Schorsch: 'Boring' Predictability Equals Success

NEW YORK CITY-“Boring” was a word that kept coming up in Nicholas Schorsch's presentation to a YM/WREA audience Tuesday afternoon. “We love the really boring stuff that nobody wants,” said the chairman and CEO of American Realty Capital.

Nobody, that is, aside from investors who welcome predictable yields and durable income. Judging by the success of the non-traded REITs that ARC has sponsored over the years—American Realty Capital Trust, for example, merged with Realty Income this past January in a $3-billion deal that meant a cash payment of 35 cents per share for ARCT shareholders—boring works quite well.

“Our job is to give money back,” Schorsch explained in Tuesday's luncheon presentation at the University Club in Midtown. “It's a beautiful thing. You give them their money back with a profit, and within 36 hours they call you to give you more money.”

Although his company is based here and Schorsch himself lives here, he made it plain that New York City CRE is not representative of the US as a whole. “New York is some other planet near New Jersey,” he joked.

Nor do the scenarios that attract many investors to bid up prices on core Manhattan assets fit in with ARC's everyday modus operandi, although American Realty Capital New York Recovery REIT has bought actively in the city. A residential conversion from an office building may seem like “a no-brainer,” Schorsch said, but it comes with inherently high risk. The ARC REITs favor low risk along with low leverage, and a 6% to 7% risk-adjusted yield.

To many would-be buyers, “New York is the safest market in the world,” said Schorsch. “But a 25-year Walgreens looks a little safer.” That's the focus of American Realty Capital Properties, which currently boasts a portfolio of 701 single-tenant properties with a mix of long- and mid-term net leases to provide both stable income and growth potential.

ARC's focus is not one REIT but multiple ones, sector-specific. It's CRE investing at its “most granular,” Schorsch said. “It makes selling in New York look easy.”