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Home > Blog > Steadfast Income REIT Faces Cease-and-Desist Order

Steadfast Income REIT Faces Cease-and-Desist Order

Last week, the Ohio Division of Securities State regulators issued a cease-and-desist order involving the non-traded real estate investment trust (REIT), Steadfast Income REIT Inc., for announcing price changes two months before they took effect.

As reported earlier by Investment News, Steadfast Income REIT disclosed its estimated value of $10.24 per share on July 12, 2012, but continued to sell the shares at a lower value of $10 per share until Sept. 10.

“Steadfast’s decision to publicly announce an offering price increase 59 days prior to implementation of the price increase created a sale period that may have artificially increased investor demand for its securities,” said the cease-and-desist order, which does not prohibit sales of the REIT in Ohio but calls a halt to the valuation practice.

The Steadfast Income REIT focuses on multifamily real estate and apartment houses, and has more than $690 million in total assets. The REIT was launched in 2009.

Announcing future valuation changes of a REIT can hurt shareholders because it undercuts the REIT’s current value, industry observers say.

“It creates a window for a discounted sales price,” according to Mark Heuerman, registration chief counsel for the Ohio Division of Securities. “It’s in the best interest of prior shareholders that the REIT sells shares for what it’s worth.”

Ohio does not have the authority to issue fines in such cases, and no restitution to investors was ordered.

Steadfast isn’t the first non-traded REIT to issue a new share valuation and then wait a period of time to change it. Earlier this year, real estate investor Tony Thompson attempted to ramp up sales for his TNP Strategic Retail Trust by highlighting the REIT’s rising valuation and lower per-share price.

In a note to broker/dealers at the beginning of January, Thompson stated the REIT’s current net asset value as 6% higher than its share price. “As of Nov. 9, 2012, estimated NAV increased to $10.60. Shares continue to be offered at $10,” the note said.

In March, the REIT halted paying dividends to investors. Today, Thompson is under investigation by the Financial Industry Regulatory Authority (FINRA) for allegedly failing to turn over documents to the regulator.

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