Investors in The TNP 12 Percent Notes Program LLC issued by Thompson National Properties LLC are no longer receiving interest payments on the notes, as interest payments have been suspended. (See “Real estate big suspends interest payments on private placement,” by Bruce Kelly). Investors were further informed of the issuer’s “intention” of paying investors “all remaining interest and principal on or prior to the maturity date of June 10, 2013.” Professed intentions notwithstanding, this development does not bode well for investors in The TNP 12 Percent Notes Program LLC.
The TNP 12 Percent Notes were sold to investors by 22 independent broker-dealers. The required minimum investment was $50,000. Brokers with Independent Financial Group LLC, an independent broker-dealer, sold about $500,000 to $600,000 of the notes, according to the article. Brokers reportedly received a hefty 7% commission on the sale of the notes.
Ten of the selling broker-dealers have shut down. Those firms are Pacific West Securities Inc., Omni Brokerage Inc., Empire Securities Corp., MCL Financial Group Inc., United Equity Securities LLC, Boogie Investment Group Inc., GunnAllen Financial Inc., Cullum and Burks Securities Inc., Workman Securities Corp. and Direct Capital Securities Inc.
Thompson National Properties LLC is a business venture of Tony Thompson. The TNP 12 Percent Notes Program LLC raised $21.5 million from 418 investors in 2008 and 2009. The $21.5 million was to be used meet general obligations of the sponsor, Thompson National Properties.
A spokeswoman for Thompson National Properties reportedly wrote in an email to InvestmentNews that TNP had taken steps to reduce overhead costs and increase revenues. One of the steps was to suspend interest payments.
Tony Thompson was founder of Triple Net Properties LLC, which packaged real estate investments known as tenant-in-common exchanges, or TICs, which were sold through independent broker-dealers. An affiliated company, NNN Realty Advisors, merged with Grubb & Ellis in 2007. Grubb & Ellis filed for bankruptcy earlier this year.
Since 2008, Thompson National Properties has offered 17 investment programs, including a nontraded real estate investment trust, TNP Strategic Retail Trust.
Note investments are often linked to real estate. Bryan Mick, president of Mick & Associates PC LLO, a due-diligence firm for broker-dealers and registered investment advisers, told InvestmentNews that broker-dealers need to understand the structure of such note programs, including the value on the assets, whether such deals contain an “equity cushion” (i.e., ? whether the property values is greater than the debt owed), and whether the debt service on the note is manageable. It is not uncommon, however, for broker-dealers to either fail to conduct due diligence or suppress negative information from due diligence reports.
Investor attorney J. Boyd Page, senior partner of Atlanta-based Page Perry, said: “We have found the disclosure documents that were provided to investors in many of these deals are woefully inadequate. They often misrepresent or fail to disclose important information about the financing and leases associated with the real estate, and the backgrounds and abilities of the makers and guarantors of these notes to make the principal and interest payments. Investors who have lost money in investing in such notes may have compelling claims to recover their losses.”
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.