NorthStar Healthcare Income Real Estate Income Trust (REIT) Investor Lawsuits & Compensation

NorthStar Healthcare REIT Investor Lawsuit, Investors May Be Entitled to Recover Losses

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

The securities lawyers at Levin, Papantonio, Rafferty, Proctor, Buchanan, O’Brien, Barr & Mougey, 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, investment experience, or age.

If you sustained financial loss from your investment in NorthStar Healthcare REIT, our firm could file a Financial Industry Regulatory Authority (FINRA) Dispute Resolution claim on your behalf and work to hold accountable for your losses the brokerage firm that sold you this investment.

About NorthStar Healthcare REIT Losses

NorthStar Healthcare Income, Inc. (also known as NorthStar Healthcare) was created to build, acquire, and asset manage a diversified portfolio of health care real estate equity, securities, and debt investments.  

Northstar Healthcare Income REIT’s prospectus establishes minimum suitability standards for a purchaser of the investments, meaning the investments are not suitable for many investors. Furthermore, various states also imposed additional requirements to be met before investors were permitted to purchase shares of Northstar Healthcare Income REIT.

Northstar Healthcare Income REIT, like other non-traded REITs, payed brokers and Financial Advisors significant upfront commissions. The Northstar Healthcare REIT estimates that it paid Selling Commissions of 7% upfront according to the Prospectus, and another 6% or more in other fees and costs. Thus, approximately 86.5% or less of an investors capital was actually available for investment by the manager. In other words, a significant portion of the money investors paid to purchase the Northstar Healthcare Income REIT was immediately diverted to their broker/financial advisor and the manager.

According to the NorthStar Healthcare distributions updates, the REIT’s board met on February 1, 2019 and decided to stop paying dividends. The decision followed a deep analysis of the entity’s business, financial health, liquidity sources, and capital requirements, which directed a strategy of preserving capital and suspending monthly distribution payments to stockholders. This was bad news for investors who relied on income from their investment.

Next in a Series of Disappointments

The move has prompted serious concerns among investors, and this is not the first time they have been disappointed to a point of justified anxiety.  In December 2017, NorthStar Healthcare shareholders experienced a decreased distribution rate—from 6.67% to 3.31%.  One year later, a December 2018 announcement from the NorthStar Healthcare board told investors that the net asset value of their shares had dropped to $7.10 per share. By December 2019, this value had dropped even further to $6.25 per share. However, options to actually sell or liquidate this investment may be extremely limited. Bids for the purchase of the Northstar Healthcare Income REIT via the Secondary Market were as low as $1.50 or less per share as of the end of March 2021. The REIT’s initial offering price was $10.20. Thus, investors may have suffered substantial losses investing in Northstar Healthcare Income REIT.

Unfortunately, many investors were not aware that the distributions they had previously received did not reflect returns on investments generated by funds from NorthStar Healthcare’s business operations. Rather, the payments were at least partially a return on each investor’s principal, which may have been funded through hefty loans. In fact, investors have not received a return on investment for years.

It is likely that some broker-dealer firms and investment advisors inaccurately or improperly represented the nature of the distributions. In many cases, these individuals were ignorant of the inner trappings of non-traded REITs and the inherent risks they pose to investors. In many other cases, brokers and financial advisors knew of the risks but recommended the products anyway, unable to resist the lucrative commissions that such products offer.

Broker Dealer Accountability

Non-traded REITs are 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

When improperly presented by advisors investors often 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 is 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.

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