In 2023, Griffin-American Healthcare REIT, now part of American Healthcare REIT, faced significant legal scrutiny following a series of financial losses and alleged mismanagement. The REIT, formed by the merger of Griffin-American Healthcare REIT III, Griffin-American Healthcare REIT IV, and American Healthcare Investors, saw a sharp decline in its stock value after its initial public offering (IPO) and reverse stock split. This has led to a wave of lawsuits and investor claims, many of which center around the alleged improper sale and recommendation of this complex financial product by brokers.
The Formation of American Healthcare REIT
American Healthcare REIT was formed in 2021 through the merger of Griffin-American Healthcare REIT III and IV, as well as the acquisition of American Healthcare Investors. This merger created a portfolio valued at around $4.6 billion, including medical office buildings, senior housing, skilled nursing facilities, and other healthcare-related properties. While this merger initially seemed promising, it soon became clear that many investors had not anticipated the risks involved.
Stock Value Decline and Investor Losses
One of the most significant issues for investors has been the sharp drop in the value of their shares. Following a 4-for-1 reverse stock split, American Healthcare REIT’s stock, which had an estimated net asset value (NAV) of $31.40 per share in early 2023, plummeted to $12 per share at the time of the IPO. Many investors, particularly those who had bought shares in the non-traded REIT before the merger, saw substantial losses. This dramatic fall in share value has prompted numerous investors to seek legal recourse.
A third-party tender offer in January 2024 further exacerbated investor concerns. The offer, at $13.15 per share, was 58% below the REIT’s NAV, highlighting the significant loss in value for many stockholders. Compounding the problem, the company suspended its share repurchase program, leaving investors with few options to liquidate their holdings without incurring additional losses.
Legal Issues and Investor Claims
The lawsuits against Griffin-American Healthcare REIT and its financial advisors primarily focus on allegations of unsuitable investment recommendations. Non-traded REITs, such as Griffin-American Healthcare REIT, are often marketed to retail investors without fully disclosing the risks involved, including high commissions (up to 15%) and lack of liquidity. Many investors were sold shares in the REIT without a proper understanding of the long-term risks, especially those related to illiquidity and potential market fluctuations.
Law firms across the country have taken up the cause, encouraging investors to file claims through the Financial Industry Regulatory Authority (FINRA) arbitration process. These claims target brokers and brokerage firms that may have violated their fiduciary duty by failing to properly vet the investment or misrepresenting its risk profile. Many investors who purchased shares through their financial advisors are now seeking compensation for losses sustained due to these allegedly improper recommendations.
Broader Implications for Investors and REIT Market
The ongoing litigation surrounding American Healthcare REIT is emblematic of broader issues within the REIT investment space. Non-traded REITs are complex financial products that carry significant risks, yet they are often sold to conservative or inexperienced investors who may not fully understand these risks. The high commissions associated with these products can also incentivize brokers to push them on clients, regardless of suitability.
As the lawsuits continue, financial experts warn investors to be cautious of non-traded REITs and to thoroughly research any such investments. Transparency, liquidity, and potential conflicts of interest should all be considered before making any commitments in this space.
Conclusion: What’s Next for American Healthcare REIT?
The lawsuits against American Healthcare REIT and its predecessors highlight the potential pitfalls of investing in non-traded REITs. As more investors come forward with claims, the outcomes of these legal battles could set important precedents for both investors and financial advisors. For those who have suffered losses, exploring legal options through FINRA arbitration or litigation may be the best path forward.
Investors are urged to stay informed about the risks associated with complex financial products like REITs, and to consult with independent advisors before making investment decisions. As the legal proceedings progress, the resolution of these cases will likely have lasting impacts on the non-traded REIT market and the responsibilities of financial advisors in recommending such investments.
