Non-traded
REIT czar Nicholas Schorsch has resigned as executive chairman of one of the companies that played a major role in his empire, American Realty Capital Properties Inc., or ARCP.
In addition to stepping down from ARCP, a giant, publicly traded real estate investment
trust, Mr. Schorsch resigned from the boards of directors of nontraded REITs managed by Cole Capital, a nontraded
REIT sponsor owned by ARCP.
Mr. Schorsch's departure from ARCP comes almost a month-and-a-half after ARCP's chief financial officer, Brian Block, resigned when the company revealed a $23 million accounting error from the first half of the year that was intentionally not corrected.
In cutting ties with Mr. Schorsch,
ARCP said in a statement, “ARCP will be unwinding all of its relationships with entities in which Mr. Schorsch maintains an executive or director-level role or is a significant stockholder. These steps will not only enhance the company's corporate governance structure but will also lead to further simplification of its business relationships.”
ARCP is one of the three pillars of Mr. Schorsch's
REIT and brokerage empire. RCS Capital Corp., or RCAP, a publicly traded retail and wholesaling brokerage, was the second, while American Realty Capital, or ARC, a privately held sponsor of REITs, was the third.
Mr. Schorsch is going to focus his attention on the “strategy, growth and management” of the ARC, said Louisa Quarto, president of Realty Capital Securities, RCAP's brokerage arm, in a memo to broker-dealer due diligence officer and advisers Monday morning. “Nick has decided to step down from his positions at ARCP and the nontraded REITs managed by Cole Capital to create clarity and eliminate potential conflicts,” according to Ms. Quarto's memo. “In doing so, he is acting in the best interests of the shareholders.”
ARCP has played a major role in Mr. Schorsch's companies becoming the biggest sellers of nontraded REITs through a large network of independent broker-dealers. It grew at a blistering pace, acquiring two nontraded REITs sponsored by ARC, American Realty Capital Trust III Inc. and American Realty Capital Trust IV Inc., along with a host of other net lease properties. The speed of such acquisitions, known as liquidity events in the brokerage and REIT industries, was widely hailed by advisers and brokerage executives and was a key component to Mr. Schorsch's popularity. Mr. Schorsch owned 13.6 million common shares of ARCP, 1.7% of the company, according to an ARCP proxy in April.
ARCP on Monday said that its chief executive, David Kay, and chief operating officer, Lisa Beeson, also resigned. The company's lead independent director, William Stanley, is now the interim CEO and chairman of ARCP.
Mr. Stanley did not return phone calls on Monday morning to comment. An ARCP spokesman, Andy Merrill, also did not return calls. Spokesmen for RCAP and ARC also did not return calls.
Mr. Schorsch first started
taking a step back from some of the companies he controlled in November. In filings with the Securities and Exchange Commission, he resigned as chief executive from at least six companies he oversees, including three nontraded REITs sponsored by American Realty Capital. He handed the reins of two of the REITS to longtime investment partner, William Kahane.
ARCP last month said it would delay its third quarter earnings and report them by Jan. 5.
As previously disclosed, the independent members of the ARCP board have hired Morgan Stanley & Co. to provide advice around capital structure, business strategy and capital allocation, the company said in a statement.
“It's no surprise that Nick is gone,” said Brad Thomas, a REIT investor and editor of a REIT newsletter, the Intelligent REIT Investor. “The shocker is David Kay, because he had said previously that he was there for the long haul.”
Mr. Thomas had owned ARCP shares but sold them in November, he said. “This tells me that the numbers do not look good” at ARCP, he said.
At the end of June, ARCP had $21.3 billion in total assets. It became a publicly traded company in September 2011.
“This company was built too big, too fast,” said Mr. Thomas. “There's no way it could keep its momentum. This company is better off sold in pieces.”
