• June 7, 2023
• Financial Industry Regulatory Authority

The Wolper Law Firm represents investors around the country who have lost money in complex investment strategies and products, including Delaware Statutory Trusts, or “DSTs.”  The Nelson Partners Skyloft DST is a recent example of a DST “gone bad” when its issuer recently failed to uphold the terms of a $35 million loan with Axonic Capital, resulting in the sale of the underlying property by the noteholder and leaving investors holding the bag.

The Wolper Law Firm has extensive experience litigating DST cases and, in particular, DSTs involving the student housing sector like Nelson Partners Skyloft DST.  If you have experienced investment losses due to the Nelson Partners Skyloft DST, please contact the Wolper Law Firm, P.A. for a free consultation.  We can be reached at (800) 931-8452 or by email at mwolper@wolperlawfirm.com.

What is the NP Skyloft DST?

A DST is a legally recognized trust that is created for a specific business purpose.  Traditionally, DSTs are utilized to provide a governing agreement by which real estate can be purchased, held, managed and administered among a pool of investors who own participation interests in the DST.  The DST allows an investor the opportunity to own an interest in the underlying real estate without the responsibility of managing the property.  A trustee is appointed to manage the property on behalf of the investor pool.  A Tenant-in-Common or TIC investment offering is similar to a DST in that both investment vehicles pool investor capital toward the purchase of underlying real estate but the legal ownership structure is different.  DST and TIC investments are commonly used as a mechanism through which real estate owners can facilitate a 1031 exchange, which refers to a section of the Internal Revenue Code that allows a seller of real estate to defer paying capital gains taxes if the sale proceeds are reinvested in qualified real estate within a designated period of time.

DSTs and other private placements have increased in popularity over the years as investment professionals attempt to capitalize on volatility experienced among publicly trades securities.  Private placements, such as DSTs, are often marketed and sold as safe and stable income producing vehicles that are not subject to the same market forces as publicly traded securities.  While there is some level of truth to that statement, the reality is that private placements are speculative and do not have the same reporting requirements as publicly traded securities.  This means that DSTs can often mask financial difficulties until it is too late.  Moreover, because DSTs are illiquid, investors are often unable to sell their interests to third-parties before experiencing an investment loss.

According to SEC filings, the Nelson Partners Skyloft DST raised more than $75 million from investors in order to fund its luxury student housing facility in Austin, TX.  Student housing DSTs are popular because of the perception of high occupancy rates.  In order to finance certain aspects of this transaction, a $35 million loan was secured from Axonic Capital.  When Nelson Partners Skyloft DST defaulted on that loan, the underlying property was sold.  This has had a devastating impact on investors because they no longer have a viable interest in the underlying property.  As is often the case with DSTs, individual investors do not have control of individual decisions made by the DST structure and, accordingly, rely on their financial professionals to recommend DSTs with seasoned, professional managers, that have undergone an extraordinary due diligence process.

What Can I Do to Recovery My Losses in the NP Skyloft DST?

Investors who invested in the Nelson Partners Skyloft DST through brokerage firms or financial professionals have the ability to bring a FINRA arbitration claim to recover their losses.  FINRA Notice to Members 10-22 provides specific requirements that brokerages and financial professionals must undertake when conducting due diligence on privately held securities, including DSTs, before recommending them to investors.  Moreover, the FINRA suitability rule requires that brokerages and financial professionals make both reasonable basis and customer specific suitability determinations prior to recommending securities to customers.

According to SEC filings, the following brokerage firms receives compensation for the sale of the Nelson Partners Skyloft DST and have the aforementioned due diligence and suitability obligations:

• Wealthforge Securities, LLC
• Purshe Kaplan Sterling Investments
• Cape Securities, Inc.
• Sandlapper Securities, LLC
• Patrick Capital Markets, LLC
• FNEX Capital, LLC

These due diligence obligations are absolute but are often overlooked by brokerage firms because they don’t have the resources or infrastructure to effectively conduct due diligence.  It is often passed along to third-parties, who fail to meet the exacting standards of FINRA Notice to Members 10-22.

The Wolper Law Firm, P.A. Offers Free Consultations to Discuss Losses in the Options Advantage Strategy

The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis.  Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled more than 1,000 securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at (800) 931-8452 or by email at mwolper@wolperlawfirm.com.