Business Development Companies (“BDCs), Non-traded Real Estate Investment Trusts (“REITs), and most other alternative or direct investments are illiquid investments, not listed on public exchanges and with little to no secondary market trading.
NorthStar Healthcare Income Inc. is a non-traded real estate investment trust or “REIT.” The Fund’s “investment strategy” was to purportedly acquire and manage a portfolio of healthcare investments in assisted living, memory care, skilled nursing, and independent living facilities.
As the US Securities & Exchange Commission, in its approval of the consolidated FINRA Suitability Rule observed:
Reasonable-basis suitability requires a broker to have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors.
In general, what constitutes reasonable diligence will vary depending on, among other things, the complexity of and risks associated with the security or investment strategy and the firm’s or associated person’s familiarity with the security or investment strategy.
A firm’s or associated person’s reasonable diligence must provide the firm or associated person with an understanding of the potential risks and rewards associated with the recommended security or strategy.
See Securities Exchange Act Release No. 63325 (November 17, 2010).
However, it was disclosed at the time of sale, the Fund’s offering materials disclose that the company has no operating history, and that the offering was a “blind pool” offering, in that at the time of the offering the Fund had not identified any of the assets that it intended to acquire.
NorthStar Healthcare also disclosed in its offering materials that the acquisition of real estate investments from “affiliates” may not be “conducted on an arm’s length basis,” and that in addition to a 1% Annual Asset Management Fee, the Fund will pay its affiliated advisor, an Asset Acquisition Fee of 4.25%, and an Asset Disposition Fee of 3% for every property bought or sold within the Fund.
At the time of sale, NorthStar Healthcare paid broker-dealers a 10% commission to sell these securities to their customers.
In February 2019, NorthStar Healthcare suspended all distributions to its shareholders, and in April 2020, suspended all repurchases or redemptions of the company’s securities. As of even date, these investments have lost more than 70% of their original purchase price.
Investors in NorthStar Healthcare should consult with qualified counsel to determine their legal rights.
Guiliano Law Group
Our practice is limited to the representation of investors. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a consultation or an evaluation of your claim. For more information, contact us at (877) SEC-ATTY.