The direct investment industry could see a changing of the guard as the dominant firms controlled by non-traded REIT magnate Nicholas Schorsch continue to suffer a crisis of confidence.
Competing sponsors of direct investment programs will likely pick up some market share from Cole Real Estate Investments and American Realty Capital programs as some advisors pull back from those Schorsch-affiliated products.
Cole and ARC now dominate the market, with about a 50 percent market share.
A number of broker-dealers have temporarily suspended sales of programs affiliated with the Schorsch firms in light of the $23 million accounting error disclosed by American Realty Capital Properties at the end of October.
Schorsch is an ARCP board member and chief executive of ARC. ARCP, the publicly traded REIT, owns Cole.
The bad news for the Schorsch firms, though, could be good news for competitors.
“Competing sponsors are indicating that their respective fundraising is accelerating modestly in light of the ARC/Cole matters,” Kevin Gannon, managing director at Robert A. Stanger & Co. Inc., said in an email.
Stanger tracks the direct placement industry.
“We expect substantial downdrafts in ARC and Cole fundraising in the near term,” Gannon said.
One source at a competing sponsor, who asked not to be identified, said his company’s sales were up about 20 percent so far in November, although this source was unsure whether the uptick was due to problems at ARCP.