Apollo, Schorsch's AR Capital call off $378M deal

REIT czar not selling real estate management business to PE giant

Nov 9, 2015 @ 11:14 am

By Bruce Kelly

Apollo Global Management and AR Capital, Nicholas Schorsch's real estate management company, have called off an earlier announced transaction in which Apollo would have bought a majority stake in the company for $378 million.

In August, Mr. Schorsch and his partners agreed to sell a 60% stake in AR Capital, a private company that develops nontraded real estate investment trusts and which has $15 billion in assets, to Apollo for a combination of cash and Apollo stock. The new company was to be called AR Global Investments.

At that time, RCS Capital Corp., a separate company of which Mr. Schorsch is the biggest shareholder, said that Apollo agreed to buy its wholesaling business and other related parts of the company for $25 million in cash. Apollo also agreed to buy $25 million in RCAP preferred shares and enter into a strategic relationship to have Cetera Financial Group, RCAP's retail arm, sell Apollo investment products.

That part of the deal has been changed.

RCAP on Monday said it was selling only its wholesaling arm to Apollo for $6 million in cash. That part of the business includes two wholesaling broker-dealers, Realty Capital Securities and Strategic Capital. Apollo will partner with Bill Dwyer, Realty Capital Securities chief executive, and Louisa Quarto, it president.

Apollo also said it was selling the $25 million in preferred stock it bought from RCAP to AR Capital at a profit of $600,000.

The drastic changes in the deals between Apollo, AR Capital and RCAP are quite a reversal for Mr. Schorsch and his partners. In addition to the $378 million they were receiving for a 60% interest in AR Capital, Mr. Schorsch and his partners could have increased their payday by another $500 million over a five-year period for performance-related considerations.

(More: How Nick Schorsch lost his mojo)

RCAP stock took a dive on Monday, dropping 46% by 11 a.m. and trading at 50 cents per share.

RCAP on Monday morning announced a series of other moves. It said it was also selling its liquid alternative investment management company, the Hatteras Funds, to its current management for $5.5 million and the assumption of certain obligations. It is also selling $12 million of senior unsecured promissory notes to RCAP Holdings, another company Mr. Schorsch controls, and $15 million of the notes to Luxor Capital, a hedge fund which owns a large stake in RCAP. RCAP said it has also agreed with its lenders to make modifications to certain loans.

Apollo, AR Capital and RCS Capital Corp. could not immediately be reached for comment.

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