Securities America Stops Selling Nontraded REIT ARC V
Securities America Inc. has severed ties with American Realty Capital Trust V Inc., a top-selling nontraded REIT. The independent broker-dealer blamed this on an overconcentration risk and its own exposure to real estate programs that AR Capital, a brokerage firm, distributes.
The nontraded real estate investment trust, known as ARC V, was the number one seller last month with about $10.8 million in daily sales. Already, between April, when the REIT launched, through the end of June, brokers have sold $406 million of them.
However, in the past, it was the sale of too many illiquid, alternative investment deals that created huge problems for Securities America problems. In particular, between 2003 and 2007 it sold $700 million of Medical Capital Holdings Inc. that turned out to be part of a $2B Ponzi scam)
Advisor Group Breaks Ties with Nontraded REIT Sponsor Cole Holdings Corp.
One of the largest networks of independent advisers and representatives in the US has ended its selling agreement with nontraded real estate investment trust sponsor Cole Holdings. Advisor Group said it severed the deal because Cole’s management decided to pay itself and Chris Cole, its founder, a $127M “internalization” fee when nontraded REIT Cole Credit Property Trust III merged with asset manager Cole Holdings to establish Cole Real Estate Investments Inc.
In an email to its advisers, Advisor Group said that although the internalization transaction appeared legal, it did not believe that the decision to not put the deal to a REIT shareholder vote is in line with industry standards. The broker-adviser network also said it did not think the transaction complied with corporate governance standards. Meantime, Cole Real Estate Investments Inc. says it will attempt to get back this partnership.
Last month, Cole saw a drop in its shares. Opening on June 20, the new publicly traded REIT, its total real estate assets of $7.7 billion, closed its first day at $10.90 on the big board, its volume topping 18 million shares. It opened at $11.50, which is under the $12/share that American Realty Capital Properties and its CEO Nicholas Schorsch had offered in a hostile takeover attempt a few months back. Schorsch believes that his bid would have been the better alternative for Cole investors.
A Nontraded REITs
Brokers that sell nontraded REITs usually charge a 7% commission. Shares usually have a $10 value. Nontraded REITs supposedly have the potential higher yields than a lot of its competition. That said according to Forbes.com, the retail non-traded REIT industry’s record is pretty poor with advisors and investors, who, if anything, generally break even before costs. Per a study by Blue Vault Partners and the University of Texas at Austin in 2012, before fees, the performance of non-traded REITs is pretty “similar to their benchmarks.” After fees, they may trail by approximately 1.4%.
Securities America ends sales of a Schorsch REIT, Investment News, July 18, 2013
Advisor Group cuts ties with popular REIT sponsor, Investment News, July 18, 2013
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