Written by The White Law Group• January 15, 2021• 3:35 pm• Blog, Current Investigations

Investor Alert: The Parking REIT to Sell Majority Stake

Parking REIT Update: Tender Offer Price Suggests Big Losses for Investors

The White Law Group continues to investigate potential securities claims involving the liability that broker dealers may have for unsuitably recommending The Parking REIT, Inc. to investors.

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The Parking REIT is an internally-managed, publicly registered, non-listed REIT that invests primarily in parking lots and garages in the United States. Its assets include 37 parking facilities located in 16 states. The REIT was formed during a merger between MVP REIT and MVP REIT II in 2017.

After numerous problems for the REIT including 3 pending class action lawsuits, the company has agreed to sell a majority stake to an affiliate of Bombe Asset Management LLC, a Cincinnati-based alternative asset management firm, according to an 8-K filing yesterday.

The agreement, in which Bombe will reportedly invest more than $125 Million, provides $35 million in cash plus the contribution of parking assets and other property valued at more than $90 million in exchange for operating partnership units valued at $11.75 per unit and warrants to purchase The Parking REIT common stock.

Shareholders have been waiting for the company to update its net asset value (NAV) since May, after reported delays due to the Covid-19 global pandemic. As of May 15, 2019, the REIT’s net asset value per share was $25.10. Shares were originally sold for $25.00 each.

According to the filings with the SEC, Bombe will reportedly commence a tender offer to purchase approximately 15 percent of The Parking REIT’s outstanding shares of common stock for $11.75 per share in cash and also intends to to purchase approximately 1.55 million shares of the REIT’s common stock for $11.75 per share from the REIT’s advisor and its affiliates, and CEO Michael Shustek.

As part of the agreement, a settlement fund is being created from the advisor’s surrendered shares for the three pending class action lawsuits that have been filed against The Parking REIT. Bombe has reportedly agreed to purchase the shares from the settlement fund for $11.75 per share.

The agreement, which was unanimously approved by the board and a special committee of directors, is expected to be completed in the second quarter of 2021. Bombe will reportedly own a majority of the company’s common equity on a fully diluted basis upon completion of the deal.

Update on February 23, 2021 – Third Party Tender Offer Price – $5.50 per share

Mackenzie Realty Capital has just launched another tender offer to purchase shares of the REIT for $5.50 per share, a deep decline from the previous tender offer price in March 2018 of $12.17 per share. The original purchase price of the Parking REIT was $25.00 per share.

Filing a Complaint against your Brokerage Firm

Many investors are not fully aware of the problems and risks associated with non-traded REITs before purchasing them.

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 and often better suited for sophisticated and institutional investors.

Another problem often associated with REIT recommendations is the high sales commissions brokers typically earn for selling REITs – as high as 15%. Brokers have an obligation to make investment recommendations that are consistent with their clients risk tolerance, net worth, investment objectives and experience in the market. Unfortunately, in many cases, the high sales commission may provide some brokers with enough incentive to make unsuitable investment recommendations.

In addition to the high risks, non-traded REITs often lack liquidity. Investors looking to sell these investments often have difficulty finding a buyer, and if they are able to find one can suffer significant losses on the sale.

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.