As recently reported, Hospitality Investors Trust, Inc. (HIT REIT, or the Company)—a non-traded REIT formerly known as American Realty Capital Hospitality Trust—has entered into a second loan modification with a certain lender on one of its outstanding mortgages. Pursuant to recent filings made by HIT REIT with the SEC, the Company has disclosed that its lender has agreed to extend the expiration date on a forbearance period on an outstanding mortgage obligation, thus providing the Company more time to consider a Chapter 11 prepackaged bankruptcy. As of March 31, 2021, the loan in question has an outstanding principal balance of $232 million, is secured by 21 of HIT REIT’s hotels, and is scheduled to mature in October 2022. HIT REIT continues to mull bankruptcy and in this regard has been in discussions with its largest investor, Brookfield Strategic Real Estate Partners II Hospitality REIT II LLC. 

Investors in HIT REIT who invested on the recommendation of a financial advisor may be able to recover their losses through FINRA arbitration, provided the recommendation to invest lacked a reasonable basis, or if the investor was otherwise misled into making the investment. Formed in July 2013 as a Maryland corporation operating as a real estate investment trust (REIT), HIT REIT currently has disclosed “an ownership interest in a total of 101 hotels, with a total of 12,673 guestrooms in 29 states.” The Company’s public offering closed in November 2015 after raising approximately $903 million in investor equity.

Through its offering, investors acquired HIT REIT shares at $25 per share. Unfortunately, in some instances, investors who purchased shares on the recommendation of a stockbroker may have been uninformed of the complex nature of a non-traded REIT such as HIT REIT, and its many risks, including its high up-front commissions and fees. When it comes to non-traded REITs, selling commissions, as well as additional costs including organizational and offering expenses, add up quickly and can amount to more than 10% of a non-traded REIT’s gross offering proceeds. Of course, such high fees and expenses act as an immediate drag on investment performance.

Moreover, as a non-traded REIT, HIT REIT is a very illiquid investment product, meaning shares cannot readily be resold. Typically, investors in non-traded REITs and similar illiquid investment products must wait for an extended period of time (in some cases, more than a decade) for a liquidity event to transpire, such as shares listing on a national exchange. Aside from such a liquidity event, investors in non-traded REITs like HIT REIT are left with few options, including selling shares through an inefficient and thinly traded secondary market, often at a disadvantageous price.

Such is the case with HIT REIT. Recent secondary market pricing suggests that HIT REIT shares were changing hands for as low as $0.46 per share in March 2021, a valuation far below the $8.35 net asset value reported by the Company for year-end 2019. Unfortunately, investors in HIT REIT who require immediate liquidity and must therefore sell through a secondary market will likely incur substantial losses, exclusive of any dividends received to date.

The attorneys at Giarrusso Law Group LLC have considerable experience in bringing claims on behalf of investors in non-traded REITs, as well as other complex and illiquid financial products. Investors may pursue a claim to recover losses through securities arbitration before FINRA, or in some instances, through litigation. Investors who wish to discuss a possible claim may contact us by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost, confidential consultation.