Brokers May Have Unsuitably Recommended Lodging Fund REIT III

SEC Looks at Reimbursements Made to Legendary Capital REIT III

If your financial advisor recommended that you invest in Lodging Fund REIT III and you suffered losses, you may have grounds for a broker fraud claim to recover damages. 

The publicly registered non-traded real estate investment trust (REIT) disclosed in a recent filing with the US Securities and Exchange Commission (SEC) that since December 2020 the latter has been looking into certain reimbursements made to Legendary Capital REIT III, LLC, as well as at disclosures involving reimbursement procedures and policies. 

Our non-traded REIT fraud attorneys at Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com) represent investors who suffered losses involving broker fraud or negligence. Non-traded REITs can be risky investments that are not suitable for many retail investors and others. 

Contact our team at SSEK Law Firm today to request your free, no-obligation, case consultation. 

Non-Traded REIT Says Charges or Penalties Could Follow

When it was established in 2018, Lodging Fund REIT offered $100M in common stock to accredited investors via a private placement for the price of $10/share. DI Wire reported that as of the last quarter of 2020, the non-traded REIT raised $75.3M in investor funds. 

According to a 10-k filing by Lodging Fund REIT III, the non-traded real estate investment trust has a diversified portfolio that includes “limited service, select service, and extended stay hospitality properties” in the geographic area stretching from the Rockies to the Appalachian Mountains and from Texas to North Dakota. 

The portfolio reportedly includes seven hotel properties with a collective purchase price of about $100M. Legendary Capital REIT III, the non-traded REIT’s advisor, is based in Fargo, North Dakota. 

In its recent filing to the SEC, Lodging Fund REIT III noted that it was unable to comment on specifics related to the probe nor could it estimate any costs that might result. However, it did warn that “considerable legal expenses” may occur and that civil and/or criminal penalties and/or other remedies were possible. 

The Risks Involved in Non-Traded REITs

It is a broker-dealer’s duty to conduct the proper due diligence before recommending any investment to customers to make sure it is suitable and there are no issues of concern. The fact that Lodging Fund REIT III is a relatively new non-traded REIT means that it doesn’t have a long history or performance record to reveal how much risk is involved or the likelihood it will meet its objectives and make the returns investors are hoping for. 

Even without Lodging Fund REIT’s “newness” factor, publicly non-traded real estate investment trusts come with inherent risks, such as limited liquidity, the possibility of dividends getting suspended, and potential issues with selling holdings. They also generally charge very high commissions and fees and should not be recommended and sold to just any investor. 

Sometimes, a broker can make misrepresentations and omissions while marketing non-traded REITs to customers. Or, the financial advisor may have failed to make sure the investor understands the investment and its risks. The lure of high commissions can be a reason that a brokerage firm might rush to unsuitably recommend a financial product to a client.

Skilled Non-Traded REIT Fraud Law Firm

Call SSEK Law Firm at (800) 259-9010 to request your free, no-obligation case consultation with one of our experienced Lodging Fund REIT III fraud lawyers. In Texas, call us in Dallas at (214) 613-5306 or in Houston at (713) 227-2400.