CommonWealth REIT, which owns One Shell Square in New Orleans, removed its entire board of trustees following a vote by shareholders.

CHARLOTTESVILLE, VA—Late last summer, American Realty Capital Properties announced that management of the REIT would move in-house, terminating the agreement with ARC Properties Advisors LLC, an external manager that is majority-owned by Nicholas Schorsch and his partners. “We’re tearing up our 10-year management contract,” Schorsch, now executive chairman at ARCP, told the Wall Street Journal last September. “As an internalized company, you get a better multiple in the market. The market likes it better.”

This week, another real estate trust with an external manager, CommonWealth REIT, removed its entire board of trustees following a vote by shareholders. That vote was the outcome of a consent solicitation by two of CWH’s shareholders, Related Fund Management and Corvex Management LLC. The two shareholders had sought the board’s ouster largely because of the office REIT’s external manager, which they believed was “highly incentivized” to manage CWH in a way that maximizes management fee income, “rather than in a manner that creates value for shareholders.”

That external manager, REIT Management and Research LLC, is controlled by the father-and-son-team of Barry and Adam Portnoy, who also serve as managing trustees at CWH and four other REITs. As SNL Financial pointed out in a report following the removal of CWH’s board, investor wariness means that external management is “largely out of favor” among publicly traded REITs, and the future of this governance structure is uncertain.

Green Street Advisors estimated last year that there were just 18 US equity REITs remaining that used external managers—a number that is now smaller since ARCP took its management in-house. “The reality is that investors, especially the dedicated REIT guys, continue to not like that structure, especially given the inherent conflict that exists with these external managers,” Jefferies LLC analyst Omotayo Okusanya told SNL this week.

The structure is more prevalent among nontraded REITs, SNL notes, and is also more common in Europe. And Peter Fass, a partner at law firm Proskauer Rose who has worked with a number of nontraded REITs, says external management can serve a purpose.

“It costs a lot of money to hire people, and until you have a successful company, why would you incur the overhead?” Fass told SNL. With external management, “You get the expertise without having to hire anybody internally.”

It’s not only concerns about possible conflicts of interest that make US shareholders look askance at external managers of traded REITs. “Externally managed REITs, on average, trade at a steeper discount to NAV than do equity REITs, and their average total returns have underperformed the broader REIT space throughout 2014,” according to SNL.

In affirming its stable outlook and BB+ rating for CWH following the shareholder vote, Standard & Poor’s earlier this week said it expected that a new board would terminate the management agreement with RMR and bring in a new, internal management team.  “Our ratings on CWH acknowledge the company’s ‘fair’ business risk profile, as characterized by a portfolio of assets that has performed unevenly and lagged that of other office REIT peers that we rate,” says S&P credit analyst Jaimie Gitler.

The ratings agency said it believes that the new management team is likely to retain some assets that RMR had previously marked for sale. It added that while value could be realized by rehabilitating or repositioning these properties “it will likely require significant capital to do so.”