November 19, 2015 by Amy Baxter
Times have certainly changed for AR Capital LLC (ARC) since the $2.6 billion sale of ARC Healthcare REIT to Ventas Inc. (NYSE: VTR) last year.
ARC, one of the largest sponsors of non-traded real estate investment trusts (REITs), has announced it will suspend new capital fundraising by the end of the year. The company has placed the blame on uncertain regulatory changes for non-traded REITs, but is also embroiled in its own legal troubles.
A real estate investment company that creates new public, non-traded REITs, ARC said it will not accept new investments “as a result of regulatory and market uncertainty affecting capital raising.” As of Thursday afternoon, Charles Schwab and Fidelity had stopped selling interests in AR Capital products.
While it will cease to raise new equity, the company has funds earmarked and available for all properties being acquired, both with purchase agreements and letters of intent, CIO Todd Jensen told Senior Housing News.* It will also continue to be in the market acquiring properties with debt capital.
The New York firm, formerly known as American Realty Capital, has close to $19 billion worth of investment programs across its affiliate companies.
“As the largest, well-capitalized sponsor of non-traded REITs and BDCs in the direct investment industry, we will focus our efforts for the time being exclusively on managing our investment programs for the benefit of our shareholders,” William M. Kahane, founding partner of ARC, said in a statement.
The decision to halt fundraising will likely impact four of the firm’s REITs that are currently in the offering stage. American Realty Capital Healthcare Trust III, ARC’s creation that invests in health-care related assets and seniors housing communities, is still in its offering stage, which opened August 2014 and isn’t scheduled to end until August 2016. The REIT holds 13 properties and has raised more than $156 million in gross proceeds.
The news comes as regulations are being considered for non-traded REITs after the U.S. Department of Labor proposed a fiduciary rule earlier this year that could prohibit sales of alternative investments in brokerage retirement accounts.
Kahane noted that the pending regulatory changes proposed by the DOL have pressured the firm to suspend new investments.
“Until there is greater clarity, we have decided to sit this one out,” Kahane stated. “As a result, we do not intend to register any new product offerings nor pursue any of our existing offerings after Dec. 31, 2015.”
He added that should the regulations become more clear, the company may change its position.
Blue Vault is just what advisors need to size up the different offerings in the nontraded REIT market. Just as importantly, it’s what the industry needs to encourage best practices among REITs.