Brash REIT boss hires his opposite

Hard-charging Schorsch hires white-shoe Roth to run broker-dealer

Sep 8, 2013 @ 12:01 am

By Bruce Kelly

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(Bloomberg News)

By hiring Larry Roth to run his broker-dealer, Nicholas Schorsch, the hard-charging nontraded-REIT kingpin, has tapped a refined, white-shoe executive known for working quietly behind the scenes to get deals done.

Mr. Roth is joining a team of similar executives who stand behind the flamboyant and outspoken Mr. Schorsch, well known for the performance of his nontraded real estate investment trusts, along with making headlines for unsolicited bids on two rival nontraded REITs in the past two years.

Realty Capital Securities LLC, the broker-dealer and wholesaler for Mr. Schorsch's nontraded REITs, said last Wednesday that Mr. Roth had joined the firm as its chief executive. Realty Capital is the prime business unit of RCS Capital Corp., which had its initial public offering in June.

Formerly, Mr. Roth was the CEO of Advisor Group, one of the largest networks of broker-dealers in the country.

“Most of the advisers who work for Advisor Group broker-dealers don't realize the magnitude of Larry's responsibility and hard work behind the scenes,” said Larry Papike, a third-party recruiter who has worked with Advisor Group. “He gets a lot done and avoids the spotlight.”

Mr. Schorsch is CEO and chairman of American Realty Capital, the overarching company for the variety of nontraded REITs and other investments sold through Realty Capital Securities.

Mr. Schorsch recently has turned the nontraded-REIT business on its ear, posting strong returns and returning capital in short periods of time to investors through mergers and stock listings called liquidity events. One of the chief criticisms of the nontraded-REIT industry has been the length of time that REIT sponsors have taken to return capital to investors.

Gained notoriety

Mr. Schorsch has also gained notoriety in the nontraded-REIT industry for his two unsolicited bids for rival REITs.

This year, ARC launched a hostile bid for Cole Credit Property Trust III after it announced plans to merge with Cole Holdings Corp. and go public. Mr. Schorsch eventually withdrew his offer.

Last year, ARC made an unsolicited offer for Griffin-American Healthcare REIT II Inc., the first time a nontraded REIT had made such an offer to a rival. Mr. Schorsch also withdrew that offer.

Such aggressive tactics have been foreign to the nontraded-REIT industry, observers said.

Mr. Schorsch “ruffles feathers,” said Brian Kovack, president of Kovack Securities Inc., which sells ARC products. “But with his track record, it's tough to throw stones.”

Mr. Roth and Mr. Schorsch “have different styles,” Mr. Kovack said. “One can certainly complement the other.”

In an interview last week, Mr. Roth and Mr. Schorsch stressed that they share the same aim: to create an investment banking and product-manufacturing firm that resembles an early stage KKR & Co. LP, but with a real estate focus.

ARC is a “young, very entrepreneurial firm,” Mr. Roth said.

“It's been designed by the partners to grow into a business resembling KKR,” he said. “These are the early years of a hugely successful business.”

Hiring Mr. Roth is another step in ARC's evolution as it seeks to expand significantly beyond the nontraded-REIT industry, Mr. Schorsch said.

This summer, Mr. Schorsch said that ARC was ending its creation and distribution of new REITs that focus on net-lease real estate, a sector that has performed extremely well since the lows of the credit crisis.

Mr. Roth will be in the forefront of the firm's expansion of its products, including mutual funds, onto the platforms of wirehouses, Mr. Schorsch said.

The large, national firms traditionally have shunned nontraded REITs and sold them only in a very limited capacity.

The potential for ARC's new relationships with wirehouses is “a huge area for Larry,” Mr. Schorsch said.

For example, ARC's AR Capital Real Estate Income Fund (ARIAX) is available on a number of platforms, including The Charles Schwab Corp., Pershing LLC and Wells Fargo & Co.'s First Clearing, he said.

Another area for potential growth is completing mergers and acquisitions for other non-ARC REITs, Mr. Schorsch said.

Mr. Roth, 56, will assume the CEO role at Realty Capital Securities from Michael Weil, who will continue as chairman of the broker-dealer, and president and chief operating officer of ARC. Mr. Roth leaves Advisor Group as the fourth-largest broker-dealer network in the industry, with 5,400 representatives and financial advisers who generated more than $1.1 billion in revenue last year.

Mr. Roth has a deep background in the independent-broker-dealer business and is one of the most accomplished executives in the field, with a career that spans owning a firm to investment banking and running a network of broker-dealers for one of the largest insurance companies in the world.

“I'm a hands-on entrepreneurial manager, and that's the kind of culture you have at American Realty Capital,” he said.

Mr. Roth said he is leaving Advisor Group during one of its top-performing years.

“Advisor Group is in excellent shape, with a great management team in place,” he said. “My leaving has nothing to do with AIG but everything to do with the opportunity at Realty Capital.”

Longtime AIG executive Peter Harbeck will serve as interim chief executive and president of Advisor Group, the firm said in a statement.

Mr. Harbeck is chairman of Advisor Group, and he will continue in his role as president and chief executive of SunAmerica Asset Management Corp. at AIG.

ARC, which has close to a dozen offerings on its platform, has dominated nontraded-REIT sales the past couple of years.

Nontraded-REIT sales reached $7.8 billion in the first half this year, an increase of 68.2% from a year earlier, according to investment bank Robert A. Stanger & Co. Inc.

ARC was responsible for 39.2% of all nontraded-REIT sales in the first half of this year, according to Stanger.

Independent broker-dealers are the biggest distributors of nontraded REITs, and this isn't the first time that Mr. Schorsch has plumbed the industry.

In June, he and a group of investors said that they had agreed to buy a leading independent broker-dealer, First Allied Securities Inc., through a holding company, RCAP Holdings LLC.

That deal is expected to close in the next few weeks.

Mr. Roth said his job at Realty Capital Securities is independent of First Allied Securities.

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