Lightstone Value Plus REIT Lawsuit | Class Action Advances
A federal judge has ruled that investors may proceed with a Lightstone Value Plus REIT lawsuit alleging that the directors and advisers of three Lightstone Value Plus REITs failed to disclose a conflict of interest worth more than $59.8 million to their chairman before shareholders voted in 2022 to remove the funds’ liquidation deadlines. The White Law Group continues to investigate potential FINRA arbitration claims on behalf of investors in Lightstone Value Plus REIT I, Inc., Lightstone Value Plus REIT II, Inc., and Lightstone Value Plus REIT III, Inc. against the brokerage firms that allegedly recommended these non-traded REITs.
Judge Allows Lightstone REIT Class Action to Proceed
U.S. District Judge Michael A. Shipp ruled on August 5, 2026, that investors adequately alleged the 2022 proxy statements and related solicitor calls omitted a material conflict of interest involving the REITs’ chairman and chief executive officer and, through affiliated entities, the owner of the funds’ external advisers. The case, Ayer et al. v. Lightstone Value Plus REIT I, Inc. et al., Case No. 3:24-cv-10371, filed in the U.S. District Court for the District of New Jersey, will reportedly move forward on all four counts, including breach of fiduciary duty against the director defendants and the advisory entities.
This ruling denies a motion to dismiss and allows the case to proceed — it is not a finding on the merits, and the defendants have not been found liable.
The Alleged $59.8 Million Conflict of Interest
Plaintiffs allege that the executive, through three special-purpose entities, held subordinated participation interests in the REITs potentially worth more than $59.8 million — interests that would have been rendered worthless had Lightstone Value Plus REIT II and Lightstone Value Plus REIT III liquidated on schedule, as their original charters allegedly required, by September 2024 and March 2025, respectively. According to the complaint, the 2022 proxy statements disclosed that the chairman’s interests existed but allegedly did not disclose that they had no value unless the REITs’ duration was extended — a fact the court found could have significantly altered what a reasonable shareholder understood about the vote.
Allegedly Misleading Solicitor Calls
Judge Shipp also found that phone solicitors hired by Lightstone allegedly made misleading statements to undecided shareholders between the REITs’ initial December 2022 annual meeting, when the amendments failed to pass, and a reconvened meeting in January 2023, when they passed. Investors allege solicitors told shareholders a “yes” vote was “the most likely path to liquidity,” when in fact it eliminated the liquidation deadline altogether. The court reportedly described the proxy materials as failing a basic disclosure standard, citing case law holding that “proxies should be lucid, and not a game of Clue.”
Charter Amendments Reduced Shareholder Protections
The charter amendments, which appeared on shareholder proxy cards as a single bundled line — “To approve an amendment and restatement of our charter” — also allegedly eliminated board fiduciary duties to shareholders, reduced quorum requirements to as little as 33% of votes entitled to be cast, restricted shareholder access to investor lists, and expanded indemnification protections for officers and directors.
According to FactRight, an alternative investment news site, the elimination of these charter provisions removed several NASAA shareholder protections and generally reduced shareholder participation in the governance of the REITs, enhanced the power of the boards of directors, and eliminated provisions that were intended to guide the Lightstone REITs toward liquidity events for shareholders. The amendments allegedly eliminated the requirement for the REITs to provide liquidity to shareholders by the 8th or 10th anniversary or otherwise seek liquidation, and reportedly reduced the boards’ fiduciary obligations and appraisal rights for shareholders.
The court did not resolve a separate dispute over whether the Lightstone Value Plus REIT II vote met the required 50% approval threshold, finding the question immaterial to its ruling on the motion to dismiss.
According to FactRight, the Lightstone REITs reported cumulative total assets of approximately $900 million as of June 30, 2022, with debt-to-total-assets allegedly ranging from 41% to 49% across the three funds as of that date. Lightstone Value Plus REIT I was declared effective in 2006, Lightstone Value Plus REIT II in 2009, and Lightstone Value Plus REIT III in 2014, according to the article.
A Familiar Pattern: The 2017 Lightstone REIT I Vote
The 2022 votes reportedly followed a similar 2017 vote, in which Lightstone Value Plus REIT I shareholders approved an indefinite extension of that fund’s duration using comparable “flexibility” language. Plaintiffs cite REIT I’s subsequent redeployment of capital into new development projects, including stakes in several Lichtenstein-affiliated Moxy-branded hotels, as evidence supporting their claim that Lichtenstein did not intend to pursue liquidity regardless of which Lightstone REIT was involved.
Lightstone Value Plus REIT IV and REIT V
The class action concerns Lightstone Value Plus REIT I, II, and III. The White Law Group is separately investigating potential claims involving Lightstone Value Plus REIT IV, which suspended share redemptions in March 2020 before reinstating them for hardship cases in May 2021, and Lightstone Value Plus REIT V, whose redemptions have reportedly been limited to a shareholder’s death. While Lightstone IV shares were originally sold for $10.00, the most recently reported estimated NAV per share was $8.50 as of December 31, 2020. The company reportedly paid special distributions per share of $0.37 in January 2021 and $0.215 in September 2021, according to filings with the SEC. Lightstone IV’s offering was declared effective on February 26, 2015, and the company had raised gross proceeds of $85.6 million through the sale of approximately 8.9 million shares through 2017.
Are Non-Traded REITs a Safe Bet?
Non-traded REITs come with several risks, including a lack of liquidity. High commissions could be a motivating factor for financial advisors to sell the REIT regardless of whether the investment is in line with a client’s investment objectives and profile. The total commissions and expenses associated with non-traded REITs can also make it difficult for these investments to perform in line with the broader market.
Prior to making recommendations to an individual investor, brokerage firms are required by the Financial Industry Regulatory Authority (FINRA) to disclose the risks of an investment. Recommendations should only be made if the investment is suitable for an individual investor given their age, investment objectives, investment experience, and risk tolerance. Brokerage firms that fail to perform adequate due diligence on an investment and/or make unsuitable recommendations can potentially be held accountable for investment losses through FINRA arbitration.
Potential Legal Options to Recover Investment Losses
Investors who purchased Lightstone Value Plus REIT I, II, or III through a broker-dealer, and who believe the investment was unsuitable or improperly recommended, may have separate claims against that firm through FINRA arbitration, apart from the pending class action against the REITs’ directors and advisers. If you suffered losses in a Lightstone REIT and would like to discuss your litigation options, please call the securities attorneys of The White Law Group at (888) 637-5510 for a free consultation.
Frequently Asked Questions
Is the Lightstone Value Plus REIT lawsuit a class action or a FINRA arbitration claim?
The case discussed above, Ayer et al. v. Lightstone Value Plus REIT I, Inc. et al., is a civil class action lawsuit pending in the U.S. District Court for the District of New Jersey against the REITs’ directors and external advisers. This is separate from FINRA arbitration, which is the process individual investors typically use to pursue claims against the brokerage firms that sold them the investment.
What did the judge actually decide on August 5, 2026?
Judge Shipp denied the defendants’ motion to dismiss, allowing the case to proceed on all four counts. This means the court found the allegations were adequately pled — it is not a ruling on the merits, and the defendants have not been found liable for any wrongdoing.
Can I still pursue a claim if I sold my Lightstone REIT shares or wasn’t part of the 2022 vote?
Investors who purchased Lightstone Value Plus REIT I, II, or III through a financial advisor may have an independent claim against the brokerage firm for unsuitable recommendations, regardless of how they voted on the 2022 charter amendments. Contact The White Law Group to discuss your specific situation.
Contact The White Law Group
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington. If you invested in a Lightstone Value Plus REIT and want to discuss your legal options, contact our FINRA arbitration attorneys at (888) 637-5510 for a free consultation, or visit our contact page.
