Nicholas Schorsch, the co-founder of AR Capital LLC, resigned from the boards of RCS Capital Corp., New York REIT Inc. and 11 nontraded real estate investment trusts and direct investment programs sponsored by AR Capital.
Schorsch, 53, will leave the companies immediately to focus on strategy and “potential liquidity events of closed programs sponsored by AR Capital,” the company said in a statement today. Some of Schorsch’s companies have been under scrutiny since accounting inaccuracies were disclosed at American Realty Capital Properties Inc., or ARCP, leading to his resignation from that board earlier this month.
“I am completely confident in our management teams and our independent directors,” Schorsch said in the statement. “These changes are part of the natural evolution of our businesses given our size and continuing growth.”
Investment products managed by AR Capital, primarily its nontraded REITs, have raised about $20 billion in equity mainly from individual investors since 2008, investment bank Robert A. Stanger & Co. said. Closely held AR Capital currently has about 10 products being sold to investors including the New York City REIT and a hotel REIT. AR Capital has generated more than $600 million in fees since it began in 2007, according to Stanger.
The accounting woes at ARCP hurt companies led by Schorsch and prompted some broker-dealers to suspend selling nontraded REITs sponsored by ARCP’s Cole Capital and some AR Capital nontraded REITs.
Schorsch is also the biggest shareholder of RCS, which raises money from investors for AR Capital’s nontraded REITs. The investment products are marketed to individual investors and depend heavily on the sponsor’s reputation. Since the accounting problems at ARCP were disclosed on Oct. 29, shares of RCS fell 43% through yesterday’s close and ARCP tumbled about 32%.
Michael Happel will become chief executive officer of New York REIT and William Kahane will become its executive chairman as well as chairman of ARC Realty Finance Trust Inc. Kahane will also resign from his role as a director of RCS Capital. Peter Budko will take the role as chairman of Business Development Corp. I and II.
“These actions should greatly minimize distractions and immediately eliminate any perceived or potential conflicts created as a result of Mr. Schorsch’s involvement on the boards of AR Capital-sponsored programs or on the board of RCS Capital whose subsidiary, Realty Capital Securities, is the wholesale broker-dealer that distributes those programs,” AR Capital said in the statement.
Schorsch helped create RCS Capital, an investment bank and brokerage with at least $1.3 billion of deals closed or pending for nine companies, primarily broker-dealers, in the past year.
ARCP is reviewing its financial statements going back to last year after finding that accounting errors were deliberately hidden. ARCP’s chief executive officer, chief operating officer and chief financial officer have resigned since the errors were disclosed.
— Check out Schorsch’s Issues Extensive but ‘Isolated,’ Says Nontraded REIT Expert on ThinkAdvisor.