Thompson pitching nontraded REIT that's struggling with debt payments

Noted real estate investor Tony Thompson is swamped with debts he's falling short of paying. At the same time, he's attempting to prime the pump for a sale of his nontraded real estate investment trust. Mr. Thompson has been struggling since last summer to make payments on various note programs, which he sold through independent broker-dealers in 2008 and 2009 to raise at least $31.6 million in capital to launch Thompson National Properties LLC. In December, one of Mr. Thompson's note programs, the TNP 2008 Participating Notes Program LLC, missed a payment. And in a filing with the Securities and Exchange Commission on Jan. 15, his nontraded REIT, the TNP Strategic Retail Trust, said it was actively negotiating forbearance agreements with respect to two loans on six real estate properties in an effort to stave off foreclosure. Meanwhile, against nontraded-REIT industry norms, Mr. Thompson last week sent a notice to broker-dealers hawking the TNP Strategic Retail Trust. “Closing Feb. 7, 2013!” the note stated. “Necessity retail: Now is the time!” The note to broker-dealers stated that the REIT's current net asset value was 6% higher that its share price. “As of Nov. 9, 2012, estimated NAV increased to $10.60. Shares continue to be offered at $10,” the note read. Cash flow or “funds from operation” have not been used to pay investors in the REIT. A footnote stated that all distributions, or dividends, paid to investors so far have been paid from “offering proceeds,” or money from new investors. Paying old investors their distributions with money from new investors is an industry practice that has been widely criticized by nontraded-REIT executives, regulators and industry observers. According to the Securities and Exchange Commission, selling an investment product above or below its NAV is permissible as long as appropriate “risk factor” disclosures are made to investors. The nontraded-REIT industry, however, frowns on the practice, which can be dilutive to current shareholders and provide brokers with a pitch laden with urgency to sell, industry executives said. The Investment Program Association, an industry trade group, “doesn't consider this a best practice in sales,” said Kevin Hogan, president. “This is something we're trying to work the industry away from.” When asked about the discrepancy between the REIT's selling price and its NAV, Mr. Thompson said others in the industry have done the same thing. “Others have sold shares for a period of time at $10 after a revalue at a higher NAV number prior to raising the share price,” he wrote in an e-mail to InvestmentNews. “As you are aware, [Strategic Retail Trust's] offering closes Feb. 7, and the $10.60 estimate was published in mid-Nov.,” he wrote. “My family's personal $1 million investment in [the REIT], along with the other shareholders' $105 million of equity of previous investments, also were purchased at $10 a share. Where's the issue?” Mr. Thompson, chief executive of Thompson National Properties, launched his firm in 2008. Earlier, he founded Triple Net Properties LLC, which packaged real estate investments known as tenant-in-common exchanges, which were sold through independent broker-dealers during the real estate bubble of the last decade. A related company, NNN Realty Advisors Inc., in 2007 merged with Grubb & Ellis Co. Burdened by debt, that once-iconic commercial real estate company filed for bankruptcy protection last February and subsequently sold its remaining assets for $30 million. Since 2008, Thompson National Properties has launched 17 investment programs, the largest being the nontraded REIT, the TNP Strategic Retail Trust. The REIT has bought grocery and necessity-anchored retail shopping centers valued at $300 million and raised $108 million from investors. In another e-mail to InvestmentNews today, Mr. Thompson downplayed the impact of the problems in paying back investor notes and loans for the REIT. “Actually, our revenue from the other 100-plus properties we manage for various third-party owners, along with other sources of income to TNP from [non-REIT] related clients and real estate activities, far outweigh the revenue generated to Thompson National Properties from the [REIT's] advisory agreement,” Mr. Thompson wrote. Thompson National Properties' “debt has maturities of one to three years, and we are confident of our ability to meet and/or mutually modify terms satisfactory with our lenders,” he wrote. In a setback for investors, however, the REIT is also moving its distributions to quarterly payments, from monthly, due to short-term liquidity problems and has suspended share redemptions except in case of death or disability, according to today's SEC filing. It is also actively negotiating with a new potential adviser, Glenborough LLC. The REIT faces a payment of $1.28 million by Jan. 18, according to an SEC filing. In a letter to investors this month, Mr. Thompson said the TNP 2008 Participating Notes Program intends to make a payment Jan. 21.