Nicholas Schorsch steps back from some nontraded REITs

Puts longtime investment partner William Kahane in charge of two of them

Dec 1, 2014 @ 12:02 pm

By Bruce Kelly

Nontraded real estate investment trust czar Nicholas Schorsch is taking a step back from his various top roles of the nontraded REITs he controls, handing the reins of two of them to his longtime investment partner, William Kahane.

In filings with the Securities and Exchange Commission last month, Mr. Schorsch resigned as chief executive from at least six companies he oversees, including three nontraded REITs sponsored by American Realty Capital.

Mr. Schorsch's nontraded REIT empire has been reeling for the past month.

(More: Schorsch's vast web of businesses)

Broker-dealers in late October began suspending sales of RCAP-distributed and Cole REITs after American Realty Capital Properties Inc., or ARCP, a giant net-lease REIT that Mr. Schorsch controls, disclosed a $23 million accounting error over the first half of the year that was intentionally left uncorrected.

Separating the role of chairman and CEO is regarded as a positive for corporate governance in REITs and the corporate world in general, according to Kevin Gannon, president and managing director at Robert A. Stanger & Co. Inc., an investment bank that focuses on nontraded REITs.

“It's a preferred practice to separate those titles and positions,” Mr. Gannon said. “It's not necessary but more executives are doing it.”

“I have no inside information, but the way I read it, additional corporate governance matters are kicking in,” he added. “The housekeeping seems appropriate.”

Mr. Schorsch presumably will remain chairman and CEO of ARC. He will also remain chairman of American Realty Capital Properties Inc., a related company, and executive chairman of another related company, RCS Capital Corp.

(More: SAC Capital's Steven Cohen increases stake in RCAP)

Mr. Kahane is replacing Mr. Schorsch as CEO of the ARC Daily NAV Trust and American Realty Capital-Retail Centers of America II Inc. Michael Happel has been appointed CEO of a third ARC REIT, New York City REIT Inc., by its board.

In addition to the REITs, Mr. Schorsch is relinquishing his CEO position at three finance companies to Peter Budko, another longtime business associate and a partner at ARC. They are: Business Development Corp. of America, Business Development Corp. of America II, and ARC Realty Finance Trust Inc.

In the SEC filings, the REITs state that Mr. Schorsch is ceding authority to Mr. Kahane in current and future products sponsored by ARC.

An SEC filing dated last Tuesday from American Realty Capital Daily Net Asset Value Trust, which has just $32 million in assets, stated: “Mr. Kahane's appointment as chief executive officer of the company reflects the greater responsibility he will be taking for the nontraded real estate investment trusts, business development companies and other programs currently in offerings that are directly or indirectly sponsored by [ARC], the parent of the company's sponsor.”

“Mr. Kahane will be charged with examining board composition of each of these programs to reduce overlap among independent directors from one board to the next, and assure that the independent directors are sufficient in number and suitable in skill sets to properly and effectively perform their responsibilities, especially with respect to the audit function and general oversight,” the filing stated. “Mr. Kahane will further see to it that each of the companies has a strong internal audit function to assure confidence in the financial controls and statements of all of the programs.”

In the wake of accounting problems at ARCP, the rest of Mr. Schorsch's empire has drawn scrutiny for its complexity. Michael Weil, CEO of RCS Capital, the broker-dealer holding company, last month also moved to simplify his position in the Schorsch empire and stepped down from numerous roles at ARC-branded REITs and related businesses.

(More: Some broker-dealers resume selling Schorsch-related REITs)

Andrew Backman, a spokesman for RCS Capital Corp., the parent company of the wholesaling operation for the ARC REITs, declined to comment.


Do you think Mr. Schorsch is correct to step down from some of his REITs?

View comments

Recommended for you

Upcoming Event

Oct 23


Women Adviser Summit - San Francisco

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


InvestmentNews celebrates diversity & inclusion in the financial advice business

Highlights of the Excellence in D&I Awards, showcasing the achievements of 26 individuals and firms that are moving the needle when it comes to diversity and inclusion.

Latest news & opinion

Don't be fooled by the numbers — the industry is in a dangerously vulnerable state

Last year's stock market gains helped advisers turn in solid growth in assets and revenue, but that growth could disappear in the next market downturn.

Divided we stand: How financial advisers view President Trump

InvestmentNews poll finds 49.2% approve of his performance, while 46.7% disapprove. How has that changed over the course of his presidency?

10 states with the most college student debt

Residents of these states have the most student debt when you consider their job opportunities.

Ex-Wells Fargo brokers sue for damages, claiming they lost business in wake of scandals

In a Finra arbitration complaint, two brokers allege that Wells Fargo's problems damaged their business.

Invesco to buy OppenheimerFunds

Deal brings Invesco another $246 billion in assets, as well as high-fee actively managed funds.


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 It'll help us continue to serve you.

Yes, show me how to whitelist

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


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print