Time has not changed Nick Schorsch

More than a decade since he left Wall Street, time has not changed Nick Schorsch, now in his mid-sixties and appearing trim and spry – albeit with a touch of gray – in photos in a new magazine profile of the investor, whose history comes with controversy. 

Schorsch has recently been buying restaurants in Rhode Island at such a pace that some in the community are concerned, just as many were 15 years ago when Schorsch and his partnership American Realty Capital started selling billions of dollars of nontraded real estate investment trusts through financial advisors to Mom and Pop investors.

According to a new profile of Schorsch in Rhode Island Monthly magazine, Schorsch and his company, Heritage Restaurant Group, is snapping up local, beloved eateries and restaurants in Newport and nearby towns at a frantic pace, winning over some locals and alienating others.

“I (personally) don’t trust the pace, process and acquisition of numerous local brands by this group, in several different communities in such a short period of time,” cocktail writer and hospitality consultant Matt Simmons wrote on Facebook last winter, according to the article, which was written and reported by Eli Sherman.

Is Schorsch today being disruptive and changing an industry for the better, or is his work detrimental and done in haste? That same line of questioning followed him after he burst into the financial advice industry back in 2010.

"Heritage Restaurant Group has been created over the last five years through the accumulation of family-owned restaurants whose owners are looking for a succession plan while honoring their legacy,” a company spokesperson said. 

Nick Schorsch is known to longtime InvestmentNews readers and financial advice professionals as the one-time nontraded REIT czar, a man who turned himself into a billionaire by selling illiquid and expensive REITs.

On the way he also made some financial advisors millionaires, because of the steep commissions they charged clients and pocketed for selling Schorsch-sponsored and ARC-labeled products.

Schorsch’s deals have a double-sided history.

In his heyday, Schorsch borrowed a billion dollars from Bank of America to buy Cetera Financial Group, a giant network of broker-dealers, only to see it fall into bankruptcy under his control.

He bought other broker-dealers from executives with stock from that broker-dealer holding company, RCS Capital Corp., which eventually turned out to be worthless due to the bankruptcy.

Advisors loved him for making them rich. Other advisors questioned him and ARC for promoting a product many believed to be far too expensive, with fees eating up 10% of a client’s investment.

Full disclosure: Sherman interviewed me last summer as part of his research of Schorsch’s time on Wall Street.

“Nick is a dealmaker,” I told the reporter. “He loves action, he loves the tension of money.”

The environment of Rhode Island, tagged as the 401 for its area code, “is vulnerable, ripe for picking and socioeconomically disadvantaged,” Simmons added, according to the new article. “People here are acutely aware of this, and are uneasy with big owners swinging in. Look at BlackRock across the country and apply that analogy to” Schorsch’s restaurant business, Heritage Restaurant Group.

The company is a steward of the "vision and individuality of each restaurant, enhancing the customer and employee experience through operational support," the spokesperson said. "Our mission is to ensure these iconic restaurants, some of which have been around for over 60 years, remain vibrant fixtures in their Rhode Island communities for generations to come.”

Schorsch, via Heritage Restaurant Group, has recently spent in the neighborhood of $125 million on dozens of restaurants. He clearly has his fans and supporters in Rhode Island, despite the critics.

One eatery owner who sold to Schorsch is quoted as saying, “It’s awesome.”

One leader of a local business association was initially critical of Schorsch but has changed his tune. “You don’t find people like this often,” he told Sherman. “As a state, we should be appreciative.”

Sherman is not so sure.

“Where many see Schorsch as a savior, preservationist and philanthropist, others see a sharp-elbowed billionaire looking to buy his way back into prominence after getting a black eye on Wall Street,” according to Sherman’s reporting. “And many are wary about his long-term intentions for Rhode Island and its hospitality industry.”

The deal maker is building a legacy for his family, he told Sherman.

“I want my children who are in the business to take over and run these businesses as well and have a place to take over that I’ll be proud of,” according to the article. And the restaurants are turning a profit, according to Schorsch.

Keeping Schorsch’s current labor in mind, some in Schorsch’s orbit in the past paid a price.

Schorch’s flagship REIT, American Realty Capital Properties, a vehicle to buy other REITs, in 2014 revealed a $23 million accounting error. He would later resign as chairman of ARCP and in 2015 relocated to Newport, where he spent summers in his youth on family vacations.

One of his business partners, Brian Block, went to jail after a jury in federal court in Manhattan in 2018 found him guilty of securities fraud related to an accounting misstatement at American Realty Capital Properties. Block was chief financial officer of the REIT.

As Sherman notes in the article, Schorsch wasn’t charged in the accounting matter, but he and his empire of REITs paid $60 million to settle with federal regulators. He was hit personally with $7 million in penalties and injunctions. Civil lawsuits followed.

Has time changed Nick Schorsch?

From 2010 to 2014, I spent more time on the phone with the nontraded REIT czar than I did with any other senior industry executive from that era. Calls with Schorsch on Sunday evening at 10:00 or Monday mornings at 6:00 to announce an acquisition were to be expected.

At the time, he struck me as smart, gracious and urbane, but driven and focused to complete the acquisition in front of him. Little else seemed to matter.

The accounting mishap and subsequent prison sentence of Brian Block showed a haste and lack of attention to details.

And in such a small state as Rhode Island, the attention to details matters.