TAG | Behringer Harvard Short-Term Opportunity Fund
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Comments off · Posted by Securities Lawyer in FINRA
Bruce Kelly writes in an InvestmentNews.com article, that another nontraded real estate investment trust has taken a sudden and precipitous decline in value — this time plunging nearly 72%.
The investors in the Cornerstone Core Properties REIT Inc. were told this month by the company that the shares, once valued at $8, are now worth $2.25. “The estimated per-share value has been adversely affected by the recent global economic downturn, negatively impacting our small business tenant base, which has resulted in approximately $43 million of previously announced impairment charges recorded in the second and third quarters of 2011,” according to the letter, which was signed by Terry Roussel, the REIT’s chairman and chief executive.
Kelly writes that a sharp decline in tenant occupancy has hammered the REIT: Tenant occupancy of the REIT’s retail properties was 69% at the end of last year, compared with 92% at the end of 2008. “A couple of years ago, the sponsor had some regulatory issues and had to shut down capital raising,” said Anthony Chereso, CEO of FactRight LLC, a due-diligence firm that covers managers of alternative investments. “It had some properties with tenant issues, and the portfolio had issues with covering debt and distributions. It was not constructed well.” FactRight last year recommended that broker-dealers pull the Cornerstone Core Properties REIT from their platforms, Mr. Chereso said.
These REIT’s regulatory issues had to do with marketing at the sponsor level, Mr. Chereso said. The sponsor broker-dealer is Pacific Cornerstone Capital Inc. “Their only option is to liquidate,” he said. “There’s not a whole lot that can be done to revive it.”
Kelly writes the Cornerstone REIT raised only $172.7 million between 2006 and 2009, making it a relatively small player in a marketplace in which the largest players have raised and deployed billions of dollars. Still, other nontraded REITs or real estate funds sold by REIT sponsors recently have seen dramatic declines in value, eating away at investors’ portfolios and making life difficult for the brokers who sold the products.
By the end of December, investors in the Behringer Harvard Short-Term Opportunity Fund I LP, which had about $130 million in total assets, saw its valuation drop to 40 cents a share, down drastically from $6.48 a share Dec. 31, 2010, and the Behringer Harvard Opportunity REIT I Inc. saw its estimated value decline to $4.12 a share at the end of last year, from $7.66 a year earlier.
The Cornerstone Core Properties REIT changed its chief financial officer at the end of last year, replacing Sharon Kaiser with Stephen Robie, according to filings with the Securities and Exchange Commission.
In conclusion of the InvestmentNews.com article, Kelly writes that the REIT has been focused on paying down debt, selling three properties in the fourth quarter of 2011 with $24.8 million in sales value. The proceeds were used to pay down $13.5 million of debt and to build cash reserves, according to an SEC filing.
Securities Lawyer, Lars K. Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have sustained investment losses due to your stock broker or financial advisor’s recommendations, call for a free consultation on how to potentially recover your losses. To speak with an attorney call 888-760-6552, or visit our website at: www.securitieslawyer.com.
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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Comments off · Posted by Securities Lawyer in FINRA
In a January 24th., 2012 article for InvestmentNews.com, Bruce Kelly writes that it’s more bad news for Behringer Harvard Holdings LLC, as an investor who saw the value of her real estate fund drop to $2,000, from an original investment of $50,000, has begun to complain to regulators.
On January 20th., 2012, D. Gayle Salyer wrote a letter to the Financial Industry Regulatory Authority Inc. to complain about the real estate firm, which has seen the estimated valuations of some its real estate investment trusts and funds slashed recently.
“What is going on with the Behringer Harvard Short-Term Opportunity Fund?” Ms. Salyer wrote. “In a six-year period, BH has blown away $48,000 of my money. I would like to know how much of my money has been taken by Mr. Behringer as salary, benefits and expenses, as well as the management team.”
At the end of 2011, investors in the Behringer Harvard Short-Term Opportunity Fund I LP, which had about $130 million in total assets, saw its valuation drop to 40 cents a share, down drastically from $6.48 a share Dec. 31, 2010.
Kelly writes that Ms. Salyer, 70, said she had not filed an arbitration complaint against her broker, Dennis Freeman, who is affiliated with Capital Financial Services Inc. She also said she wrote the letter to Finra with the assistance of Mr. Freeman, who said that she also sent a letter to the Texas State Securities Board. Behringer Harvard is based in Addison, Texas.
The InvestmentNews.com article adds that particularly distressing is the lack of direct communication from Behringer Harvard explaining what happened to wipe almost all of the fund’s value, said Ms. Salyer, who also lost $32,000 of a $50,000 investment in Provident Royalties LLC, a series of private placements that the Securities and Exchange Commission in 2009 charged with fraud. Behringer Harvard “keeps sending me stuff that shows my money is gone,” she said. “The only communication is the [account] statement. They sent nothing to say we’re in trouble. Nothing.”
The (SEC) Securities and Exchange Commission has jurisdiction over funds and REITs, while Finra has jurisdiction over broker-dealers that sell those products, industry observers noted.
Kelly writes that Finra has recently drawn attention to the issue of how the valuation of illiquid investments — including non-traded REITs — are shown on client account statements. In September, Finra issued for comment a proposed amendment to the current rule, and the proposal would limit the time period that the initial, estimated value would be used on the client account statement. The rule change would also require broker-dealers to deduct costs of the offering, such as commissions to brokers, from that initial valuation.
“We are looking into the areas over which we have jurisdiction, including sales to investors by broker-dealers,” said Finra spokeswoman Nancy Condon. “But we can’t comment about ongoing investigations.”
“Client-specific information is confidential and Behringer Harvard does not comment publicly about specific clients,” Behringer CEO Bob Aisner said in a statement. “Our investment services team is available to speak with investors and their financial representatives about specific account questions.”
Kelly writes that the Short-Term Opportunity Fund makes information public through regular reports and filings with the Securities and Exchange Commission. In the statement, Mr. Aisner also said: “Behringer Harvard has been very committed to the success of the fund, as evidenced by $40 million of support from Behringer Harvard which will not be recouped.” That support included waived fees and cash support from the sponsor for the fund, he wrote in the statement.
“Since the inception of the fund, investors have received $2.12 per unit in total distributions, which includes both recurring monthly distributions and special distributions,” Mr. Aisner wrote. “Condominium projects and single-family lot developments, which usually depend on redevelopment, repositioning or recapitalization, were especially hard-hit, and the fund invested in these asset types before the great recession. In addition, the fund was significantly negatively impacted by the lack of availability of financing for opportunistic assets over the last several years.”
Capital Financial Services stopped selling Behringer Harvard products within the last year said the broker, Mr. Freeman.
Behringer Harvard continues to see a reshuffling of its management team. This morning, it said that Michael J. O’Hanlon has joined the firm as executive vice president and that he will be the chief executive of Behringer Harvard Opportunity REIT I Inc., which saw its estimated value decline to $4.12 per share at the end of last year, from $7.66 a year earlier. He will also be the CEO of Behringer Harvard Opportunity REIT II. He replaces Mr. Aisner, who will be vice chairman for both those REITs.
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