Alternative Investments

Updated: November 2023

What Are Alternative Investments?

Alternative Investments: These are assets that are not stocks, bonds or cash. Alternative investments generally fall within five categories: hedge funds, private capital, natural resources (oil and gas, energy), real estate (REITs) and infrastructure. They are typically less liquid that conventional investments, less regulated with higher fees and generally higher risk.

Alternative Investments include these types of non-publicly traded investments:

  • Regulation D Private Placements
  • Oil and Gas Limited Partnerships
  • Master Limited Partnerships (MLPs)
  • Real Estate Investment Trusts (REITs)
  • Business Development Companies (BDCs)
  • Hedge Funds
  • Private Equity
  • Commodities
  • Art and Collectables
  • Cryptocurrency
  • Managed Futures
  • Annuity and Insurance Products
  • Promissory Notes
  • Tenants in Common (TICs)
  • Exchange Traded Funds
  • Equipment Leasing Funds
  • Collateralized Mortgage Obligations (CMOs)
  • Collateralized Loan Obligations (CLOs)

What we hear from our clients. We have represented hundreds of individuals who purchased various alternative investments (REITs and BDCs are some of the most popular). A common sales pitch we hear from our clients is that the products are sold as being much like a bond, with regular dependable income and the expectation of a liquidation and capital gain 5-7 years down the road. Many of these products cease distributions within a few years and since they are typically not traded on any conventional market, they are highly illiquid. If you need cash, don’t count on selling your alternative investment quickly, if at all. Oftentimes there is no market or a highly discounted secondary market.

Examples of Alternative Investments

Here is a listing of some of the non-publicly traded alternative investments we have seen in client portfolios over recent years:

  • American Healthcare REIT
  • BSP Realty Trust (Formerly Benefit Street Partners REIT)
  • CIM Real Estate Finance Trust
  • CNL Healthcare
  • Corporate Property Associates
  • Franklin BSP Lending Corp. (formerly Business Development Corp of America)
  • FS Energy & Power Fund (Franklin Square)
  • Griffin Realty Trust
  • GWG L Bonds
  • GPB Capital Holdings Products
  • Healthcare Trust(Formerly ARC Healthcare II)
  • Highlands REIT
  • Hines Global Income
  • Hospitality Investors Trust (HIT REIT)
  • Inland Real Estate Income Trust
  • Inland American Real Estate Trust
  • Inland Western Real Estate Trust
  • KBS REITs
  • Lightstone Value Plus
  • Moody National REIT
  • Northstar Financial Services
  • Northstar Healthcare Income
  • Pacific Oaks Strategic Opportunity REIT
  • NYC REIT
  • Pacific Oak Strategic Opportunity REIT
  • Parking REIT
  • Phillips Edison & Company
  • Sila Realty Trust (formerly Carter Validus Mission Critical REIT II)
  • Smartstop Self Storage REIT
  • Steadfast Apartment REIT
  • Strategic Realty Trust
  • Summit Healthcare REIT
  • United Development Fund (UDF)

Alternative Investments are typically high risk. They pay high commissions creating a temptation for the financial advisor since he can earn 8-12% for himself and his firm. This temptation to earn high commissions often tempts the financial advisor to push these products and ignore following suitability protocol.

This results in higher revenue to the firm and the advisor and a customer who is stuck with an unsuitable, illiquid and risky investment.

Securities Regulators Warnings About Alternative Investments

The U.S. Securities & Exchange Commission warns that non-exchange traded REITs are risky due to:

  • Lack of Liquidity – Alternative investments cannot be sold on the open market.
  • Share Value Transparency– Non-traded REITs typically do not provide an estimate of FMV until 18 months after their offering closes.
  • Distributions May Come from Offering Proceeds and Borrowings– This gives the impression of a successful going concern, however when the retained proceeds have been distributed they may be no profits to distribute.
  • Conflicts of Interest– In addition to the conflict the financial advisor has due to the temptation to ignore suitability and earn high commissions, REITs typically have an external manager providing opportunity to generate high fees.

FINRA Investor Insights on REITs.

The Alternative Investment Recovery Lawyers at Rex Securities Law Can Help You Recover Your Investment Losses

If you have suffered investment losses on alternative investments or if you have questions about how your account has been handled by a financial advisor, contact us for a complimentary consultation with an experienced securities lawyer to learn how you may be able to recover damages through FINRA arbitration.

The Financial Industry Regulatory Authority (FINRA) is the agency that licenses and regulates stockbrokers and brokerage firms. FINRA requires brokers and brokerage firms to report customer complaints and disputes as well as regulatory sanctions. In addition brokers are required to disclose certain financial matters such as personal bankruptcies, judgments and liens

With offices in Boca Raton, FL and Austin, TX, stockbroker fraud attorney Bob Rex provides representation to investors nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers, financial advisors, and broker dealers.

If you have questions about how your account has been handled, call (877) 224-3199 to speak with an experienced securities attorney at no cost to you.

Most cases are handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.

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