Schorsch in $2.3B net-lease deal with Inland American

High profile real estate investor in flashy acquisition as he moves to the sidelines.

Aug 9, 2013 @ 1:35 pm

By Bruce Kelly

Nick Schorsch is exiting the net-lease real estate investing business with a bang.

Three of the nontraded real estate investment trusts Mr. Schorsch controls said today they have reached agreements to acquire close to $2.3 billion in net-lease real estate assets, including debt, from nontraded-REIT rival Inland American Real Estate Trust Inc.

That REIT is the largest nontraded REIT in the industry, with $10.8 billion in total assets, but has struggled with its share valuation since the credit crisis.

The transaction, which will require multiple closings and is scheduled to be completed by the first half of next year, also underscores the changing of the guard in the nontraded-REIT industry.

In recent years, the industry typically has posted about $10 billion per year in sales through independent broker-dealers, but this year sales are skyrocketing, mostly because of Mr. Schorsch's success. Inland Real Estate Investment Corp. in the past decade was the leading sponsor of nontraded REITs in a highly competitive industry; now American Realty Capital is wearing that mantle.

Mr. Schorsch, however, last month said he was bidding adieu to net-lease real estate deals. Such real estate, in which the tenant pays for most of the costs associated with the properties, is one of the sectors most sensitive to rising interest rates.

Three separate REITs under the American Realty Capital umbrella are buying the net-lease assets from Inland American. They are: American Realty Capital Properties Inc., a listed REIT; American Realty Capital Trust V Inc., a nonlisted REIT; and American Realty Capital Healthcare Trust Inc., another nonlisted REIT.

American Realty Capital's diversified stable of REIT offerings put it in a unique position to buy such a sizable chunk of Inland American, Mr. Schorsch said.

“This is all of Inland's net-lease assets,” he said. “They wanted to reposition Inland American, and we were there to work with them. We're uniquely positioned. Inland found a buyer, and our platform is universal enough so they were able to get it done with one trade.”

“We had a unique set of skills and the capacity to take it all,” said Mr. Schorsch, who expects for the most part to sit on the sidelines in buying net-lease real estate for a few years.

There has been some acrimony in past negotiations with REIT sponsors that American Realty Capital wanted to buy, Mr. Schorsch said. American Realty Capital REITs have made at least two hostile-takeover bids for competing REITs over the past year and a half.

That was not the case with American Realty Capital's pursuit of Inland American, he said. “The REITs are working together,” Mr. Schorsch said. “We're thrilled to see the acrimony go away.”

Meanwhile, the transaction could mean good news for Inland American investors. Over the next nine months, Inland American expects to take in up to $1 billion in net proceeds from the transaction, the company said in a statement. The company intends to use those proceeds to acquire real estate assets in the three sectors on which it will focus: multitenant retail, student housing at universities and lodging.

Inland American is also exploring the possibility of a share repurchase, the company said.

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