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REIT Managers Accused Of $838M Self-Dealing Scheme By Activist Investor

An activist investor has launched a public campaign to force out the controlling interest in two real estate investment trusts, alleging management firm AR Global is engaging in widespread self-dealing.

New York-based Blackwells Capital accused AR Global of charging Global Net Lease and The Necessity Retail REIT exorbitant fees, driving down the two REITs' stock value while enriching its leaders.


In a newly released presentation, Blackwells Capital argues AR Global racked up $838M in management fees, reimbursements, property and other expenses since 2015 through ongoing self-dealing. Blackwells, which has previously filed suit against the REITs to remove AR Global as manager, argues AR Global is tied up in a web of companies that "has a history of conviction for securities fraud, manipulation, shareholder lawsuits and bankruptcy."

"We believe that GNL and RTL are deeply undervalued companies with attractive property portfolios that are being looted by a rapacious and conflicted external manager: AR Global," Blackwells Chief Investment Officer Jason Aintabi said in a statement. "The boards of directors of both GNL and RTL have each attempted to shield themselves and AR Global from the scrutiny of their shareholders through the manipulation of corporate machinery and tactical litigation."

Global Net Lease is a publicly traded REIT focused on sale-leaseback transactions involving single tenants. Necessity Retail REIT does much the same, with an emphasis on retail tenants like Home Depot and Truist Bank. Combined, the two control more than 68M SF of property and have a market cap of nearly $2B.

AR Global is the outside manager for both REITs. The company's management is intimately tied to Nicholas Schorsch Sr., whom Blackwells lists as the firm's founder.

AR Global CEO Michael Weil is a business associate of Schorsch from his earliest days buying bank branch properties in Pennsylvania. AR Global's chief operating officer is Schorsch’s son, Nicholas Schorsch Jr.

Real estate investment firms affiliated with Schorsch Sr. have been repeated subjects of scrutiny for years. In 2014, two top executives at American Realty Capital Properties, which was founded by Schorsch, were ousted over a $23M accounting misstatement.

In the ensuing fallout, one of the executives, Lisa McAlister, sued ARCP for defamation, alleging that she was taking the fall for a coverup that implicated Schorsch.  

McAlister withdrew the suit after Schorsch stepped down from his role as executive chairman, along with two more top executives. ARCP rebranded to VEREIT but remained embroiled in lawsuits, culminating in a $1B settlement of a class-action lawsuit from shareholders alleging securities violations and accounting fraud in 2019.

The same year, Schorsch escaped jail time and an admission of guilt but agreed to pay more than $60M in Securities and Exchange Commission fines alongside Brian Block, one of the first executives implicated in the scandal, and AR Capital.

Blackwells' case against AR Global rests on similar allegations of self-dealing that dogged ARCP. In its presentation, Blackwells argues the boards of Global Net Lease and The Necessity Retail REIT agreed to management contracts with AR Global that paid fees four times the industry standard. It also notes that the REITs' management fees have doubled since 2016 even as their stocks lost $3.3B in shareholder value.

The REITs are intimately tied to AR Global, which lists them as "business strategies" and shares an address with them on its website. AR Global didn't respond to a request for comment.

Blackwells Capital, which was founded by Aintabi in 2016, acquired stakes in the two REITs last year, becoming a top five shareholder for Global Net Lease. 

Beginning in October, Blackwells has engaged in a protracted battle with AR Global to force a vote on the nominations of two directors to serve on the boards of both REITs. The firm said in its most recent presentation that its ultimate goal is to force out AR Global completely and institute new governance practices to improve stock performance at the REITs.

In the lawsuit Blackwells filed in December, it argued that AR Global was using friendly board members to arbitrarily amend bylaws and keep Blackwells’ nominations from proceeding.

“The Boards of GNL and RTL are grasping at straws to keep stockholders from having a voice in the direction of these public companies,” Aintabi said in a statement announcing the suit. “By relying on a guileful interpretation of recent bylaw amendments, and by fabricating other pretexts to reject our valid nomination notices, these Boards seem to be acting only as marionettes to help AR Global with its sordid bidding.”