American Realty Accounting Errors Roil Schorsch Property Empire

RCS shares fell 20 percent yesterday. Investors are likely concerned that the accounting errors at American Realty Capital Properties will lower the amount of equity it can raise and fees it will generate, said Gannon of Robert A. Stanger.

Broker Discussions

Andrew Backman, managing director of investor and public relations at RCS, said the company is working closely with broker-dealers that have sought clarity on the situation.

“Based upon our discussions, it is evident that broker-dealers understand the value of RCS distributed products and are eager to work aggressively with us to resolve any outstanding questions in the very near term,” Backman said in a statement.

RCS may have broken off the Cole deal because the issues at American Realty Capital Properties could spill over to Cole Capital, tainting efforts to sell shares of its nontraded real estate investment trusts, said BMO’s Adornato.

“Most of the independent broker-dealers that sell nontraded REITs have some due-diligence effort in order to vet the sponsors of the nontraded REITs,” Adornato said in a telephone interview from New York. “It would be difficult if not impossible for any broker to sell shares in any Cole product until the investigation into ARCP/Cole’s financial controls is satisfactorily completed.”

Cole Capital said in a statement yesterday that it is on track to file its quarterly reports for its REITs on time.

American Realty Capital Properties said in a statement that RCS’s attempt to terminate the agreement is a breach of the agreement. Schorsch, the chairman of RCS, wasn’t involved in the process of calling off the sale, Backman said earlier this week.

Gannon said Schorsch has been a positive force for the industry, lowering fees that were criticized for eating into returns, and seeking opportunities for faster exits so that investors could realize profits or get liquidity.

“We want to believe these guys are good guys -- I’ve met them and didn’t have any reason to suggest an issue like this,” Gannon said. “Hopefully they will weather this and come out of this OK.”