With sales of nontraded real estate investment trusts on the skids, Cole Capital Corp. suffered a massive talent drain last month, with two dozen wholesalers and account executives leaving, according to a review of those employees BrokerCheck profiles.
The lion's share of those employees went to rival nontraded REIT wholesaler Griffin Capital Corp., according to the BrokerCheck profiles. The torrent of departures in March from Cole Capital, the nontraded REIT wholesaler and manager owned by American Realty Capital Properties Inc., capped a yearlong hemorrhage of talent from the former powerhouse.
Since April 2014, 37 licensed internal and external wholesalers and account executives have left Cole Capital, according to a review of BrokerCheck profiles. At least two dozen have landed at Griffin Capital.
The exodus at Cole Capital coincides with the previously reported departure of three leading marketing and wholesaling executives — James Ryan, Philip Graham and Colin Cosgrove — who recently moved to Griffin Capital. According to industry sources, Griffin Capital is building a new arm of distribution for its nontraded REITs and other illiquid investment products.
Though wholesalers and account executives in the nontraded REIT industry, who earn commissions and bonuses for sales, will jump to another company if sales are drooping, it's not clear what percentage of licensed staff those former Cole Capital employees represent.
A spokeswoman for Griffin Capital, Jennifer Nahas, declined to comment.
John Bacon, an ARCP spokesman, said the company did not comment on specific personnel changes.
Sales of Cole-branded nontraded REITs have plummeted since last October. That's when, ARCP, Cole's parent, revealed a $23 million accounting error that was intentionally uncorrected over the first half of 2014. A number of large broker-dealers and clearing firms suspended sales of Cole products after ARCP detailed the accounting problems.
According to investment bank Robert A. Stanger & Co. Inc., Cole Capital had $8.3 million in sales of nontraded REITs in February — about 1% of its total sales for the same month a year earlier.
After it revealed the accounting error, ARCP delayed its September 2014 earnings and released them at the start of last month. At that time, an audit committee for the company said it had found "certain material weaknesses in the company's internal controls over financial reporting and its disclosure controls and procedures.”
But the committee did not identify any material changes relating to ARCP's real estate ownership, rental revenue or fundamental business operations. The investigation did not find any changes to the financial statements or operations of the Cole Capital-sponsored nontraded REITs.
The departures at Cole Capital have not diminished the position of ARCP's leadership that sales of Cole-branded REITs can rebound.
In a conference call with investors on Monday, interim chairman of the board William Stanley said
Charles Schwab Co. Inc., a leading custodian for investment advisers, is once again processing sales of Cole products. He also pointed to Cole Capital's recent hiring of William Miller as senior vice president and chief sales officer as a positive. Mr. Miller was most recently senior vice president, director of national accounts with American Funds, one of the largest mutual fund companies in the world.
Real estate veteran Glenn Rufrano takes over as ARCP's CEO today.
“We have experienced some departures from the Cole Capital sales team during the past month,” Mr. Stanley said on the conference call. “Fortunately, Cole has a great reputation in the market, a long history of creating best-of-class products and strong relationships with the broker-dealer community. We are confident that Cole's leadership team will maximize the talent we have and add personnel as appropriate as we move forward.”
At the end of the call, Mr. Stanley added, “The general view that we get from the broker-dealer community is that they — that we — want Cole. We've had a long-term relationship; we need the product line. Cole fulfills an important niche, and please get your financials filed so that we, as due diligence officer in good faith, can begin to put your product back on our shelf.”
