VEREIT, the real estate investment trust formerly known as American Realty Capital Properties, continues to rehabilitate the Cole Capital brand after an accounting scandal.
Fundraising for Cole Capital crawled to a halt in December 2014 after accounting irregularities were revealed within its parent company. The scandal resulted in an FBI investigation and the resignation of founder and chairman Nicholas Schorsch. According to VEREIT CEO Glenn Rufrano, his firm is in the process of “resuscitating” Cole Capital’s reputation and value.
“Cole, our investment management arm, because of the issues in 2014, could not raise capital because the broker-dealer network in these United States suspended selling any Cole product. On that front, we were almost zero in money raised in the first quarter of ’15. By the first quarter of ’16, we averaged $48 million a month. So we have very good progress in one year period of time. A short period of time, I would say. The reason for that is that the brand is so good,” Rufrano said during a company presentation for REITWeek.
The gains are modest compared to Cole Capital’s pre-crisis figures. The company raised $274.4 million, almost five times its currently monthly average, in December 2013 alone. Rufrano, a veteran real estate executive known for turning around troubled firms, said that Cole Capital is currently in recovery. After this phase comes monetization, the strategy for which will depend on the share price.
“It’s the shareholders’ asset. We should make that asset as valuable as possible first. That’s the phase that we’re in now. We don’t think we’re there yet, but we’ll get there over time. We’re only on the first phase of creating value for shareholders,” he said.“Once we get there, if the public market doesn’t value our investment management business in the share price, we will have no choice but to think about other ways to monetize it,” he said.
Rufrano provided an abbreviated timeline for the process, estimating that investors will start to see gains as soon as later this year.
“It’s clearly through ’16 and then ’17. There’s a couple of reasons for that. The market is changing pretty dramatically in terms of the appetite and size. But this business, the non-traded REIT business, was as high as $20 billion in total market in 2013. It’s about $8 billion expected this year. We’ve got some room to grow in terms of market. It’s probably ’16 or ’17 before we see the full benefits,” he said.
Before the scandal, Cole Capital was set to be sold to RCS Capital, which was also headed by Schorsch. RCS abandoned the planned $700 million purchase as the financial irregularities became public.