Nicholas Schorsch, the former nontraded REIT czar who is both loved and hated by financial advisers who sold his products, is reentering the securities business after several years on the sidelines and is heading up a brand new SPAC, or special purpose acquisition company, that will buy leisure-focused businesses.
This month, G&P Acquisition Corp. registered a $200 million securities offering with the Securities and Exchange Commission, with the intention of selling 20 million shares at $10 each. Schorsch is the chairman of the G&P SPAC, which intends to invest in leisure-oriented businesses and the craft brewing automotive and distribution sectors.
From 2010 to 2015, Schorsch was one of the most visible faces of the retail securities industry, with his partnership, American Realty Capital, raising close to $20 billion from retail investors who bought shares of a variety of ARC-branded nontraded real estate investment trusts and alternative investments.
Nontraded REITs raise money from investors seeking yield and buy commercial real estate. Brokers were paid handsomely to sell the products. At the time, ARC REITs and its competitors were among the most expensive products for clients and commonly paid brokers and advisers a 7% commission along with a 1% fee to the broker-dealer.
The good times for ARC and Schorsch stopped in late 2014, when his flagship REIT, American Realty Capital Properties Inc., reported a $23 million accounting error that mushroomed into a disaster for Schorsch.
ARC REIT sales tanked, the board of American Realty Capital Properties showed Schorsch the door, and that REIT’s chief financial officer, a longtime Schorsch partner Brian Block, in June 2017 was convicted of securities fraud in federal court in New York and sentenced to 18 months in prison.
The federal charges against Block related to his fraudulent preparation in 2014 of financial statements for the REIT, which changed its name to Vereit Inc. after Schorsch left. A year earlier, Schorsch’s retail brokerage empire, Cetera Financial, burdened with debt and slid into bankruptcy.
Schorsch retreated from public view in New York to a more private life in Newport, Rhode Island, where he invested in local businesses, according to local news reports. In 2019, he reached a $7 million personal settlement with the Securities and Exchange Commission stemming from charges that ARC, Schorsch and Block wrongfully obtained millions of dollars in connection with REIT mergers that were managed by ARC, also known as AR Capital.
In total, ARC, Schorsch and Block paid a $60 million settlement to the SEC.
With that history in tow, Schorsch is now moving to re-enter the mainstream securities industry. Investors in the new SPAC, which intends to list on the NYSE, also receive half a warrant, exercisable at $11.50. BMO Capital Markets is the sole book manager for the offering.
Schorsch did not return phone message Thursday morning to comment. Four industry executives who either worked for or competed against Schorsch and ARC also declined to comment.
G&P Acquisition, the new blank check company, appears to be a family affair for Schorsch.
His son-in-law, Brendan O’Donnell is its CEO and his son, Nicholas Schorsch Jr., is the president, according to filings with the SEC. Mike Weil, a longtime partner of Schorsch and the CEO of the real estate partnership, now called AR Global, has been nominated to the SPAC’s board of directors.
Schorsch’s career has been littered with successes and failures. As the SEC registration for the SPAC notes, in 2013 and 2014 the American Realty Capital Properties REIT made six mergers, including the acquisition of Cole Capital, the second largest nontraded REIT sponsor at the time. Investors in those earlier deals saw handsome returns and advisers were snapping up ARC alternative investment products for clients.
But there was a downside to some of his later efforts. RCS Capital Corp., known as RCAP, the brokerage holding company Schorsch controlled, in May 2016 filed for Chapter 11 bankruptcy protection. That led to Cetera Financial Group emerging as a separate broker-dealer network but wiped-out stockholders, including financial advisers and executives, who hung onto RCAP stock believing in Schorsch.
And some of the legacy Schorsch and ARC REITs continue to struggle. In the weeks after a stock split and listing on the NYSE last August, New York City REIT Inc. (NYC), managed by AR Global, took a severe hit to its share price, with investors seeing the value of their holdings drop as much as 80% from the initial sales price.
The REIT was launched in 2013 as one of a bevy of nontraded real estate investment trusts managed by AR Global. Dozens of independent broker-dealers sold the high-commission REIT at its offering price of $25 per share. Shares of the REIT were trading at $10.10 on Thursday afternoon.
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