2 Capital calls in 2 weeks! Ouch

2 Capital calls in 2 weeks! Ouch

Investor · Rockland County, NY · Member since 2018 · 46 posts · 55 votes

Within the past 2 weeks I got 2 capital calls from different sponsors, I'm assuming that there are many deals in similar situations.

The sponsors are saying, If they have enough capital to bring occupancy to 90% they will have better options to refinance or sell. That's true, however what if they can't deliver on the occupancy in a short period.

They say it's not a good market to sell now. True again, but what if interest rates stay volatile for longer than expected, and the market stays locked up longer.

Meanwhile the property is bleeding 6 figures monthly, and the added capital will only go so far, unless there is a major change in the interest rates soon, and that doesn't seem likely.

They also say if we don't infuse more capital we may lose our principle too, as they will be forced to sell at a loss. That is possible, but this may end up happening anyway.

So, what's the call? Do I put more money into these deals, or do I accept a dilution of my shares and put my money elsewhere?

Here is the thing - our brains are wired to be more sensitive to a loss compared to the possibility of even a much larger gain and we are biased to try and stop a loss.

I think I need to take a step back and think about this like it's a totally new deal, and I have no stake in it, would I invest in this deal now based on all the facts?

What do you think?

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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y

@Solomon Rosenberg

I was on a call a month ago with about 50 people and someone asked similar question, one of the people commented

“Has anyone ever had a capital call and the project turn around”

You could hear a pin drop. Before I would provide any capital I would want to see an updated proforma based on current situation and interest rates remaining where they are for the next 36 months. Also an analysis of if they have to sell now

Also is the sponsor waving their fees and reducing equity split for any calls?

Unfortunately in both scenarios you are probably getting wiped or losing almost everything

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  • Investor · Rockland County, NY · Member since 2018 · 46 posts · 55 votes
    2y
    Quote from @Christie Gahan:
    Quote from @Solomon Rosenberg:
    Quote from @Chris Seveney:

    @Solomon Rosenberg

    Can you share the sponsor so others know for future and to confirm you are taking a 93% loss

    That is correct, 93% loss.  I don't want to share names, because this was an experienced sponsor who I believe is an honest person who mmade some serious mistakes, investors should do their due diligence on sponsors and also have a good understanding of how multifamily works so you can sense when the risk is high. I'm sharing my experiences so others can learn from my mistakes. 

     I don't think this is just about honesty.  I'm honest and I make mistakes every day.  I need to know how you are preventing these mistakes happening again.  If someone doesn't want to discuss their mistakes, they should not be investing other peoples money.  

    I agree that investors have to do due dilligence.  My question is, How do you do that if no one publically states names?

     To answer your question @Christie Gahan to focus on the sponsor that screwed up, is missing the point. 

    For sure there is plenty of blame to go around and we can choose to vent on them. Sharing names will not make you  or me better investors and will not prevent anyone from losing money in the future. 

    My point is that if you're going to invest in something understand it enough to know what are the risks to look out for, and be disciplined, don't follow the herd.

    I learned many lessons, and I believe it will serve me in my current and future investments. 

  • Member since 2019 · 7k+ posts · 4k+ votes
    2y
    Quote from @Solomon Rosenberg:
    Quote from @Christie Gahan:
    Quote from @Solomon Rosenberg:
    Quote from @Chris Seveney:

    @Solomon Rosenberg

    Can you share the sponsor so others know for future and to confirm you are taking a 93% loss

    That is correct, 93% loss.  I don't want to share names, because this was an experienced sponsor who I believe is an honest person who mmade some serious mistakes, investors should do their due diligence on sponsors and also have a good understanding of how multifamily works so you can sense when the risk is high. I'm sharing my experiences so others can learn from my mistakes. 

     I don't think this is just about honesty.  I'm honest and I make mistakes every day.  I need to know how you are preventing these mistakes happening again.  If someone doesn't want to discuss their mistakes, they should not be investing other peoples money.  

    I agree that investors have to do due dilligence.  My question is, How do you do that if no one publically states names?

     To answer your question @Christie Gahan to focus on the sponsor that screwed up, is missing the point. 

    For sure there is plenty of blame to go around and we can choose to vent on them. Sharing names will not make you  or me better investors and will not prevent anyone from losing money in the future. 

    My point is that if you're going to invest in something understand it enough to know what are the risks to look out for, and be disciplined, don't follow the herd.

    I learned many lessons, and I believe it will serve me in my current and future investments. 


    if you care with capital preservation only invest in syndication that has 10 year outlook including the financing aspect. 5 years is too volatile. Some GP is using 2 years bridge when market cap is 3 and underwriter is accepting 0.9 DSCR , that's asking for trouble lol

  • Dave MeyerPro Member
    Head of Real Estate Investing at BiggerPockets · Seattle, WA · Member since 2015 · 224 posts · 826 votes
    2y

    While I respect your right to choose not to share names, I disagree with it @Solomon Rosenberg. This is an opaque industry and it would be a benefit to our community here at BiggerPockets to know about the track record of prominent sponsors. There no other way to shed light on this industry than sharing our experiences. 

  • Investor · Cary, NC · Member since 2012 · 214 posts · 194 votes
    2y

    @Solomon Rosenberg  I'm sorry to hear about the deals gone bad.  I have not read every single message in this thread but why are you hesitant to share the name(s) of the sponsors with which you lost money?  Seems to me this would be a forum for doing so and you could be providing a valuable service to other investors.  

  • Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes
    2y

    It's a loss. You will have to realize it and move on. Don't give another penny, and don't invest in these BS syndication / sponsorship "deals".

  • Real Estate Investor · Titusville, FL · Member since 2013 · 97 posts · 26 votes
    2y

    @Solomon Rosenberg You said you don't want to share the sponsor's name because he's, "an experienced sponsor who I believe is an honest person who mmade some serious mistakes". If he's honest and made some serious mistakes he shouldn't need you to cover up for him. He should be willing to be honest about what happened, now, or in the future when doing other deals with other investors. And if he's expereinced in a good way than he should be able to point to many other successful deals and explain how he went wrong with this one and how he would prevent it from happening again.

  • Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    2y

    2 observations after reading this thread:

    1- lack of transparency on individual sponsors is a major issue. They all like to tout their killer deals, yet it’s usually hard to hear about their losers.

    2- syndications (good and bad ones) tend to make easy money during up markets, get a lot of publicity and consequently many investors. And when the music stops it’s usually crickets, as many LPs are embarrassed to admit the losses and the syndicators prefer a hush hush environment (which is why some LPs don’t want to name them.)

    Personally I have always found syndications too risky, especially given that I have zero control, other than reading their disclosures and trusting in their accuracy. So if you’re going to invest in them, at least try to get in at the first half of an up market cycle. Of course that’s hard to determine, but I think buying in from 2015-2019 was certainly better than in 2020-2022. And that determination wasn’t so hard to make, even back in 2020-2022 when we knew interest rates would rise, multifam were getting flipped left and right, and cap rates were insanely low.

    TLDR: in the real estate game ya gotta know when to hold ‘em, and when to fold ‘em :)

    Good luck everyone.

  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    2y
    Quote from @Amit M.:

    2 observations after reading this thread:

    1- lack of transparency on individual sponsors is a major issue. They all like to tout their killer deals, yet it’s usually hard to hear about their losers.

    2- syndications (good and bad ones) tend to make easy money during up markets, get a lot of publicity and consequently many investors. And when the music stops it’s usually crickets, as many LPs are embarrassed to admit the losses and the syndicators prefer a hush hush environment (which is why some LPs don’t want to name them.)

    Personally I have always found syndications too risky, especially given that I have zero control, other than reading their disclosures and trusting in their accuracy. So if you’re going to invest in them, at least try to get in at the first half of an up market cycle. Of course that’s hard to determine, but I think buying in from 2015-2019 was certainly better than in 2020-2022. And that determination wasn’t so hard to make, even back in 2020-2022 when we knew interest rates would rise, multifam were getting flipped left and right, and cap rates were insanely low.

    TLDR: in the real estate game ya gotta know when to hold ‘em, and when to fold ‘em :)

    Good luck everyone.

    I think this a good run down, especially 2. Syndications are great during the up cycle of a market but mediocre at best when the market flattens out and often worse than mediocre. And if there's a recession like 2008, they go bust quite often. 
  • Melanie P.Pro Member
    Rental Property Investor · Member since 2023 · 1k+ posts · 922 votes
    2y
    Quote from @Solomon Rosenberg:

     To answer your question @Christie Gahan to focus on the sponsor that screwed up, is missing the point. 

    For sure there is plenty of blame to go around and we can choose to vent on them. Sharing names will not make you  or me better investors and will not prevent anyone from losing money in the future. 

    My point is that if you're going to invest in something understand it enough to know what are the risks to look out for, and be disciplined, don't follow the herd.

    I learned many lessons, and I believe it will serve me in my current and future investments. 


     Wrong. Naming the name of the fund where you lost 93% of the money you put in could help the next investor avoid placing money with that promoter. This guy has got to be one SMOOTH LOVER to disappear 93% of your investment and have you worried about his reputation. 

    What did you learn, exactly? You have got to be net negative overall on your real estate syndication investments --- are you continuing to gamble with your money in this market?

  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    @Melanie P.

    I wonder if this story is even true.

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  • Melanie P.Pro Member
    Rental Property Investor · Member since 2023 · 1k+ posts · 922 votes
    2y
    Quote from @Chris Seveney:

    @Melanie P.

    I wonder if this story is even true.

    Funny, I was about to go there but am trying to be nicer.
  • Investor · Rockland County, NY · Member since 2018 · 46 posts · 55 votes
    2y
    Quote from @Melanie P.:
    Quote from @Solomon Rosenberg:

     To answer your question @Christie Gahan to focus on the sponsor that screwed up, is missing the point. 

    For sure there is plenty of blame to go around and we can choose to vent on them. Sharing names will not make you  or me better investors and will not prevent anyone from losing money in the future. 

    My point is that if you're going to invest in something understand it enough to know what are the risks to look out for, and be disciplined, don't follow the herd.

    I learned many lessons, and I believe it will serve me in my current and future investments. 


     Wrong. Naming the name of the fund where you lost 93% of the money you put in could help the next investor avoid placing money with that promoter. This guy has got to be one SMOOTH LOVER to disappear 93% of your investment and have you worried about his reputation. 

    What did you learn, exactly? You have got to be net negative overall on your real estate syndication investments --- are you continuing to gamble with your money in this market?


     I respectfully disagree, first off I have made amazing returns on a few projects with this sponsor. #2 Investing in class C multifamily with a major value add component is riskier than some other types of deals as these deals had bridge debt and with the rates rising fast they couldn't get out in time, there are multiple deals from many sponsor that went south in the past year, I'm not whitewashing these sponsors they made some serious mistakes, just putting some context. 

    And some of the lessons I've learned are, Class  B properties are safer investments. highly leveraged deals while they can have better returns are risky. Floating rate debt is dangerous. Among other lessons. 

    And yes I am invested and continue Investing in mf, and i'm doing fine.

    Investing has its risks and is not right for everyone.

  • Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    2y

    @Solomon Rosenberg, how do you assess Class C vs Class B?  These are very subjective terms.  And you talking property or submarket class?  I would argue market and submarket dynamics are far riskier than property class, i.e. a C property from amenities standpoint in an A area will, all else being equal, out perform an A asset in C market.

    Was the property that you invested in that lost money marketed as a C property?  Did the syndicator specifically call that out in their marketing materials?

    I have received many decks over the years from many syndication groups, and I have yet to see any syndicator market anything below B- assets.  Clearly I am not on every list of every syndicator, but there are definitely C- (in my opinion) assets in the riskiest parts of major metros being marketed as "low B", or maybe just not rated at all.

    At the end of the day, syndicators are generally going to call out all the positives they see in the deal.  I have yet to see a syndicator market a deal as "this is a high risk investment due to the current tenant base having a $25k/yr Avg income and the market being one of the top 10 crime markets in the country".  What I see is "great opportunity to reposition the asset in the market given its close proximity to the major airport and logisitics centers".

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    Recommend you don’t share the names.  People need to do their own due diligence.  Just sharing your experiences and thought process is great.

    We do Self storage development but the concerns are the same.  When I give our bankers projected financials on a new development they get our best estimate.  Then we give them variations in occupancy, interest rate after start up and rent rate levels.  

    They also do stress tests.  

    We don’t invest in syndications but I would need them to provide Stress test financials also.  After that it is up to each investor to determine their risk reward level.  

  • Member since 2023 · 6 posts · 7 votes
    2y
    Quote from @Henry Clark:

    Recommend you don’t share the names.  People need to do their own due diligence.  


    Speaking as an LP, part of due diligence is cutting through the secrecy that allows sponsors to lie and keep taking/losing investor money. Sunlight is the best disinfectant. 

    Obviously, opacity is beneficial to failing syndicators who can use information asymmetry to take more money from new susceptible LPs. These guys don't care if they keep losing other people's money so long as they charge their acquisition and other fees even if the losses make them miss out on the promote.

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y
    Quote from @Amir Batouli:
    Quote from @Henry Clark:

    Recommend you don’t share the names.  People need to do their own due diligence.  


    Speaking as an LP, part of due diligence is cutting through the secrecy that allows sponsors to lie and keep taking/losing investor money. Sunlight is the best disinfectant. 

    Obviously, opacity is beneficial to failing syndicators who can use information asymmetry to take more money from new susceptible LPs. These guys don't care if they keep losing other people's money so long as they charge their acquisition and other fees even if the losses make them miss out on the promote.

    Develop a syndication review checklist.  Posts on here and ask others to improve on it.  Then repost for everyone that invests as LPs for their benefit.  I already gave some great examples above.  GP’s should supply stress tests.  And LPs should require them.  
  • Investor · Rockland County, NY · Member since 2018 · 46 posts · 55 votes
    2y
    Quote from @Evan Polaski:

    @Solomon Rosenberg, how do you assess Class C vs Class B?  These are very subjective terms.  And you talking property or submarket class?  I would argue market and submarket dynamics are far riskier than property class, i.e. a C property from amenities standpoint in an A area will, all else being equal, out perform an A asset in C market.

    Was the property that you invested in that lost money marketed as a C property?  Did the syndicator specifically call that out in their marketing materials?

    I have received many decks over the years from many syndication groups, and I have yet to see any syndicator market anything below B- assets.  Clearly I am not on every list of every syndicator, but there are definitely C- (in my opinion) assets in the riskiest parts of major metros being marketed as "low B", or maybe just not rated at all.

    At the end of the day, syndicators are generally going to call out all the positives they see in the deal.  I have yet to see a syndicator market a deal as "this is a high risk investment due to the current tenant base having a $25k/yr Avg income and the market being one of the top 10 crime markets in the country".  What I see is "great opportunity to reposition the asset in the market given its close proximity to the major airport and logisitics centers".

    @Evan Polaski You are 100% right, the market and location is much more important than the age and condition of the property itself for the reasons you stated, even in the best markets there are some bad areas.

    I don't know if there is a clear definition of the property classes, what I consider class B is built after the mid 80's, and will be somewhere you feel comfortable walking at night, fairly close to shopping and amenities, and have a good amount of middle class renters. 

    syndicators will always point out all the positives, you have to do your own research on the neighborhood, income level, comps and crime. 

  • Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    2y

    I say (objectively) name the syndicators! How else can people know about their winning *and losing* projects? Matter of fact a downturn in the market is a good time to do so. Someone should compile a list of losing projects and sponsors, so their complete track record can be measured. (An entrepreneur could possibly monetize this information, as it’s valuable for future syndication investors ;)

  • Investor · Carmel, IN · Member since 2024 · 55 posts · 22 votes
    2y
    Quote from @Solomon Rosenberg:
    Quote from @Evan Polaski:

    @Solomon Rosenberg, how do you assess Class C vs Class B?  These are very subjective terms.  And you talking property or submarket class?  I would argue market and submarket dynamics are far riskier than property class, i.e. a C property from amenities standpoint in an A area will, all else being equal, out perform an A asset in C market.

    Was the property that you invested in that lost money marketed as a C property?  Did the syndicator specifically call that out in their marketing materials?

    I have received many decks over the years from many syndication groups, and I have yet to see any syndicator market anything below B- assets.  Clearly I am not on every list of every syndicator, but there are definitely C- (in my opinion) assets in the riskiest parts of major metros being marketed as "low B", or maybe just not rated at all.

    At the end of the day, syndicators are generally going to call out all the positives they see in the deal.  I have yet to see a syndicator market a deal as "this is a high risk investment due to the current tenant base having a $25k/yr Avg income and the market being one of the top 10 crime markets in the country".  What I see is "great opportunity to reposition the asset in the market given its close proximity to the major airport and logisitics centers".

    @Evan Polaski You are 100% right, the market and location is much more important than the age and condition of the property itself for the reasons you stated, even in the best markets there are some bad areas.

    I don't know if there is a clear definition of the property classes, what I consider class B is built after the mid 80's, and will be somewhere you feel comfortable walking at night, fairly close to shopping and amenities, and have a good amount of middle class renters. 

    syndicators will always point out all the positives, you have to do your own research on the neighborhood, income level, comps and crime. 

     Very true! Many times folks think they're investing in a class B property and it ends up being class C. 

    Nowadays we've only been sticking to class A properties (avoiding super high-class) because they tend to attract A class residents :) 

  • Investor · Delafield, WI · Member since 2014 · 102 posts · 73 votes
    2y
    Quote from @Carlos Ptriawan:
    Quote from @Solomon Rosenberg:
    Quote from @Christie Gahan:
    Quote from @Solomon Rosenberg:
    Quote from @Chris Seveney:

    @Solomon Rosenberg

    Can you share the sponsor so others know for future and to confirm you are taking a 93% loss

    That is correct, 93% loss.  I don't want to share names, because this was an experienced sponsor who I believe is an honest person who mmade some serious mistakes, investors should do their due diligence on sponsors and also have a good understanding of how multifamily works so you can sense when the risk is high. I'm sharing my experiences so others can learn from my mistakes. 

     I don't think this is just about honesty.  I'm honest and I make mistakes every day.  I need to know how you are preventing these mistakes happening again.  If someone doesn't want to discuss their mistakes, they should not be investing other peoples money.  

    I agree that investors have to do due dilligence.  My question is, How do you do that if no one publically states names?

     To answer your question @Christie Gahan to focus on the sponsor that screwed up, is missing the point. 

    For sure there is plenty of blame to go around and we can choose to vent on them. Sharing names will not make you  or me better investors and will not prevent anyone from losing money in the future. 

    My point is that if you're going to invest in something understand it enough to know what are the risks to look out for, and be disciplined, don't follow the herd.

    I learned many lessons, and I believe it will serve me in my current and future investments. 


    if you care with capital preservation only invest in syndication that has 10 year outlook including the financing aspect. 5 years is too volatile. Some GP is using 2 years bridge when market cap is 3 and underwriter is accepting 0.9 DSCR , that's asking for trouble lol

  • Investor · Delafield, WI · Member since 2014 · 102 posts · 73 votes
    2y

    Don't name the sponsors. I guess they're not responsible for their mistakes.  Wish I could loses 1000's of other peoples money and nobody say anything negative about me. But don't think I'd sleep at night if I did.

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    Everyone on this post wanting the name of poor performing syndicators.  

    Can you supply your risk reward matrix for evaluating syndication deals?

    Can you provide your checklist for evaluating syndication deals?  

    I have no problem investors losing money or all of it if they don’t have an approach or methodology.  They should stick to the stock market. 

        If you want to help future investors provide them with your matrix and checklist. .    

    I have lost all of my money on an investment due to the arrogance of the CEO.  Was it his fault or mine?  Mine.  I was looking for a 30% gain and then he did the unthinkable.  What was his name?  I still remember after 40 years.  And it was still my fault.  

  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    @Dave Meyer. Please ask someone in the BP circle to write an article or post on LP syndication investing.  Have them include a risk reward matrix and a review checklist.  Then have BP do a LP syndication boot camp.  

  • Scott TrenchPro Member
    Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
    2y
    Quote from @Henry Clark:

    @Dave Meyer. Please ask someone in the BP circle to write an article or post on LP syndication investing.  Have them include a risk reward matrix and a review checklist.  Then have BP do a LP syndication boot camp.  

    We launch this in may. Join the beta here:

    PassivePockets.com

    We plan to teach LPs how to do artful due diligence, and shine a light on the good, bad, and ugly in this space.

    If OP won’t call out who’s performing and who isn’t, we will create a platform that will. 

  • Investor · Delafield, WI · Member since 2014 · 102 posts · 73 votes
    2y
    Quote from @Henry Clark:

    Everyone on this post wanting the name of poor performing syndicators.  

    Can you supply your risk reward matrix for evaluating syndication deals?

    Can you provide your checklist for evaluating syndication deals?  

    I have no problem investors losing money or all of it if they don’t have an approach or methodology.  They should stick to the stock market. 

        If you want to help future investors provide them with your matrix and checklist. .    

    I have lost all of my money on an investment due to the arrogance of the CEO.  Was it his fault or mine?  Mine.  I was looking for a 30% gain and then he did the unthinkable.  What was his name?  I still remember after 40 years.  And it was still my fault.  


     Maybe partially your fault. CEO lost millions of people money should take some responsibility. He's doing it for a living you're not! We'll never understand how they run their business as good as they do. Seems like we live in a society where few are responsible for their actions.

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