Nicholas Schorsch resigned from two more publicly traded companies last week, as well as from a host of other nontraded real estate investment trusts, but he still remains entrenched at other firms he created and is the largest shareholder at several others.
In other words, don't count the real estate czar out just yet.
First, the negatives.
In mid-December, Mr. Schorsch resigned as chairman of American Realty Capital Properties Inc., or ARCP, a giant REIT that disclosed a $23 million accounting error in October. Then, last Tuesday, he resigned as executive chairman of RCS Capital Corp., or RCAP, a broker-dealer that was instrumental in selling his nontraded REITs to investors. He also stepped down as chairman and chief executive of New York REIT Inc., a publicly traded REIT that has a market capitalization of close to $1.8 billion.
Losing the chairmanship of RCAP is a body blow, but Mr. Schorsch is still firmly entrenched in his array of real estate companies. Though he resigned last Tuesday from the boards of 11 nontraded REITs and other direct investment programs, he remains chief executive and chairman of American Realty Capital Trust V Inc., a nontraded REIT with $2.2 billion in assets.
Mr. Schorsch is the largest single shareholder of RCAP stock. He controls 19.2 million shares, or 21.6% of the company's outstanding shares. He is also one of the partners of a management company that takes a 10% fee from RCAP's pretax income.
That management agreement will face scrutiny in the weeks ahead, however, analysts and observers said. Perhaps most significantly, Mr. Schorsch remains CEO and chairman of AR Capital, the privately held real estate manager and nontraded REIT sponsor that is the third pillar of his empire.
In that role, he will "focus his attention on strategic initiatives and potential liquidity events of closed programs sponsored by AR Capital, and new strategies for the future suite of AR Capital investments," an AR Capital statement said.
In a private conference call with brokerage executives last Tuesday morning, Mike Weil, CEO of RCAP and a partner with Mr. Schorsch at AR Capital, stressed Mr. Schorsch's continued role in his empire, according to a brokerage executive who listened to the call.
When asked why Mr. Schorsch was remaining at ARC V, Mr. Weil responded that boards of some of the AR Capital-sponsored REITs "thought it was imperative to keep Nick involved," according to the executive, who asked not to be named because the call was confidential.
Regarding Mr. Schorsch's large stake in RCAP, Mr. Weil said, "We've spoken with shareholders on the Street and they are happy to have a long-term shareholder who wants the company to do well."
A spokesman for RCAP, Andrew Backman, confirmed Mr. Weil's comments.
Shares of ARCP and RCAP were immediately buoyed by the news of Mr. Schorsch's resignations Tuesday, with ARCP up 5.7% and RCAP up 6.6% in afternoon trading. As of Tuesday's close, ARCP's shares were down 26.4% and RCAP's 38.5% from the time the accounting error was disclosed.
Replacing Mr. Schorsch as RCAP chairman is Mark Auerbach, a former pharmaceutical executive who has been the firm's lead independent director since last February.
"This important transition allows us to simplify our governance structure, reduce complexity and minimize perceived conflicts of interest among related parties and affiliates," Mr. Auerbach said in a statement from RCAP.
Two months ago, ARCP announced the $23 million accounting error that was left intentionally uncorrected for the first half of 2014. Two accounting executives, including one of Mr. Schorsch's longtime partners, chief financial officer Brian Block, resigned as a result.
At first, Mr. Schorsch downplayed the accounting error, reassuring broker-dealers that the accounting issues at ARCP were isolated. But a surge of events undermined the status of the freewheeling REIT mogul beloved by many financial advisers for quick liquidity events of nontraded REITs sponsored by AR Capital.
The shares of ARCP and RCAP plummeted on the news. Many broker-dealers and clearing firms in November suspended sales of AR Capital products, eroding revenues for RCAP from wholesaling fees. Then, just two weeks ago, one of the executives who resigned from ARCP, Lisa McAlister, filed a defamation lawsuit that alleged that Mr. Schorsch ordered her and Mr. Block to change quarterly financial results.
It is impossible to know for sure what is next for Mr. Schorsch in 2015. Along with legal issues, he is facing mounting pressure from regulators.
In November, William Galvin, secretary of the Commonwealth of Massachusetts, launched an investigation into Realty Capital Securities, the wholesaling broker-dealer arm of Mr. Schorsch's nontraded real estate trust empire.
In December, Mr. Galvin's office said he was widening the investigation to three other Schorsch businesses: ARCP, AR Capital and RCAP.
One analyst was sanguine about the changes at RCAP.
"We view the announcement positively as it further divorces the implicit overhang on RCAP from the [legacy] association with ARCP — as there is no economic relationship between the firms," wrote William Katz, an analyst with Citigroup Global Markets Inc.
"First, the changes to the board further increase the number of independent directors and reduces the complexity and perceived conflicts of interest among related parties," Mr. Katz wrote. "Second, it increases the path to simplifying the franchise, which should expand the [price/earnings] multiple. Third, RCAP is moving relatively quickly to address investor concerns and we expect further action to come with the external management structure likely to be reviewed over time."