NorthStar Real Estate Investment Trust (REIT) Investor Lawsuits & Compensation

NorthStar Real Estate Investment Trust (REIT) Investor Lawsuit

Many investors have suffered substantial losses after investing in NorthStar Real Estate Income Trust (REIT) at the unsuitable recommendation of broker-dealers.

The securities lawyers at Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor, P.A. are investigating claims from investors whose broker-dealers did not inform them of the risks of such an investment and/or neglected the factors of their clients’ risk tolerance, age, liquidity needs, investment experience, or age.

If you sustained financial loss from your investment in NorthStar REIT, our firm may be able to file a Financial Industry Regulatory Authority (FINRA) Dispute Resolution claim on your behalf and work to hold your advisor or brokerage firm accountable for your losses due to inappropriate recommendations.

About NorthStar REIT

On January 18, 2018. a three-way merger transpired between the following three entities:

  1. NorthStar Real Estate Income Trust, Inc., a public, non-traded REIT also known as NorthStar I
  2. NorthStar Real Estate Income II, Inc., a public, non-traded REIT, also referred to as NorthStar II
  3. Colony NorthStar Credit Real Estate, Inc., also called Colony NorthStar Credit

Colony NorthStar Credit survived the merger—publicly listed as CLNC—which emerged as a commercial real estate credit REIT with around $5.1 billion in assets and $3.3 billion in equity value.

NorthStar shareholders, however, did not fully enjoy the financial benefit of the merger. Instead, the original value of investors’ investments reportedly dropped by 30 percent of their original value.

Too Little, Too Late

Quite likely, NorthStar investors were not aware of the critical time factor at play prior to the merger. Things happened quickly, and investors should have been given a clear understanding of the importance of removing themselves from this investment prior to the merger’s execution.

According to the Securities Exchange Commission (SEC), N1 Liquidating Trust was formed on January 5, 2019 to hold and liquidate a first mortgage loan previously held by NorthStar Real Estate Income Trust, Inc.

On October 13, 2020, the Trust closed on the discounted payoff of a loan, selling its sole asset, the SEC reported. The Trust conveyed its plans to distribute to shareholders the proceeds received from the discounted payoff around October 31, 2020. This would result in $0.07 net per unit of beneficial interest—the final disbursement of the unitholders’ interest in the Trust, which was to be terminated shortly thereafter.

Broker Dealer Accountability

Non-traded REITs are generally known to be risky investments. FINRA cautions investors to carefully consider the fact that these products are generally illiquid, frequently for time spans of at least eight years. It can be extremely difficult to valuate or sell a non-traded REIT, especially as these shares are not listed on a national securities exchange. Even when a sale does transpire, the high fees from the sale diminish the investor’s total return.

Distributions are Not Dividends

Often, investors cannot resist the allure of periodic distributions offered by a non-traded REIT, but these distributions sometimes depend on heavy subsidies form borrowed funds. It’s difficult for an investor to know for certain whether the distributions they receive stem from a return on investment or if they consist of borrowed funds, so distributions do not necessarily reflect the value of the investment.

When an investor liquidates their shares, their return might actually be less than the original investment value. It all depends on the value of the REIT’s assets.

The Broker Dealer’s Role

A broker dealer’s role in these losses is quite simple. These professionals are ethically bound to tell their clients about the risks associated with recommended investments. A broker has an ethical obligation, too, to consider an investor’s risk tolerance, age, investment experience, and net worth when determining whether a certain investment is suitable for the client. When a broker fails to fulfill these obligations, the firm that employs them may be held accountable for losses suffered by an investor to whom an unsuitable investment recommendation was made.

Class Action Lawsuit Against Colony Credit

Investors should be aware that a class action lawsuit has been filed against Colony Credit Real Estate, Inc. (NYSE: CLNC) on behalf of investors who bought common stock of CLNC in connection with the merger of Colony NorthStar, Inc., NorthStar REAL Estate Income Trust, Inc., and NorthStar Real Estate Income II, Inc. The complaint cites multiple violations of the federal securities laws under the Securities Exchange Act of 1933.

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