S2K Financial, a new broker-dealer that plans on wholesaling nontraded real estate investment trusts to independent broker-dealers and their advisers, has hired 11 former Realty Capital Securities wholesalers and employees to round out its staff of 30.
It is the second large group of wholesalers to migrate to another firm en masse from the defunct Realty Capital Securities, a unit of RCS Capital Corp. that closed in December after it was charged by Massachusetts securities regulators with fraudulently rounding up proxy votes to support real estate deals sponsored by AR Capital. Both RCS Capital, or RCAP, and AR Capital were among the firms co-founded by
Nicholas Schorsch, a one-time prominent figure in the nontraded REIT industry.
Another large group of close to 30 RCS employees has moved to renowned bond shop Cantor Fitzgerald & Co., just one of the Wall Street firms currently looking to muscle its way into the nontraded REIT business.
(More: Cantor Fitzgerald to hire nearly 30 RCS wholesalers)
Most notable among the former RCS wholesalers joining S2K is Alex MacGillivray, former senior vice president and sales manager for the eastern division at RCS.
S2K had its Securities and Exchange Commission and Financial Industry Regulatory Authority Inc. registrations approved at the end of last month, according to its profile on BrokerCheck.
“We would like to be different,” said S2K's CEO Steven Kantor in an interview Tuesday. “There's not a need to do what everyone in the industry has done in the past. If you look at some of past [nontraded REIT] deals, the risk of investors making money was substantial. The investor making money is our goal. We need to focus on investors first.”
S2K is not currently selling any specific nontraded REIT, although the firm is in talks with real estate managers. Mr. Kantor declined to give details about potential products.
Mr. Kantor has an unmistakable Wall Street pedigree. Most recently, he was with Cantor Fitzgerald, the same firm with which S2K will be competing to carve out a space in the nontraded REIT industry. Before that, he was a managing director with Credit Suisse Securities and had multiple responsibilities. He was the co-head of illiquid alternatives, and head of commercial real estate, according to Bloomberg News.
The nontraded REIT marketplace is changing. Sales slumped by one-third last year, hurting commission revenue at independent broker-dealers badly. Industry executives routinely point to two significant factors as damaging REIT sales: new Finra pricing regulations that require broker-dealers to disclose fees paid to brokers who sell the high-commission product and the Department of Labor's new fiduciary rule for retirement accounts.
Mr. Kantor said he was not deterred by the new regulatory hurdles. “It's a perfect time for change,” he said.
“Steve Kantor is an experienced guy and is trying to figure out a way to eliminate or drastically reduce front-end load” of nontraded REITs, said Kevin Gannon, managing director at Robert A. Stanger & Co. Inc., an investment bank that tracks the non-traded REIT industry. “He's innovative, but he has to get product first.”
