Investors in Moody National REIT II May Have FINRA Arbitration Claims
Investors in Moody National REIT II, Inc. (MNR II or the Company) may have arbitration claims to be pursued before FINRA, in the event that the investment was recommended by a financial advisor without a reasonable basis, or the customer was otherwise misled into investing in MNR II without being adequately informed of its many risk components. Formed as a Maryland corporation in 2014, MNR II is structured as a real estate investment trust (REIT) focused on investing “in a portfolio of select-service hospitality properties with premier brands including, but not limited to, Marriott, Hilton and Hyatt.”
MNR II is a publicly registered non-traded REIT, having ownership interests in 15 hotel properties located in six states plus $2.5 million in marketable securities. According to its most recent quarterly report filed with the SEC, the Company has engaged in several rounds of financing, starting with an initial public offering of up to $1.1 billion in MNR II common stock in 2015, consisting of up to $1 billion in shares offered to the public and up to $100 million in shares offered as part of a distribution reinvestment plan. In 2017, shares of the common stock were reallocated into various classes. In 2018, MNR II registered $990 million in shares to be sold in the Company’s follow-on public offering. As of June 30, 2020, the Company had issued an aggregate of 10.2 million shares through both the initial public offering and follow-on offering, netting gross offering proceeds of $234.6 million.
Unsurprisingly, amidst the COVID-19 pandemic, the Company’s operating results have been adversely affected as a result of declining business and leisure travel, increased operation costs for hotel properties, and delays in planned improvements, renovations, and maintenance. According to MNR II, these factors are having “a material adverse impact on our financial results and liquidity.” On March 24, 2020, the Company announced that it was suspending indefinitely the sale of shares in its public offering, the payment of distributions to stockholders, and the operation of its distribution reinvestment plan and share repurchase plan. Also, on March 24, 2020, the Company’s Board determined an estimated net asset value (NAV) of $23.50 per share of each class of common stock as of December 31, 2019.
As a non-traded REIT, MNR II is a highly illiquid investment, and uninformed investors may have learned too late that their ability to exit their investment position is limited. As shares in MNR II cannot readily be sold on a national securities exchange, investors have to look to secondary markets where shares may trade at highly discounted prices. Investors seeking near-term liquidity may also sell their shares at a discount through a third-party tender offer, such as the May 11, 2020 tender offer made by MacKenzie Realty Capital, Inc. for $5 per share.
Applicable FIRNA 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 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 confidential consultation.