Three independent broker-dealers have indicated that they are suspending sales or terminating relationships with two of the most popular companies in the industry. The reasoning behind the decisions varied from “due diligence” concerns with a nontraded REIT at one broker-dealer to selling too much of a nontraded REIT at another. A third broker-dealer stated a nontraded REIT company had not met its standards for corporate governance.
The National Planning Corp. stated that it would suspend sales of American Realty Capital Trust V Inc. (known as ARC V in the industry) because of due-diligence concerns, including “style drift, deviations from the prospectus and growing pains” exhibited by a related REIT. Another broker-dealer, Securities America Inc., said that it would suspend sales of ARC V because it recently had implemented a policy limiting the amount of any one alternative investment it sold, and it met that threshold with ARC V. On July 12, Securities America told its registered representatives and financial advisers in an e-mail that it will no longer offer ARC V, after the firm’s reps had sold $10.8 million of it daily.
National Planning Corp., an affiliate of insurance company Jackson National Corp., said that it was suspending sales of ARC V because of concerns related to another American Realty Capital REIT, merican Realty Capital Trust VI Inc. The concern is the vast majority of those properties are fast-food and casual dining restaurants.
Further, Advisor Group said that it had voided its selling agreement with Cole Holdings Corp. (“Cole”), the noted nontraded REIT sponsor, citing Cole’s management decision to pay itself and founder Chris Cole a $127 million fee this year. Advisor Group also cited to the fact that the
compensation decision was not put to a shareholder vote and that “violated its standards of appropriate corporate governance.”
Advisor Group also told its advisers the following day that it was terminating its relationship with another popular REIT company, Cole Holdings, because, “among other reasons, of a related party transaction between Cole Holdings, and the Cole Credit Property Trust III.” This REIT recently acquired Cole Holdings, its sponsor/adviser, and this “internalization transaction” was not submitted to a vote of the REIT shareholders.
These concerns from broker-dealers stem from a history of blow-ups of other alternative investment products in recent years. Berthel & Fisher & Co. Financial Services Inc., Cetera Financial Group Inc. and VSR Financial Services Inc. likewise have revised policies or added guidelines and procedures for the sale of certain alternatives, including nontraded REITs.