Schorsch Faces Challenges In Rebuilding Big Chunk Of His Fortune

Schorsch doesn’t only earn money through his share of RCS, which collects broker-dealer and investment banking fees from the nontraded REITs. He and Kahane are managing members of the company’s external manager. The manager gets 10 percent of the pretax income from RCS, along with an incentive fee if certain return hurdles are met.

$600 Million

Schorsch is also chairman and CEO of privately-held AR Capital, which has generated more than $600 million in fees since it began in 2007, according to an analysis by Robert A. Stanger.

Until the ARCP investigation is complete, there will be a “taint throughout the larger ARC organization,” said Paul Adornato, an analyst with BMO Capital Markets in New York.

ARCP has completed more than 20 acquisitions since its inception in late 2010, according to data compiled by Bloomberg. RCS, alongside major investment banks, worked on some of the deals. They included the $9.85 billion takeover of Cole Real Estate Investments Inc. and the purchase of a nontraded REIT started by AR Capital.

In July, ARCP announced corporate-governance changes that included the mutual termination of its investment-banking relationship with RCS and Block’s resignation from the RCS board.

Company Overlap

“It’s hard to keep straight who’s in what role at which company because there’s so much overlap,” said Barry Vinocur, the editor of REIT Wrap, an industry newsletter, said of ARCP and RCS. “They’re interrelated in a variety of ways.”

While he left his positions at RCS, Block remained a minority investor and equity owner in AR Capital. RCS was on its own acquisition tear, with deals closed or pending for nine companies, primarily broker-dealers, for at least $1.3 billion in the past year.

Schorsch has a lot to lose if RCS shares continue to fall. His direct and indirect ownership interest in RCS totals 19.2 million shares, including his interest in RCAP Equity LLC, according to Bloomberg Intelligence.

“They’ve lost trust and it was a tenuous trust from the beginning because of the perceived conflicts and inter-company dealings,” said Jeffrey Langbaum, Bloomberg Intelligence’s senior REIT analyst. “The conflict is, because he’s involved in all these companies, which shareholder base’s interest is he operating on behalf of?”