Advisor Group ends its selling agreement with nontraded REIT sponsor Cole Holdings, citing a $127M self-payment as a major factor.
Advisor Group, one of the largest networks of independent representatives and advisers in the country, has cut its selling agreement with Cole Holdings Corp., the noted nontraded real estate investment trust sponsor, citing Cole's management decision to pay itself and founder Chris Cole a $127 million fee earlier this year.
Nontraded REIT Cole Credit Property Trust III in March said it was merging with Cole Holdings, its asset manager, to create a new company, Cole Real Estate Investments Inc., which in June listed on the NYSE. Part of that transaction was a $127 million “internalization fee,” most of which went to Mr. Cole.
That upfront fee drew some criticism at the time from financial advisers, some of whom pointed to a hostile takeover bid by American Realty Capital Properties Inc., a competitor, as more attractive to the REIT's shareholders.
Advisor Group told its advisers Tuesday it was terminating its relationship with Cole Holdings because, “among other reasons, of a related party transaction between Cole Holdings and Cole Credit Property Trust III,” according to an unsigned internal e-mail from Advisor Group, which is owned by American International Group Inc.
“The REIT recently acquired Cole Holdings, its sponsor/adviser, and this 'internalization transaction' was not submitted to a vote of the REIT shareholders,” according to the e-mail. “While this internalization transaction appears to have been legally permissible, we believe the failure to obtain shareholder consent was not consistent with industry standards for related party transactions of this nature and this internalization transaction failed to comply with our standards of appropriate corporate governance.”
AIG spokeswoman Linda Skolnick declined to comment on the e-mail.
Broker-dealers from time to time adjust the number of product sponsors with which they have selling agreements. Advisor Group, however, has true heft as the fourth largest broker-dealer network in the industry, with 5,400 reps and advisers who generated more than $1.1 billion in revenue last year.
Cole will work to restore its relationship with Advisor Group, said Jeff Holland, president and chief operating officer of Cole Real Estate Investments Inc.
“It is unfortunate to hear of their decision. However, we respect their right to make such a decision and recognize that changes in selling relationships are something that every sponsor faces in this industry,” Mr. Holland said. “We make a point of earning our selling agreements each and every day. We obviously hope that, in the future, Advisor Group will reconsider, and we will work diligently to restore our longstanding partnership.”
