Schorsch to buy Validus Strategic Capital Partners, a broker-dealer of nontraded REITs and BDCs

Not chasing retail, REIT czar this time taps a rival wholesaler

May 20, 2014 @ 12:01 am

By Bruce Kelly

nontraded real estate investment trust, nontraded reit, bdc, business development corp., nicholas schorsch, rcap, arc, acquisition
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Taking a breather from buying retail broker-dealers, RCS Capital Corp. announced Tuesday it had agreed to buy a competing wholesale broker-dealer of nontraded real estate investment trusts and business development companies.

RCS Capital said it intended to purchase Validus Strategic Capital Partners, which owns the wholesaling broker-dealer SC Distributors and an advisory company, Strategic Capital Advisory Services, for $80 million. The deal is expected to close by the end of June.

Launched in 2010, Validus Strategic Capital Partners missed the commercial real estate crash of 2007 and 2008 that damaged a handful of large nontraded REITs and eroded their value by 30% or more. According to its website, SC Distributors currently is the wholesaling broker-dealer for five illiquid investment products including the $1.34 billion Carter Validus Mission Critical REIT Inc.

Realty Capital Securities is the wholesaling broker-dealer controlled by RCS Capital, commonly referred to by its ticker symbol, RCAP. Nicholas Schorsch is executive chairman of RCAP and CEO of American Realty Capital, the product sponsor that creates and manages many of the REITs that the army of Realty Capital Securities wholesalers distributes.

RCAP went public last June and since then, Mr. Schorsch has turned the independent-broker-dealer marketplace on its ear. RCAP has completed two acquisitions for six broker-dealers over that time and the company expects to close three more broker-dealer acquisitions by the end of the quarter. In total, those nine firms have 9,800 reps and advisers and they generated $1.7 billion in total revenues last year.

The acquisition of SC Distributors would be RCAP's first acquisition of a wholesaling broker-dealer. Wholesaling broker-dealers distribute products like mutual funds and REITs to retail broker-dealers and reps, who in turn sell those products to clients.

In an interview, Mr. Schorsch said SC Distributors would mesh well with Realty Capital Securities. The two firms sell nontraded REITs managed by other sponsors, which is a rarity for wholesalers who tend to sell investment products created in-house.

“One of the things is having more diversification on the Realty Capital Securities' platform,” Mr. Schorsch said. The acquisition of SC Distributors “allows us to do a great deal for sponsors who are afraid we are only selling ARC products. We have a whole suite of product. Forty percent will not be ARC-sponsored product. It's like having the Cetera broker-dealers and First Allied. We have multiple faces of retail advice. Now we have multiple faces of wholesale advice.”

Mr. Schorsch added that an announcement regarding the acquisition of a retail broker-dealer was not imminent.

As it continues to buy firms, RCAP is also shaking up the management of its broker-dealer network. Last week, it named Larry Roth the chief executive of its largest broker-dealer group, Cetera Financial Group, replacing its longtime CEO, Valerie Brown. Mr. Roth said he expects to have 20,000 reps and advisers underneath the RCAP umbrella within the next three to five years.

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