Between Wall Street & Main Street
This is an HTML version of an article that ran in the April 2014 issue of Real Estate Forum. To see the story in its original format, click here.
Nick Schorsch has always had a knack for headlines. It all seems to have started with a highly publicized split from partner Lewis Ranieri some 10 years ago, a split that found him on the outside of the firm he had created—American Financial Realty Trust.
But the headlines followed Schorsch not only in departures but in arrivals as well. With a new partner—William Kahane—he launched American Realty Capital in 2007, and together the partners built a business that would make the industry stand up and take notice. Built on a no-fee, pay-for-performance model, Schorsch and Kahane focused AR Capital on public non-traded real estate securities. Today they stand atop a massive pyramid of varied business stones, built in large part through large-ticket, news-making M&As.
How massive? RCS Capital is a business unit that distributes 16 investment vehicles for the parent firm, boasts an enterprise value of $1.4 billion, and it’s targeting an equity raise of more than $20 billion (see below for a sampling of its funds). Additionally, RCAP’s retail advice platform currently has more than $200 billion of assets under advisement. Then there’s parent entity AR Capital’s linchpin REIT, American Realty Capital Properties. Listed on NASDAQ in September 2011 at $70 million of equity value, today it tips the scales at over $21 billion.
Schorsch credits his team with the firm’s success. In addition to Kahane, whose history includes senior positions at Morgan Stanley and Catellus Development as well as a trustee post at American Financial, there’s president and COO Michael Weil, EVP and chief investment officer Peter M. Budko and founding partner Brian Block. While Schorsch and Kahane are co-founders, each member of the leadership team was on board within 90 days of launch, according to Weil.
“We wanted to build a business based on making the industry better,” Schorsch tells Real Estate Forum. “We wanted to build a business that was a public, transparent vehicle designed for retail investors, largely for people who wouldn’t otherwise ever be able to access real estate investment.”
The timing of the launch, just prior to the downturn, was fortuitous, he adds. Investing a lot of their own personal capital, “we had the opportunity to buy at the bottom.”
But it was never buying for buying’s sake, adds Kahane. “We focused our efforts where scale really matters in terms of creating outcome,” he explains. “You see it in our properties and in our broad-based footprint. But it all comes back to performance. If we take a dollar we return a dollar and a quarter.”
There’s an old-school aspect to the AR Capital investment philosophy in its focus on direct investments. “They’ve also been called alternative investments,” Kahane says, “which implies a red-headed stepchild. But this approach gives investors the opportunity to invest not through derivatives but directly into an asset class, and to do so at the opportune time in the market cycle. And it gives us the opportunity to create value through a large, diverse pool of aggregated financial instruments or assets.”
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