As recently reported, the Board of CIM Real Estate Finance Trust, Inc. (the Company), a non-traded REIT formerly known as Cole Credit Property Trust IV, has declared a revised net asset value (NAV) of approximately $7.31 per share. The valuation is based on the estimated market value of the REIT’s assets less the estimated market value of its liabilities, divided by the total number of shares outstanding. Duff & Phelps LLC, a third-party valuation firm, assisted with the process and estimated a $7.05 to $7.61 per share valuation range with a midpoint of $7.31 per share as of June 30, 2020.  

CIM Real Estate Finance Trust was launched in January 2012, raising more than $3 billion in investor capital prior to its offering closing in April 2014. As a publicly registered non-traded REIT, various third-party brokerage firms and their financial advisors recommended an investment in the Company to retail investors nationwide. Shares were initially offered at $10 per share. The most recent NAV of $7.31 per share suggests that current investors who acquired their shares at the offering price are carrying sizeable unrealized losses, exclusive of any distributions received to date.

Headquartered in Phoenix, Arizona, CIM Real Estate Finance Trust primarily owns and operates a real estate portfolio of net leased properties throughout the United States. Last year, the Company announced its intention to transition to a mortgage REIT. As of June 30, 2020, it was disclosed that “the Company’s loan portfolio consisted of 143 loans with a net book value of $598.4 million, and investments in real estate-related securities of $16.1 million.”

Unfortunately, some investors in CIM Real Estate Finance Trust may have been induced into making an unsuitable investment in the Company, or otherwise misled into investing without being adequately advised as to the investment’s risk components. To begin, as a non-traded REIT, an investment in CIM Real Estate Finance Trust is very illiquid. Unlike stocks or ETFs, which can be readily sold and resold on a deep and liquid national securities exchange, an investment in a non-traded REIT such as CIM Real Estate Finance Trust cannot be easily exited. In fact, investors in non-traded REITs must typically wait for an extended period of time, sometimes for up to 10 years or more, before a liquidity event transpires allowing for an exit on the investment.

In some instances, investors seeking liquidity may be able to redeem their shares directly with the investment sponsor, or perhaps sell shares on a fragmented and inefficient secondary market. Unfortunately, redeeming shares with the sponsor often presents logistical hurdles, including only being able to redeem a set percentage of shares at predetermined intervals (for example, quarterly), thus impacting liquidity. Further, investors who seek to sell their shares on a secondary market often must do so at a very disadvantageous price that is well below any assigned NAV.

In addition to their illiquidity, non-traded REITs like CIM Real Estate Finance Trust usually have high up-front commissions and fees, as well as fees for due diligence and other related administrative expenses. Such high commissions and related expenses add up quickly and act as an immediate drag on investment performance. Another significant risk associated with investing in non-traded REITs is the potential for any distributions paid to consist substantially of return of capital. In some instances, investors may be uninformed and unaware that income received on the investment may consist substantially of return of capital from other investors.

Applicable FINRA rules mandate that broker-dealers, and by extension their financial advisors, must perform adequate due diligence on an investment before it is recommended to an investor. Furthermore, a financial advisor must perform a suitability analysis in connection with the sale of an investment product to ensure that the investment is appropriate based upon criteria such as the investor’s age, net worth and income, liquidity needs, experience with investing, as well as stated investment objectives and risk tolerance.

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