Girard Gibbs Files Apple REIT Lawsuit
On October 10, 2011, Girard Gibbs and co-counsel filed an amended class action complaint on behalf of investors in Apple REIT Eight, Apple REIT Nine and Apple REIT Ten. The Apple REITs are non-traded real estate investment trusts that invest primarily in extended stay and limited service hotels. David Lerner Associates, which has offices in New York, New Jersey, Connecticut and Florida, is the exclusive seller of the Apple REIT investments and collects 10% of every share sold as commissions and expense reimbursements. Apple REIT Eight and Apple REIT Nine are closed to new investors, and Apple REIT Ten is still open to new investors.
Allegations of the Apple REIT Class Action Lawsuit
The class action lawsuit alleges that, to ensure continued sale of Apple REIT shares and to continue collecting significant commissions and fees, the defendants misrepresented the investment objectives of the Apple REITs, the value of the Apple REIT shares, and the Apple REITs’ dividend payment policies. The defendants told investors that the Apple REITs were safe, conservative investments that would protect their savings from the volatility of the stock market, that previous Apple REITs had a track record of paying dividends at an annualized rate of return in the range of 7% to 8%, and that they could expect a favorable result from investing in the REITs through an eventual sale of the properties or other transaction at the term of their investment. The offerings were structured as “blind pool” offerings, in which investors committed their money before knowing what properties the Apple REITs would purchase with the net offering proceeds. Investors therefore necessarily depended on the accuracy of the defendants’ disclosures about the investment objectives and policies to assess the risks associated with investment.
The lawsuit further alleges that defendants did not fairly apprise potential investors that they had a policy of maintaining a steady 7% to 8% rate of distributions without regard to the Apple REIT’s ability to fund the distributions from operating income, and they did not disclose that the Apple REITs consistently purchased properties at prices that could not justify the distribution rates they were paying. Most of the distributions were made with return of investors’ capital and borrowed funds. For example, Apple REIT Eight paid $238.2 million in distributions to investors from 2007 to 2010, but only $82.3 million—or 35%—was paid with from cash from operations. Apple REIT Nine paid $188.5 million in distributions from 2008 to 2010, but only 22% ($42.2 million) was paid with cash from operations.
Did you Invest in Apple REITs through David Lerner Associates?
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Why Girard Gibbs?
Girard Gibbs is a national litigation firm representing consumers, investors, employees, and small businesses in cases involving consumer protection, personal injury, securities, antitrust, and employment laws. The firm’s senior partners, Daniel Girard and Eric Gibbs, have been selected for inclusion in The Best Lawyers in America® 2012 and Northern California Super Lawyers, and have earned AV-Preeminent ratings from Martindale-Hubbell, recognizing them in the highest class of attorneys for professional ethics and legal skills.