Pomerantz Appointed Lead Counsel in Colony Credit Real Estate Securities Litigation
On December 11, 2020, U.S. District Judge Philip S. Guiierrez of the Central District of California appointed Pomerantz LLP as Lead Counsel on behalf of Lead Plaintiff Philip Nuccetelli, Alan Cohen, and Roger P. Martyna (collectively, “Colony Credit Investor Group”), in Peters v. Colony Credit Real Estate, 20-cv-8305 (C.D. Cal.), a securities litigation being pursued on behalf of a class of defrauded investors concerning allegations that Colony Credit Real Estate, Inc. (“Colony Credit” or the “Company”) misstated its financials at the time of the merger of Colony NorthStar, Inc., NorthStar Real Estate Income Trust and NorthStar Real Estate Income II, Inc. on or about February 1, 2018.
Colony Credit is a commercial real estate credit REIT (real estate investment trust) that finances and manages a portfolio of commercial real estate debt and net lease real estate investments predominantly in the United States.
The complaint alleges that the Registration Statement filed with the U.S. Securities and Exchange Commission (the “SEC”) in relation to the 2018 merger of Colony NorthStar, Inc., and NorthStar Real Estate Income Trust, Inc. and NorthStar Real Estate Income II, Inc., which formed Colony Credit (the “Merger”), was materially false and misleading and failed to disclose that: (i) the credit quality of certain of the Company's assets had deteriorated prior to and after the Merger; (ii) certain of the Company's loans, including four loans of approximately $261 million related to a New York hotel, were substantially impaired as there was insufficient collateral to secure the loans, and it was unlikely that the loans would be repaid; (iii) as a result, the valuation attributed to certain of the Company's assets was overstated; and (iv) certain of the assets contributed as part of the Merger were of substantially lower value than reflected in the Company's financial condition, including its book value.
On January 31, 2018, Colony Credit filed its final amendment to its Registration Statement with the SEC in which it affirmed that the Company’s “investments are put on highly-monitored status and identified for possible loan loss reserves/asset impairment, as appropriate, based upon several factors, including missed or late contractual payments, significant declines in collateral performance and other data which may indicate a potential issue in our ability to recover our invested capital from an investment.”
On May 15, 2018, Colony Credit filed its first quarter 2018 report with the SEC in which it disclosed that “the borrower on the Company’s $260.2 million [New York hotel] loan failed to make its interest payment” and the loan had been placed on nonaccrual status, but the Company believed “sufficient collateral value exists to cover the outstanding loan balances.”
In quarterly reports issued on November 6, 2018, February 28, 2019, August 8, 2019 and November 8, 2019, Colony Credit disclosed multiple provisions for loan losses totaling $358 million which resulted in share price drops of 5%, 5%, 12% and 18% respectively.
Then on February 18, 2020, The Wall Street Journal published an article identifying the troubled New York hotel loan as being secured by Row Hotel near Times Square, which could “sell for as little as $50 million,” following years of declining room rates. The article also stated that lenders had foreclosed on several hotels in the same area over the prior six months due to the declining market.
As of September 9, 2020, Colony Credit’s shares closed at $5.40 per share, representing a more than 78% decline from the $25 book value per share valued at the time of the Merger.
The deadline to move as lead plaintiff is set for November 9, 2020.