Former REIT kingpin Wells closing broker-dealer

B-D industry continues to shrink, with 15% fewer firms than five years ago

Dec 27, 2013 @ 11:18 am

By Bruce Kelly

After pulling back from the hot nontraded-REIT market this year, legendary real estate investor Leo Wells is exiting the wholesaling-broker-dealer business.

Wells Investment Securities Inc. filed its termination request, or “broker-dealer withdrawal,” with the Financial Industry Regulatory Authority Inc. last week, marking the end of Mr. Wells' time in the securities business.

The broker-dealer industry continues to shrink, with Mr. Wells' firm only the latest to be part of a wide, steady contraction since the credit crisis.

In 2008, Finra counted 4,895 broker-dealer members under its regulatory watch. As of last month, there were 4,180 registered broker-dealers, according to Finra's website. Over the past five years, the number of broker-dealers has dropped almost 15%.

A decade ago, Mr. Wells was perhaps the most noted face in the nontraded-REIT industry. He was a featured speaker at industry events, and his real estate investment trusts had selling agreements with as many as 200 independent broker-dealers.

At the start of this year, however, he told broker-dealers that his real estate firm, Wells Real Estate Funds, would not register any new investment products in 2013 but was keeping an eye on the future.

Without a wholesaling broker-dealer, that future continues to darken. Wells Real Estate Funds was founded in 1984 and has funneled $11 billion into real estate projects since its inception. According to investment bank Robert A. Stanger & Co. Inc., Wells Investment Securities sold $68.2 million in securities this year.

Randy Simmons, chief executive of the broker-dealer, said Friday morning that he had no further comment when asked about the firm's closure.

Broker-dealers on the bubble typically assess at this time of year whether to stay open or close, said David Alsup, founder of broker-dealer consulting firm Fishbowl Strategies. Firms pause to take stock of the future and whether they want to pay the coming year's Finra fees, he said.

“Even for a small shop, it's $15,000 to $20,000 [in Finra costs] to stay open,” Mr. Alsup said. “Ten years ago, maybe it was a $1,000 to stay open. Finra fees were in the hundreds. It was just a different universe.”

Once the industry's star, Mr. Wells has missed the recent boom in nontraded-REIT sales. Last year, the industry recorded about $10 billion in sales; this year, that figure has doubled to $20 billion.

Mr. Wells is not alone among the old guard of nontraded REITs to exit the business. TNP Securities, which was owned by noted real estate investor Tony Thompson, officially closed its doors in November. That was several months after Finra filed a complaint against him that contained allegations of fraud over the sale of promissory notes to raise capital for his real estate company, according to his BrokerCheck report.

The year has been difficult for small broker-dealers looking to break into the hot market for alternative investments such as nontraded REITs. KBR Capital Markets, a small wholesaling broker-dealer for a nontraded business development company, closed in September after Finra found that it was deficient in senior management requirements such as principals, according to the firm's BrokerCheck report.


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