Outlook's Iffy for External REIT Management

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.”