Onetime rival Cole now a selling machine for Schorsch

Asset manager expected to raise $3.1 billion this year for American Realty Capital Properties

Jul 29, 2014 @ 12:37 pm

By Bruce Kelly

cole, american realty capital, schorsch, nontraded REITs, LPL, broker-dealer
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Nicholas Schorsch

Nontraded real estate investment trust sponsor Cole Capital, now part of Nicholas Schorsch's American Realty Capital Properties Inc., expects to raise another $2.1 billion in the second half of the year after selling $1 billion of REITs through a network of independent broker-dealers in the first half of the year.

Sales will be spurred by anticipated new selling agreements with broker-dealers, including industry leader LPL Financial, for Cole Credit Property Trust V Inc., according to David Kay, president of American Realty.

When American Realty acquired net lease REIT rival Cole Real Estate Investments Inc. earlier this year, it also acquired the asset manager of the Cole nontraded REITs, Cole Capital. Such nontraded REIT asset managers capture fees for overseeing the REITs and potentially can be quite lucrative lines of business.

In total, American Realty expects Cole Capital to raise $3.1 billion of equity and purchase $4.9 billion of real estate assets, according to the REIT's conference call with analysts Tuesday.

Key to Cole Capital's continued success is signing new broker-dealers to sell recently launched Cole Credit Property Trust V, Mr. Kay said during the conference call.

LPL has sold Cole REITs in the past but the pending agreement to sell Cole V is a new development.

“LPL represents north of 12,000 advisers, and they have just come on in the past week,” Mr. Kay said. Another fund could be introduced soon. “There's a significant number of new firms, as well. We are building business for the future.”

In the past “Cole Capital focused on the top 20 firms,” Mr. Kay said. “We've been able to focus also on the bottom 200 and have a much broader broker-dealer network on an ongoing basis."

Meanwhile, American Realty announced Monday that it had taken several steps to enhance its corporate governance, which came under question at the end of May when shareholders rejected an executive compensation plan that would have created a $222.1 million pool of incentive-related compensation for Mr. Schorsch, the REIT's chairman and chief executive.

In a memo to shareholders on Monday, Mr. Schorsch, who is stepping aside as CEO on Oct. 1, outlined several changes, including a realignment of American Realty's board of directors to make it more independent. Shareholders of the REIT will be able to elect the entire board at each annual meeting and the REIT is ending its investment banking relationship with RCS Capital, another company controlled by Mr. Schorsch.

American Realty on Monday also said it closed its $1.5 billion acquisition of 500 Red Lobster restaurants in a sales-lease back agreement. The REIT's performance also improved significantly as it reported revenues of $382 million in the quarter that ended June 30, compared with $55 million in the same quarter a year earlier. It also cuts its net loss per share to 8 cents for the most recent quarter, from 36 cents in the 2013 June quarter.

(An earlier version of this story indicated that Cole Capital had a selling agreement with LPL Financial. The agreement is pending.)

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