Lodging Fund REIT III Shareholders may have Claims

The White Law Group is investigating potential FINRA arbitration claims involving broker dealers who may have unsuitably recommended non-traded REITs such as Lodging Fund REIT III to investors.

Unfortunately for investors it appears that many financial advisors/brokerage firms that sold non-traded REITs such as Lodging Fund REIT III, may have understated or misrepresented the risks and liquidity problems.

According to an article this week in the DI Wire, the hospitality REIT is facing problems with a recent deal to purchase 3 hotels after the REIT and seller exchanged written notices of default with one another. 

Citing sources from SEC filings, The DI wires writes that In November 2019, Lodging Fund REIT III signed a purchase agreement for hotels located in New York and Pennsylvania and deposited $1.5 million into escrow as earnest money pending the closing or termination of the purchase agreement.

Beginning on July 31, 2020, the REIT and seller reportedly exchanged written notices of default with one another, alleging that the other failed to perform its obligations under the purchase agreement. No details were provided about the notices of default, according to the SEC filing.

According to the article, Lodging Fund REIT III reportedly claims that the parties are currently discussing potential modifications to the timing and terms of the hotel acquisitions.

Risks of Non-Traded REITs

Real estate investment trusts (REITs) are complex and inherently risky products. Unfortunately for investors, many Hospitality REITs have taken a hit due to the Covid-19 global pandemic, and some have suspended distributions during this  uncertain time.

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%.  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.

Filing a Complaint Against your Brokerage Firm

Prior to making recommendations to an individual investor, brokerage firms are required by the Financial Industry Regulatory Authority (FINRA) to disclose all the risks of an investment. Recommendations should only be made if the investment is suitable for an individual investor given their age, investment objections, investment experience and risk tolerance.

Brokerage firms that do not perform adequate due diligence on an investment and/or make unsuitable recommendations can be held accountable for investment losses through FINRA arbitration.

High commissions could be a motivating factor for unscrupulous financial advisors to sell non-traded REITs regardless of whether the investment is in line with the client’s investment objectives and profile.  Moreover, the total commissions and expenses make it difficult for the REIT to perform in line with the market.

Free Consultation with a Securities Attorney

If you are concerned about your investment in Lodging Fund REIT III, you may be able to file a complaint against your brokerage firm. Please call the securities attorneys of The White Law Group at 888-637-5510 for a free consultation.

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

For more information on The White Law Group, visit http://whitesecuritieslaw.com.