading sales presentation. Headquartered in New York, NY, NorthStar was formed in 2010 as a Maryland corporation and operates as a real estate investment trust (REIT).
NorthStar was formed to “acquire, originate and asset manage a diversified portfolio” of healthcare-related real estate investments including certain “assisted living (ALF), memory care (MCF), skilled nursing (SNF), independent living (ILF) facilities and continuing care retirement communities (CCRC). . . .” The Company completed its IPO in February 2015, and initially raised $1.1 billion of investor capital. Subsequently, through a follow-on offering and under its distribution reinvestment plan (DRP), the Company raised total gross proceeds of $2 billion through June 30, 2020.
As a publicly registered non-traded REIT, NorthStar was sold through a public offering at $10 per share. Unfortunately, in some instances, investors who purchased shares on the recommendation of a stockbroker may have been uninformed of the complex nature of the investment and its many risks, including its high up-front commissions and fees. As set forth in its prospectus, NorthStar charged investors a selling commission of up to 7% of gross offering proceeds, a dealer-manager fee of up to 3%, and an acquisition fee of 2.25% for properties acquired by the Company. Such high commissions and fees add up quickly and act as an immediate drag on investment performance.
Furthermore, NorthStar is a highly illiquid investment product, meaning shares cannot be readily resold. Typically, investors in non-traded REITs and similar illiquid investment products must wait for an extended period of time (in some cases up to 10 years) for a liquidity event to transpire, such as shares listing on a national exchange. Besides waiting for such a liquidity event, shareholders are left with few options, including redeeming shares directly with the sponsor under a share repurchase program. Unfortunately, some investors may discover that their ability to redeem shares is severely limited, or even completely prohibited, under any share repurchase program. Such is the case with NorthStar.
In October 2018, the Company’s board of directors approved an amended share repurchase program which limited share redemption, unless the shareholder had died or had a qualifying disability. Subsequently, in April 2020, amidst market uncertainty surrounding the COVID-19 pandemic, the board altogether suspended any share repurchases, effective April 30, 2020.
As it currently stands, NorthStar investors seeking liquidity are left with limited options. On the one hand, investors may participate in a tender offer from a third-party, typically at a disadvantageous price and to the extent such a tender offer even exists. Alternatively, investors may also seek to sell some or all of their shares on a fragmented secondary market. As of late 2019, shares of NorthStar were selling on such a secondary market for about $2.50 per share. Therefore, based on an offering price of $10 per share, any investor who sold their shares through the secondary market at about $2.50 per share likely suffered considerable losses on their investment (exclusive of any distributions received).
The attorneys at Giarrusso Law Group LLC have significant experience in prosecuting claims on behalf of investors in non-traded REITs such as NorthStar Healthcare Income, Inc., in addition to other complex and illiquid financial products. Investors may pursue a claim to recover losses through securities arbitration before FINRA, or in some instances, through litigation. Investors who wish to discuss a possible claim may contact us by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost, confidential consultation.