On June 21, 2013, the troubled Behringer Harvard REIT I, Inc. changed its name to TIER REIT, Inc. The President of the REIT, Mr. Scott Fordham stated that the name change was decided in order to symbolize “how the company reflects the goals and objectives of its tenants and stockholders in everything it does.”
Despite heavily promoting a new name and a complete REIT internalization (which allows the REIT to be self-managed and allegedly save millions in management fees), a name change did not bring Behring Harvard REIT I (TIER) investors a clean slate or a fresh start. In fact, to this day, investors continue to remain trapped in an investment that is not paying any distributions and that they cannot sell (no matter the circumstances) unless sold in the secondary market at a deep discount.
Behringer Harvard REIT I (i.e., TIER REIT) investors have been accustomed to receiving bad news, and the bad news continues. This time, the bad news relates to the amount of overall debt the REIT has incurred for the past several years, much of which could become payable before the end of this year.
In its latest quarterly report filed with the SEC, TIER REIT disclosed that approximately $221.8 million dollars in notes payable are coming due in 2013. But a more careful read of the report reveals that the amount of notes payable could skyrocket due to several loans on which TIER has defaulted. Specifically, TIER REIT disclosed the following in the same quarterly report:
Approximately $110.2 million of non-recourse loans secured by seven of our properties are in default and have scheduled maturity dates after April 1, 2013, but as of March 31, 2013, we have received notification from these lenders demanding immediate payment. The table above reflects the required principal payments of these loans using the original maturity dates. If these loans were shown as payable in full on April 1, 2013, the principal payments in 2013 would increase by approximately $108.3 million, while principal payments in 2014, 2015 and 2016 would decrease by approximately $1.4 million, $47.2 million, and $59.7 million, respectively.
In other words, TIER REIT could be forced to pay more than $300 million dollars in outstanding loans before the end of the year. This fact is very troubling in the sense that, as of March 31, 2013, TIER REIT had cash and cash equivalents of approximately $40.7 million and restricted cash of approximately $71.3 million (i.e., money that can only be used to fund tenant improvements and pay leasing commissions, property taxes, and property insurance, as required by lenders or certain lease agreements) which would not suffice to cover even half of the potential debt payable this year.
The above is further troubling because the numbers disclosed by TIER REIT for the quarter ending March 31, 2013, show certain disconcerting trends. For example, the overall rental revenue is lower than the revenue for the same quarter for 2012, property operating expenses are higher than the expenses for the same quarter for 2012, and general administrative expenses have increased more than 90 percent when compared to the same quarter for 2012.
The above could turn into yet more troubling news to investors trapped in this REIT in which shares have already lost almost 56 percent of their value (currently, the shares are valued at $4.01 per share and are set to be re-priced again somewhere around mid-2014).
TIER REIT has also suspended all distributions indefinitely and is the only major non-traded REIT that prevents any sort of redemption. This is the case even in cases of death, disability, or confinement to a long-term care facility (also known as “exceptional redemptions”). This measure was implemented in 2012 before the REIT changed its name from Behringer Harvard REIT I to TIER REIT. Below is the excerpt from the latest quarterly report referencing a complete suspension for all redemptions:
In 2009, the board made a determination to suspend redemptions other than those submitted in respect of a stockholder’s death, disability or confinement to a long-term care facility (referred to herein as “exceptional redemptions”). The board set funding limits for exceptional redemptions considered in 2011 and 2012, and on December 19, 2012, the board of directors made a determination to suspend all redemptions until further notice.
The Vernon Litigation Group law firm began raising concerns for investors about non-traded REITs more than four years ago. The firm has filed more than $7 million in claims before the Financial Industry Regulatory Agency involving non-traded REITs on behalf of investors in the past three years.
If you are concerned about your TIER REIT investment (or any other non-traded REIT investment), please contact Vernon Litigation Group at (239) 319-4434 or info@vernonhealy.com to discuss your possible options regarding a non-traded REIT claim. If you are considering investing in a non-traded REIT, you should also review our questions and answers section regarding non-traded REITs.