After a devastating slump in sales, a team of senior executives recently left American Realty Capital Properties Inc.'s Cole Capital Corp., the marketing broker-dealer for Cole-branded nontraded REITs, to join rival Griffin Capital Securities Inc., according to executives familiar with the move who did not want to be identified.
According to investment bank Robert A. Stanger & Co. Inc., Cole Capital saw just $8.3 million in sales of nontraded real estate investment trusts last month, or about 1% of its total for the same month a year earlier. In February 2014, Cole Capital had $844.9 million in sales, although part of that was due to a surge when one REIT was closing out its sales, according to Kevin Gannon, president and managing director at Stanger. Cole Capital had 30% of the industry's market share that month.
“They can't run a broker-dealer on $8 million of fund-raising,” Mr. Gannon said.
Stanger does not currently count Cole Capital as a client but had worked with the firm in the past, he said. “Wholesalers and sales teams make money when they are raising money, so they have to go somewhere else to raise money,” he said.
The departure of the three marketing and wholesaling executives — James Ryan, Philip Graham and Colin Cosgrove — appears to run counter to recent messages of stability emanating from top executives at Cole parent American Realty Capital Properties, or ARCP.
“The management team as a company, including both Cole and ARCP, remains deep and robust,” said ARCP's interim chief executive, William Stanley, on a conference call with investors and analysts last week. “We have outstanding veteran teams in all silos of the portfolio, in our office and industrial, in restaurant, in our single-tenant retail, in our multi-tenant, in our build-to-suit. In addition, our Cole Capital team has a deep and experienced bench."
Mr. Stanley made that statement after ARCP
released earnings for the third quarter of 2014 that had been delayed in the wake of an accounting scandal. At the end of October, ARCP revealed a $23 million accounting error from the first half of 2014. A number of large broker-dealers and clearing firms suspended sales of Cole products after ARCP detailed the accounting problems.
The audit committee for ARCP said last Monday it “found certain material weaknesses in the company's internal controls over financial reporting and its disclosure controls and procedures.” The audit committee, however, did not identify any material changes relating to ARCP's real estate ownership, rental revenue or fundamental business operations. The investigation did not find any changes to the financial statements or operations of the Cole Capital-sponsored nontraded REITs.
“Will ARCP's disclosures last week convince broker-dealers to start selling Cole again?” Mr. Gannon asked. “You have to wait and see what happens.”
Executives at Cole continue to show a brave face, even though sales of Cole-branded nontraded REITs have fallen off a cliff. In January, Cole said it had hired
as a senior adviser Terry Mullen, a veteran of insurance product sales with ties to independent broker-dealers.
But making matters worse, Cole Capital could very well be missing out on regaining the lion's share of client assets that became liquid after one Cole REIT, the Cole Corporate Income Trust Inc., merged with Select Income REIT at the end of January, Mr. Gannon said.
Cole Capital's policy is not to comment publicly on specific personnel matters, noted ARCP spokesman, John Bacon. In an email to
InvestmentNews, Mike Ezzell, CEO and president of Cole Capital, said Cole Capital was “fully dedicated to normalizing relations with our broker-dealer and clearing partners. We are confident this will happen soon and optimistic about the future of Cole Capital."
A spokeswoman for Griffin Capital Corp., Jennifer Nahas, did not return calls to comment about the former Cole Capital executives.
Mr. Ryan did not return a phone call late Tuesday to comment. According to his LinkedIn profile, he is executive vice president, head of relationship management at Griffin Capital, a role similar to his position at Cole.
The role of the other two executives is not clear. Mr. Graham was senior vice president, national accounts manager at Cole, and Mr. Cosgrove was senior vice president, sales operations and strategy. Neither could be reached for comment.
