AR Capital to stop creating new nontraded REITs, close existing programs to new investors

Executives cite DOL fiduciary rule, market uncertainty for major reversal

Nov 16, 2015 @ 6:44 am

By Bruce Kelly

In a major reversal, AR Capital, the powerhouse nontraded real estate investment trust sponsor built by Nicholas Schorsch, will stop creating and selling new alternative investment products.

Instead, AR Capital will focus on managing the roughly $19 billion in its current suite of investments.

“As a result of regulatory and market uncertainty affecting capital raising for both new and existing offerings in the direct investment industry,” AR Capital will halt taking new investor money for the programs by the end of this year, according to a company statement early Monday.

The programs include: Business Development Corporation of America II, ARC Healthcare Trust III, New York City REIT II, ARC Hospitality Trust and ARC Global Trust II.

In the statement, William Kahane, who co-owns AR Capital along with Mr, Schorsch, cited the Labor Department's proposed fiduciary standard and new client account statement pricing standards for nontraded REITs and other alternative investments as reasons for AR Capital's pullback from the market it formerly dominated.

The decision not to sell any more new nontraded REITs comes after a weekend during which Mr. Schorsch had a series of telephone meetings with the boards of several ARC-branded companies to discuss their futures, according to a source with knowledge of the discussions.

And the decision also comes just a few days after the state of Massachusetts charged Realty Capital Securities, or RCS, with fraudulently rounding up proxy votes to support real estate deals sponsored by AR Capital, which is owned by Mr. Schorsch and William Kahane. Mr. Schorsch is also a principal shareholder in RCAP.

In an administrative complaint, Massachusetts Secretary of the Commonwealth William Galvin said agents of RCS impersonated shareholders and cast fake votes for investment programs sponsored by AR Capital.

Broker-dealers had already begun to suspend the sale of AR Capital REITs and other alternative investments. On Friday, Cetera Financial Group, the retail brokerage network owned by RCS Capital Corp., halted sales of ARC- branded real estate investment trusts and other alternative investments.

AR Capital also announced on Monday that it directed Realty Capital Securities to discontinue all proxy activities for all AR Capital sponsored companies in light of the recent action taken by Massachusetts, according to the statement.

Andrew Backman, a spokesman for AR Capital and RCS, said the company had no comment beyond the statement.

Last year, another company formerly controlled by Mr. Schorsch, American Realty Capital Properties Inc., revealed a $23 million accounting misstatement from the first half of 2014 that was intentionally uncorrected. AR Capital REIT sales fell close to 50%.

“Until there is greater clarity, we have decided to sit this one out,” Mr. Kahane said in the statement.

The tide of bad news began to wash over Mr. Schorsch and AR Capital last Monday, when Apollo Global Management and AR Capital called off an earlier announced transaction in which Apollo would have bought a majority stake in the company for $378 million.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

INTV

Advisers beware: tax law has unintended consequences

Commission accounts could be preferable for some clients, and advisers could be incentivized to move from employee broker-dealers to independent channels.

Recommended Video

Path to growth

Latest news & opinion

Bond investors have more to worry about than a government shutdown

Inflation worries, international rates pushing Treasuries yields higher.

State measures to prevent elder financial abuse gaining steam

A growing number of states are looking to pass rules preventing exploitation of seniors.

Morgan Stanley reports a loss of advisers after exiting the protocol for broker recruiting

The firm said it lost 47 brokers in the fourth quarter, the most in any quarter of 2017.

Morgan Stanley's wealth management fees climb to all-time high

Improvement reflect firm's shift of more clients into fee-based accounts priced on asset levels, which boosts results as markets rise.

Legislation would make it harder for investors to sue mutual funds over high fees

A plaintiff would have to state in their initial complaint why fiduciary duty was breached, and then prove the violation with 'clear and convincing evidence.'

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print