Got an email from Realty Shares today was wondering if anyone had any insight or thoughts. I am copying the notification.
An important message from RealtyShares
To our platform investors and operating partners:
Five years ago, RealtyShares was founded with a mission to connect capital to opportunity. With over $870 million invested across more than 1,100 projects, we have built one of the top online real estate investment platforms. We’re helping investors meet their financial goals and deploying capital to real estate operating companies to execute value-add and development strategies for properties across the U.S.
As an early stage company, we have relied upon venture capital to fund our operations. Over the past six months, RealtyShares aggressively pursued a number of financing options to continue growing the business. Unfortunately, despite our best efforts, we were unable to secure additional capital. As a result, we will not offer new investments or accept new investors on the RealtyShares platform.
From this point forward, RealtyShares’ focus will be servicing our existing investors and approximately $400 million of assets under management. This transition will have no impact on the underlying real estate investments. Investments will continue to be managed and distributions will continue to be made. Investors will continue to receive asset management updates and year-end tax information.
We are committed to serving our existing investors and sponsors and have a team dedicated to supporting our ongoing operations.
Massapequa Park, NY · Member since 2017 · 62 posts · 48 votes
7y
Received the same email. From what I read, it sounds like they are going to eventually wind down but continue to manage their existing investments and not take on any new investments.
Specialist · Pasadena, CA · Member since 2017 · 133 posts · 86 votes
7y
@Michael McDonald I wouldn't be too concerned. It just means they can't grow exponentially now since their expenses for marketing and engineering is too expensive to keep. They will probably maintain all of their essential employees that manage the properties but get rid of the divisions that build and market their platform. Instead of them being a crowd funding platform, they pivot into a property management company until they liquidate the assets.
@Michael McDonald I wouldn't be too concerned. It just means they can't grow exponentially now since their expenses for marketing and engineering is too expensive to keep. They will probably maintain all of their essential employees that manage the properties but get rid of the divisions that build and market their platform. Instead of them being a crowd funding platform, they pivot into a property management company until they liquidate the assets.
they had quite a few loans out.. so they need to keep servicing those.
Real Estate Investor · Manahawkin, NJ · Member since 2016 · 25 posts · 7 votes
7y
I have a small exposure to them...2 or 3 deals, about $25k total. Interestingly, a fourth one that I had just signed up for a week or two before this announcement had just been debited from my bank account. They said I should have that money back in my bank within 2 weeks. We'll see. For the time being, I'm considering every penny I have with them to be gone forever.
Real Estate Investor · Manahawkin, NJ · Member since 2016 · 25 posts · 7 votes
7y
I mean, I don't want to sound like to voice of gloom & doom, but by considering the money lost, I can only be happily surprised if/when I get it back. :)
Flipper/Rehabber · San Diego, CA · Member since 2010 · 76 posts · 21 votes
7y
I am a very skeptical person, but to consider the money lost is foolish. My experience with Nav is he was a straight shooter, I think they just having a hard time competing against the other players in the market and the insitutional guys are not rushing to give these operators capital right now as they were two years ago.
The performance of the underlying assets is what I would be worried about, not the operations team at Realty Shares capturing your funds...
Oakland, CA · Member since 2016 · 5 posts · 8 votes
7y
I just posted the below in the other discussion re RealtyShares in case anyone is not following both discussions:
RealtyShares was structured in order to make the investment of the investors (such as me) "bankruptcy proof." They did this by placing the underlying assets (such as the promissory note delivered by the borrower on a project) into a trust so that the assets are insulated from the financial distress of RealtyShares. If RealtyShares were to collapse, the indenture trustee ought to have the right to hire another entity to service the underlying assets. If this structure was established properly, the investors should be protected if RealtyShares files bankruptcy. I think that this development might be good for the industry. If RealtyShares goes out of business in a manner where the investors are protected, that would prove that real estate crowdfunding as an investment platform is viable for the long term. If not . . . (But I don't think that will happen; the entire industry is predicated on the expectation that investors will be protected in bankruptcy.)
As an aside, the right to service the underlying loans is an asset that RealtyShares could potentially assign to a third party servicer for a profit. This might be good for investors because a third party servicer could well do a better job than RealtyShares.
Investor · Salisbury, NC · Member since 2014 · 313 posts · 385 votes
7y
For deals that are current and "working", there should be no issues. The 1 to 2% asset management fee is plenty to cover distributions and K1's. However, on all their problem investments, it is another story. I suspect they will not spend the resources to hire legal council etc. and fight for the investors.
They have plenty of dogs. I stopped investing with them in 2015. 2 of the 5 remaining investments are in jeopardy. One is in the middle of a lawsuit. (New England fund) I suspect that and others like it will be a write off. Hope I am wrong, but who is going to fund the fight. Their long term Investor relations employee's last day was today.
Developer · Boston, MA · Member since 2017 · 125 posts · 137 votes
7y
I have been following this in close detail it is a question of how viable the company is, and when I saw this earlier I said to myself it was a matter of time.
Real Estate Investor · Manahawkin, NJ · Member since 2016 · 25 posts · 7 votes
7y
Just a quick update: RS had debited my bank account $10k a couple weeks ago for a deal which is now dead. They advised me that the money would be credited back by the 16th, but it hit yesterday. I'm glad they are acting with integrity and this gives me hope that I'll eventually get all my money out (maybe even with the promised returns!)
Investor · Tampa, FL · Member since 2015 · 1k+ posts · 1k+ votes
7y
In my opinion, that's not very thorough reporting in that Housing Wire article. For example, RealtyShares did not really swallow up a viable competitor with Aquire Real Estate (they paid nothing for a company that essentially had closed up shop). And they missed other material things too.
To answer some of the misconceptions and questions I'm seeing on this thread: RS had received another huge round of funding about 1.5 years ago from Venture Capitalists (VC’s): $63 million in total. That money can be a blessing or a curse. It’s a blessing because it allows the company to scale up quickly (hire a bunch of people and spend money on marketing etc) and a chance to become the next google or facebook. It can be a curse because the vast majority of companies that take VC money will fail because they can't scale up to live up to the VC's expectations. (The VCs are still fine because as long as 1 in 20 of their investments are a home-run it makes up for the other 19. But if you are one of those 19 companies and you are one that goes out of business, it's a different story).
So from what I have seen RS scaled up hugely to 100 employees. In my opinion there is no way a platform can support that amount of overhead with the (from their point of view) tiny fees they charge. And there is no way to raise fees higher because of the competition having a lower cost structure. The only way, in my opinion, it would have worked if they would have been like a high-end concierge service with VIP service to justify higher fees. Anyway, they ran out of money and the VCs were not willing to put up more. I have also heard through the grapevine that they attempted to get financing but failed too. So they gave out a ton of pink slips and have had a massive layoff.
The RS letter claims that from now on their focus will be on servicing their existing customers. However, the latest news seems to be that they are going to be having a third party company do it. There is a tiny bit more, but I learned of it through a source protected by nondisclosure and can't discuss publicly. But it is not material and those are the basic facts.
Many of the articles in the press are expressing surprise that RS went under. But people who have been following them over the last several years were not really surprised. They were one of the most complained about platforms by investors. The main issue is that they took a unique model where they stuck themselves in between the investor and the sponsor. So investors do not get to talk directly to the sponsor and all questions that them. And everything that goes in the opposite direction also goes through them. That is what allowed them to justify the 1 to 2% fee, and made them attractive to VCs.
But, they did not do a good job at their core competency. When the deals ran into problems, investors could not get timely information on what was happening, and it gave some the impression that perhaps the company was not doing too good of a job of managing/staying on top deals. They wondered why they were paying 1-2% more for what seemed like a worse situation than without them. RS also messed up on basic things like providing accurate tax returns, and correcting them.
It is expensive to acquire new accredited investors, and to make the model have a chance of working, the company at least would have to keep as many as possible. Personally, before all this, I had rated RS just a 3 out of 10 and put it on my probation list. So in my opinion, it was unfortunately just a matter of time.
But I do feel bad for the people who are stuck. And keeping figures crossed for all of you.
Investor · Brielle, NJ · Member since 2015 · 121 posts · 21 votes
7y
I was supposed to receive a return of capital on an investment of 10k that posted on my account 11/5/18 but its still not showing up in my IRA account. I have a fair amount of money invested with them through my IRAs and I'm pretty worried about it.
David, Let's hope it's just slow getting to your account. This is one of those things that's hard not to have anxiety about. I've had my moments let me know what happens. Will see what January brings.
PS. Now when you call their customer service, they refer you to an email address rather than even taking a message. Not good.
well as long as they are not referring U to a BK trustee.. at least there is some communications..
I always wondered how this was going to work.. putting so man small investments into one deal.. I mean like see on some other crowd funding siges were there might be 100 investors in one 200k loan.. to me that is just insantity from an operators stand point. how can you possibly customer service that many clients.. Answer: you cant..
