A nascent nontraded real estate investment trust has suspended its fund raising as management continues to look for a broker-dealer to distribute the REIT after its former broker-dealer went belly-up.
United Realty Trust Inc. yesterday said it halted its initial public offering May 30 after its distributing broker, Allied Beacon Partners Inc., ran afoul of industry net-capital regulations. Allied Beacon, a midsize independent broker-dealer with about 200 affiliated registered representatives, lost a Financial Industry Regulatory Authority Inc. arbitration award of $1.6 million last month and didn't have the money on hand to pay the award, causing the violation.
Net-capital violations typically are death knells for broker-dealers. In instances of arbitration awards, firms have 48 hours to show regulators they have the money to pay awards to claimants. If a firm fails to find the cash, it is in violation of net-capital rules. Operations are frozen, and brokers can no longer trade for clients.
“While the IPO remains suspended, [United Realty Trust] is evaluating its dealer management arrangements, and intends to engage as [its] dealer manager Cabot Lodge Securities LLC,” the REIT said in a filing yesterday with the Securities and Exchange Commission.
“We're in the process of changing over dealer managers,” said Jacob Frydman, chief executive of the REIT and one of the owners of Cabot Lodge.
The REIT was launched last year and has $24.9 million in assets.