Real Estate Fund Could Face Cash Call

In an August 4, 2011, article by Bruce Kelly for InvestmentNews.com he writes that after avoiding the pitfalls of disastrous Regulation D deals during the past decade, Commonwealth Financial Network and LPL Financial, LLC, are contending with potential fallout from a real estate private placement that faces pressure from its creditors.

Kelley writes that financial advisers from both Commonwealth and LPL sold the fund in question, the Laeroc 2005-2006 Income Fund LP, which wants to raise another $12 million to $15 million to pay off — at a steep discount — $49 million of debt. Laeroc Partners Inc., a real estate investor that focuses on Los Angeles and other parts of Southern California, in June issued a “cash call” notice to investors who bought the Laeroc 2005-2006 Income Fund.

According to the article, the fund's lenders have said that they will foreclose by the end of the year on a shopping center in Sacramento, Calif., if the fresh cash isn't paid, according to the notice. The Laeroc fund has paid more than $180 million to buy eight properties and owes $105 million in mortgage debt.

The Reg D Difficulties

Dozens of small to midsize independent broker-dealers became entangled in the fallout from Reg D private placements after the Securities and Exchange Commission (SEC)charged two sponsors, Medical Capital Holdings Inc. and Provident Royalties LLC, with fraud in 2009.

Kelly writes that for the most part, leading independent firms such as Commonwealth and LPL sidestepped the toxic products, of which brokers sold $2.7 billion. About half of investors' principal was wiped out in those two deals, and the steep legal costs associated with client arbitration claims and settlements have pushed dozens of independent broker-dealers to close or be sold.

Industry executives noted that real estate deals, including nontraded real estate investment trusts, which raised money and bought properties from 2006 to 2009, are struggling.

Joseph Kuo, a spokesman for LPL, said that the firm's reps and clients “have successfully avoided the most difficult product-related issues associated with the financial crisis.”

“The challenges currently faced by the Laeroc fund are driven by market forces resulting from the 2008 credit crisis and the stress to the commercial-real-estate markets from the ensuing recession,” he said, adding that the firm will keep a close watch as Laeroc works to address the issue.

Securities Attorney, Lars Soreide, of Soreide Law, PLLC, has represented clients nationwide. If you or a family member have invested in private placements with Commonwealth Financial Network, LPL Financial, LLC, or Laeroc Income Fund, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.