With sales of non-traded real estate investment trusts sagging, Vereit Inc., a large listed real estate trust, said on Monday after the market's close it was exiting the non-traded REIT business and selling Cole Capital for $120 million in cash and up to another $80 million in fees to be paid over six years based on Cole's future revenue.
The buyer is the CIM Group, which is focused on managing real estate and real estate investments in urban communities, primarily across North America, according to the company's website. CIM has about $18.1 billion in assets under management.
Currently, Cole has more than $7.6 billion in assets under management and runs five non-traded REITs, according to a statement from the company.
Cole Capital was the investment arm of Cole Real Estate Investments, a publicly listed REIT which American Realty Capital Properties, the forerunner of Vereit, paid $11.2 billion for in 2014. At the time, ARCP was controlled by real estate investor Nicholas Schorsch, and the acquisition of Cole capped a feverish buying binge in his rush to amass a real estate empire.
Later that year, RCS Capital Corp., a broker-dealer holding company Mr. Schorsch also controlled, said it intended to buy Cole Capital from ARCP for $400 million in cash and stock and also assume $300 million of ARCP's debt.
Weeks later, that deal began to unravel when a $23 million accounting fraud was revealed at ARCP. RCS Capital then called off the deal to buy Cole Capital, and eventually agreed to pay ARCP $60 million to tear up the deal.
One of the ARCP executives at the center of the accounting fraud, former Chief Financial Officer Brian Block, last week was sentenced to 18 months in prison by a federal judge in New York after being found guilty of six counts of securities fraud and making false filings with the SEC.
In the face of the Department of Labor's new fiduciary rule, which has quashed the sales of high-commission products, non-traded REIT sales have slumped and caused companies like Vereit to review those business lines.
In June, W.P. Carey Inc., like Cole Capital one of the companies instrumental in the evolution of the non-traded REIT business, said it was pulling out of the market. The company at the time said it would continue to manage its current non-traded REITs and other investment programs, but would no longer sell new non-traded REITs.
"This transaction allows us to simplify our core business model and focus on our large, diversified single-tenant real estate portfolio," said Vereit CEO Glenn Rufrano in a statement. "Cole Capital will have a sponsor in CIM with an institutional foundation and established distribution relationships with wirehouses."
