Investor Recovery Options Following Desert Capital REIT's Rise and Fall

According to its filings with the SEC, Desert Capital REIT, Inc., was a Maryland corporation formed in December 2003 as a real estate investment trust. When it first began conducting business, it specialized in the financing of real estate development projects by providing short-term mortgage loans to homebuilders and commercial developers in markets where Desert Capital believed that it possessed requisite skills and market knowledge, which were primarily in the western United States and Las Vegas in particular.

Historically, Desert Capital REIT invested in 12 to 18 month, first and second lien mortgage loans, consisting of acquisition and development, construction, and commercial property loans to both local and national developers and homebuilders. Desert Capital REIT derived its revenues primarily from interest payments received from mortgage investments funded with our equity capital and borrowed funds.

In late 2007, Desert Capital began experiencing a significant level of borrower defaults, and in 2008 and 2009 virtually all of Desert Capital's borrowers defaulted on their loans. As of March 31, 2011, Desert Capital had foreclosed on the property underlying its original mortgage loans on all but three loans. Due to the development stage of the properties at the time of foreclosure, which was primarily undeveloped or partially developed land, none of these properties are income producing and many have significant operating costs such as property taxes. The combination of significantly reduced interest income from performing loans, increased costs related to the ownership of non-income producing property, ongoing day-to-day operating costs of the Desert Capital, and the depressed real estate market, has had a materially adverse impact on Desert Capital's financial condition and has severely impacted Desert Capital's ability to conduct business as originally intended. With limited revenue from its investment portfolio, Desert Capital was forced to incur debt and sell properties as needed to generate operating capital and fund debt payments.

When Desert Capital began its investment strategy in 2004, it stated that its intent to either list Desert Capital REIT, Inc. stock on a national exchange or begin the liquidation of its portfolio by December 2011. Due to the collapse of the real estate market beginning in late 2007 and continuing into 2011, Desert Capital's business strategy, which was to invest in performing mortgage loans on a continuous basis, was cut short due to our lack of capital.

Desert Capital was been unable to make significant investments in mortgages since early 2008, and its investment portfolio of mortgage loans that existed at that time has been substantially foreclosed, resulting in a portfolio of real estate investments that are non-income producing and are valued at amounts significantly less than the original loan amounts.

Given the financial condition of the Desert Capital, the company recently conceded that listing Desert Capital REIT, Inc. stock on a national exchange is no longer a viable consideration. As a result, Desert Capital REIT is currently in the process of liquidating its assets as needed for liquidity purposes.

On May 5, 2011, an involuntary petition for protection under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et. seq., was filed against Desert Capital REIT, Inc. with the United States Bankruptcy Court for the District of Nevada, Las Vegas Division. Creditors with claims of over $43 million filed the petition to put Desert Capital into involuntary Chapter 11 bankruptcy. Some of these creditors include Taberna Preferred Funding VI, Taberna Preferred Funding VIII and Sage Trust.

If you are an investor that has suffered losses investing in Desert Capital REIT, your losses may be recoverable through securities arbitration. For a free, no obligation consultation please contact one of our attorneys at 312-332-0000 to discuss your recovery options.

Eccleston Law represents individual and institutional investors nationwide to recover their investment losses caused by securities fraud, unsuitable investment recommendations, breach of fiduciary duty, negligence or other misconduct. We have extensive experience representing investors in arbitration and litigation disputes with securities broker-dealers and investment advisory firms, and have recovered tens of millions of dollars for investors.

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