Investors Kept in the Dark and now GP and syndicators selling off

8 Replies

A group of Investors pooled together close to 3Mil $s and invested with a duo  and their structured group, who sounded all enthusiastic and promising about multi-family properties. After 2 years of hiding things, the GP and Syndicator tells Investors that the property is not performing and only 60% occupied and banks are after to foreclose. Now they want to sell to anyone that wants to buy and they are already in contract for sale. 

What are the rights of Investors in this scenario to stop the sale and investors group together to take over? 

While the group is in talks with attorneys and other experts, also like to hear from the Land of BP. Any advise to Investors? 

Thanks in Advance.  ( I was one of the guys invited to the group - but did not go for it 2 years ago, as I figured the analysis/and DD was not detailed enough, however I could not stop few of my friends from investing in it.  This time atleast my gut feel saved me).

Not sure if this is enough info for anyone to give advise, but even a pointer in the right direction helps. 

Simple thing to know is - Can the Investors legally stop the sale!

@Naveen Desai My hunch is no because all PPMs are written from the perspective of protecting the GP in the case the worst happens. That being said, if the property is not performing, why would you not want to sell and recover as much money as possible? The market is hot across the country so this might be the ideal time to dump this property.

Read the legal documents to find out rights.

60% occupancy, in today's hot market, is either an extremely poor location or is extreme negligence/fraud.  There are a lot of risks in the opportunities that most of us analyze but those are typically not the risks we face.  It's easy to qualify the property location and the track record of the sponsor.  What happened?

Montgomery AL, 500+units  Purchase at 21 Mil including rehab cost, projected after rent increase and stabilize was to be 26 Mil, showing a solid 5 Mil appreciation in about 12-18 months. But looks like the project was not managed well and the location also may not get upto 80-90% occupancy.  So after 2 yrs, this hasnt been something to talk about. Many of my friends were 1st time investors 100K upwards each..   It would be very hard to convince them to do investments  in the future.  They will say Invst in TSLA/AAPL would have made great returns in last 2 years.

Hi All,  Thank you for your replies and @Mike - appreciate the Vote.

@Omar Khan , to answer your Q " if the property is not performing, why would you not want to sell and recover as much money ?"   
Our assumption is that the property/location itself is not bad. Its the people managing it and running it that is the problem. And you never know if the current sale agreement involves any kind of fraud ! ( I will leave the details to your imagination).  So the Idea is for Investor group to take control of property and Manage it. Well, can the Investors become operators? Not really, but can certainly keep watch/question/monitor how it is being managed, now that the lesson is learnt. 

@Mike Dymski - I do suspect negligence/fraud. While I would not recommend anyone to go search that, I want to learn, if I were  one of the Investors, what would be my rights to stop the current contract for sale.  

Am thinking - How about the GP and mgmt were supposed to disclose performance every quarter to Investors and if they have not done that, can it be basis to sue and put a lien on Prop.  Anyway, will ask my friends to raise this question with the attorney. 

@Aman A. Good question. Me personally have not been to Montgomery and Since I was not going to invest, did not plan to go either.  Apart from that,  I dont go see every property I invest in.  While i have investments in multiple states, more than half of my investments, I havent been to location or seen them.  And not only Multi-family, but I have done FLIPS completely remotely, bought, rehabbed & sold, without going to or seeing the property. Trust me it is possible. Depends on the appetite for Risk/ Rewards.

@Jai Reddy - Thanks for the note.  I see that your Topic of Int is mainly RE Financing. Would like to discuss with you. Will message you. Lets connect. Thank you. 

Originally posted by @Naveen Desai :

Hi All,  Thank you for your replies and @Mike - appreciate the Vote.

@Omar Khan, to answer your Q " if the property is not performing, why would you not want to sell and recover as much money ?"   
Our assumption is that the property/location itself is not bad. Its the people managing it and running it that is the problem. And you never know if the current sale agreement involves any kind of fraud ! ( I will leave the details to your imagination).  So the Idea is for Investor group to take control of property and Manage it. Well, can the Investors become operators? Not really, but can certainly keep watch/question/monitor how it is being managed, now that the lesson is learnt. 

@Mike Dymski - I do suspect negligence/fraud. While I would not recommend anyone to go search that, I want to learn, if I were  one of the Investors, what would be my rights to stop the current contract for sale.  

Am thinking - How about the GP and mgmt were supposed to disclose performance every quarter to Investors and if they have not done that, can it be basis to sue and put a lien on Prop.  Anyway, will ask my friends to raise this question with the attorney. 

@Aman A. Good question. Me personally have not been to Montgomery and Since I was not going to invest, did not plan to go either.  Apart from that,  I dont go see every property I invest in.  While i have investments in multiple states, more than half of my investments, I havent been to location or seen them.  And not only Multi-family, but I have done FLIPS completely remotely, bought, rehabbed & sold, without going to or seeing the property. Trust me it is possible. Depends on the appetite for Risk/ Rewards.

@Jai Reddy - Thanks for the note.  I see that your Topic of Int is mainly RE Financing. Would like to discuss with you. Will message you. Lets connect. Thank you. 

While I understand and am sympathetic to your plight, I would be very surprised to find out if you were allowed to just take over that easily. Most contracts are not written that way. This is why doing due diligence on the sponsor is the most important thing you can do before investing.