RCS Capital Corp's New Crowdfunding Platform: Good For Investors?
On September 8, 2014, RCS Capital Corp (NYSE: RCAP) Executive Chairman Nick Schorsch announced the launch of its "We Are Crowdfunding" Internet-based investment platform. This news appeared to usher in a new avenue to purchase non-traded real estate investments online -- potentially exciting for the average investor.
Why would investors want access to non-traded opportunities?
The Big Question
The world of hedge funds, private equity, non-traded real estate partnerships and other "alternative investments" is simply out of reach for the average investor. In fact, only institutions and accredited investors -- those individuals with either high incomes, or a significant net worth -- can even be offered these type of investment vehicles in most cases.
RCS Capital is one of the largest wholesalers of non-traded REIT shares, which are sold by broker-dealers and registered investment advisors.
REIT "Midas Touch"
Schorsch has earned a well-deserved reputation on Wall Street for his acumen when it comes to REIT sponsorship. American Realty Capital's uncanny ability to raise billions of dollars from investors, grow non-traded real estate investment trusts and then either merge them with publicly traded REITs, or take them public in an IPO, is legendary.
Schorsch, for example, engineered the successful American Realty Capital Properties (NASDAQ: ARCP) bid to acquire Cole Real Estate Investments Inc. This huge $11.2 billion merger deal closed on February 7, 2014. It resulted in ARCP becoming the largest publicly traded single-tenant net-lease REIT in the U.S., just two years after its own $70 million IPO debut.
Non-traded ARC Healthcare listed on April 7, 2014 as American Realty Healthcare Trust (NASDAQ: HCT) for $10.00 per share. Approximately two months later, the $19 billion cap healthcare REIT Ventas, Inc. agreed to acquire the entire portfolio of ARC Healthcare assets for ~$2.6 billion, or $11.33 per HCT share.
The April 15, 2014 listing of $1.7 billion cap New York REIT (NYSE: NYRT), a liquidity event for shareholders of the former New York Recovery REIT, was a non-traded REIT sponsored by Schorsch. New York REIT is the only pure-play office REIT focused solely on NYC assets.
Initially Non-Accredited Investors Have Limited Options
The good news is that it is very easy for non-accredited investors to sign up and view crowdfunding options on the website. Unfortunately, investment options for average investors, at least initially, appear to be limited to five mutual funds which primarily invest in listed real estate securities. The site offers a dashboard feature to simplify portfolio tracking as well.
Hopefully, in the near future, there will be a wider assortment of investing options offered on the site. It still remains to be seen if average investors will be given an opportunity to invest in some of the non-traded real estate portfolios prior to them being listed or merged into a publicly traded REIT.
A Valuable Silver Lining
However, there is a great reason for investors interested in REITs and other alternative asset classes to complete the painless process to sign up to gain access to the RCS Capital sponsored crowdfunding website. Regardless of investment goals, risk tolerance and the investing time horizon, it appears many investors can benefit from the "Education" portal on the website.
Clearly, the playing field will never be entirely level when it comes to institutional and accredited investors' investment choices versus the average investor. There are some simple reasons why this is quite logical.
Investments that may be illiquid for five to seven years are not appropriate for most households, and some investment choices are too complex to easily be understood by the average investor. However, there may be an excellent case to be made for the consideration of alternative assets by many investors, most notably for retirement accounts with a long time horizon, and as a method to achieve portfolio diversification not available from publicly listed ETFs.
Additionally, funds with longer time horizons can also act as a form of forced investor discipline, helping to avoid the losses from panic selling that inevitably occur during sharp market corrections and economic downturns.
Disclosure: At the time of this writing, Bill Stoller had no position in the equities mentioned in this report.
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