oreide Law Investigating Claims Against Apollo Commercial Real Estate Finance (ARI)
Soreide Law Group is investigating potential claims on behalf of investors who were sold Apollo Commercial Real Estate Finance, Inc. (NYSE: ARI) by their broker. ARI is a real estate investment trust (REIT) primarily originating and investing in commercial mortgages and mezzanine loans which are collateralized by real estate located in the United States and Europe.
Namely, ARI lends and offers a wide array of commercial real estate debt products and mortgage loans. The company claims that it is capable of underwriting and structuring complex transactions to fit commercial real estate borrowers’ needs. ACREFI Management, LLC – a subsidiary of Apollo Global management, LLC – is the manager and advisor for ARI.
As of September 30, 2018, ARI has a $4,800,000,000.00 commercial real estate loan portfolio. Apparently, the portfolio contains 68 loans, 77% of which consist of first mortgage loans and 23% which consist of subordinate loans. As of January 7, 2019, ARI closed at $17.12. This is close to its 52 week low of $16.41 on December 23, 2018. This could be indicative of downward momentum, encouraging investors to sell their positions.
Risks Posed By ARI
ARI is a speculative investment for several reasons. First, it contains a high proportion of mezzanine loans. Mezzanine loans rank lower than other loans for purposes of claims, and subjects creditors to the risk of loss if borrowers default on their obligations. Moreover, since ARI may not be the lead originator on the mezzanine loans, it possibly lacks control over the borrowers and the loans. This can be problematic in the event that loans needs restructuring
Second, the portfolio contains a significant proportion of residential development or construction loans. Indeed, ARI’s losses have been caused by development projects. For example, ARI incurred financial problems with a North Dakota multifamily project; a New York City condominium development; and a Bethesda, Maryland condominium project. Although ARI now focuses on reducing mezzanine loan exposure, the company still faces substantial risk with its current portfolio.
Currently, ARI is generating a 9.9% dividend. However, ARI has faced difficulty in covering its dividend payments. In a downturn, the company’s problems covering dividends grow. Critically, ARI could potentially cut off the dividend. Furthermore, a recession could cause the stock to trade at a significant discount to peers. All things considered, a downturn could potentially cause ARI’s stock to drop north of 30%.
Brokers Selling Bad REITS
Often times, brokers sell REITS to investors as a mechanism to generate returns from real estate without having to buy property. However, brokers can, and often do, mislead investors regarding the risks of REITS and the investment costs (fees, commissions, etc.). Namely, brokers sometimes focus on high yields to attract investors while downplaying the risks of volatility and the lack of diversification in a REIT portfolio. Additionally, some brokers sell REITs to unsophisticated investors with conservative objectives. Consequently, investors don’t realize the true extent of the risks until they have incurred severe losses.
If you experienced losses by investing in ARI, contact Soreide Law Group at (888) 760-6552 and speak with experienced counsel about a possible recovery of your investment losses. Our firm has recovered millions of dollars for investors who have suffered losses due to broker and brokerage firm misconduct. We represent clients on a contingency fee basis and advance all costs.