Helping Investors: Unraveling Watermark Lodging Trust REIT Losses Mystery

For first-time investors, the Watermark Lodging Trust REIT was a golden ticket to high returns. Yet, the illusion of wealth rapidly faded as numerous allegations surfaced against it, potentially impacting thousands of investors nationwide. The allegations revolve around the Trust’s practices, with claims of dealer-manager fees being charged alongside high commissions—perhaps as high as 10% or more, particularly during the era of Carey Watermark Investors 1 and 2.
These hefty costs imply that only around 87% of an investor’s hard-earned money went into the non-traded REIT (Real Estate Investment Trust). This exploitation of investor capital is not only unethical but raises serious regulatory concerns. In addition, the trust’s per-share value reportedly dropped drastically, causing severe losses for those who initially bought in at $10/share. 

As Warren Buffet once said, “Risk comes from not knowing what you’re doing.” Applying this principle to the Watermark scenario, it’s clear that many investors took risks without fully comprehending the underlying risks with the Trust. Despite the shocking reduction in share value – possibly as much as 60% to 70%, the options for reselling are minimal given the nature of non-traded REITs, essentially leaving numerous investors stranded.

Decoding the Watermark Lodging Trust REIT Allegations in Light of the FINRA Rules

FINRA rules categorically state, “A member shall have a reasonable basis to believe, based on adequate due diligence, that a recommendation is suitable for at least some investors.” It is precisely where the Watermark Lodging Trust REIT financial advisors may be at fault.

Allegedly, the financial advisors may have failed to conform to the ‘due diligence’ requirement of the FINRA rules by recommending the Watermark Lodging Trust REIT to investors without proper evaluation. While cloaked as a high-return investment, the Trust was essentially a blind pool offering, lacking tangible properties, net income, or financing resources. As such, it may not have been feasible for the advisors to evaluate the investment accurately.

The Aftermath and Key Lessons to Learn

Presently, speculations are rife about potential lawsuits against the financial advisors involved. The primary allegation is that these professionals may have failed to effectively articulate the inherent risk of the Watermark Trust investment—thus revealing negligence.

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From this case, a couple of crucial lessons surface:

  • Predictability: Investments are not as predictable as they might seem.
  • Risk Awareness: Grasping the potential risks associated with an investment is essential before deciding.

As the U.S. Securities and Exchange Commission reveals, in 2020, individual investors filed 631 complaints against their financial advisors—with unsuitable recommendations being one of the top reasons.

This underlines the importance of maintaining a critical eye and gaining a robust understanding of your investment before diving in. As the Watermark Lodging Trust REIT scenario hints, failing to comprehend the associated risks fully, and relying blindly on financial advisors can lead to devastating economic consequences.

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