After a disastrous 2015, Cole Capital Corp. has rebounded strongly in a tough market environment and seen more than a fourfold increase in sales of nontraded real estate investment trusts over the first four months of this year.
According to investment bank Robert A. Stanger & Co. Inc., Cole Capital raised $204.7 million in equity through April. That's compared with just $48.7 million in equity raised for the same period last year, according to Stanger.
More impressive, while Cole Capital has reported an increase in sales, the industry as a whole is down sharply year over year. For the first four months of this year, nontraded
REIT sales were $1.8 billion compared to $4.14 billion last year over the same period of time, according to Stanger.
The comeback of Cole Capital, previously one of the industry's leaders, comes at a time when 2016 is shaping up to be an extremely difficult year for nontraded
REIT sales, as new regulations are widely regarded as slowing down nontraded
REIT fund raising.
The
Financial Industry Regulatory Authority Inc.'s long-awaited revised account statement rule, which took effect in April, comes as part of a new regulatory regime for the securities industry as the Department of Labor rolled out the final version of a regulation that would raise investment advice standards for retirement accounts.
A year ago, the effort to sell nontraded REITs at Cole was in disarray. Last March alone, two dozen wholesalers and account executives left, with the lion's share gong to rival nontraded
REIT wholesaler Griffin Capital Corp.
The departures of wholesalers and other senior marketing executives came as sales of Cole-branded REITs plummeted after Cole's parent, at the time called American Realty Capital Properties Inc., revealed in October 2014 a $23 million accounting error at the company that was intentionally left uncorrected. Many broker-dealers at the time halted sales of Cole REITs due to concerns related to the parent company.
Formerly controlled by Nicholas Schorsch, ARCP pivoted. Mr. Schorsch resigned from the board of ARCP in December 2014. Last April, the company brought in real estate veteran Glenn Rufrano as CEO. Over the summer, ARCP, distancing itself from Mr. Schorsch's ARC brand, renamed itself Vereit and announced it would sell off properties and reduce its debt. It also hired Bill Miller to lead Cole Capital.
Kevin Gannon, president and managing director at Stanger, said changes in senior management at Vereit and Cole Capital, have done the trick.
“The simple truth is that both Glenn and Bill are respected players in the traded
REIT and nontraded
REIT space, respectively,” Mr. Gannon said. “As they have settled into command of their ships, investor confidence has improved along with the stock price of Vereit and fundraising at Cole.”
After closing at a recent low of $7.07 per share in January, Vereit shares were trading on Tuesday afternoon at $9.73, an increase of 37.7%.
Mr. Miller, president and CEO of Cole Capital, said the firm is going to stick to its knitting and focus on investing in net lease real estate assets.
“It has taken time,” Mr. Miller said about the changes at Cole Capital since last year. “We've been signing on new selling agreements (with broker-dealers). Some firms who had us suspended have lifted those suspensions. The good news is, the real estate people, the people in underwriting, acquisitions, dispositions, their managers, are all in place.”
The executives and employees who left in 2015 were “distribution people. They were external wholesalers, internal wholesalers, key account people, who call on the broker-dealers. A big team left,” Mr. Miller said. “In one sense you say, that's a hole we need to fill. On the other hand, you say it's a chance to improve your team.”
“We went out and filled positions in the external field with experienced people: 10, 12, 15 years' experience,” Mr. Miller said. “Glenn and I thought, this is a very serious time for the company, of course, and needed senior people in those roles. We also have very loyal Cole people, and I was able to reward and promote some of them who may have been blocked for a time because someone was above them.”
Meanwhile, Cole can do better, Mr. Rufrano said this month on a conference call with analysts to discuss Vereit's first quarter results.
When asked whether he was exploring the possibility of selling Cole Capital, Mr. Rufrano said: “A common theme around here is that whatever assets we have, if you want to pay us a lot for it, we'll consider it. If I go back to Cole directly, we're really pleased with Cole's performance, they've done a really great job.”
“Do we believe that it has got to its ultimate value,” Mr. Rufrano asked. “We are not sure of that and we would like to get it performing better.”
