Menifee, CA · Member since 2016 · 23 posts · 1 vote
My father has a share in an apartment complex in Lompoc California. They estimated the value in 2008 at $42 million in which he owns 1.231%. Over the last almost 10 years his disbursements have primarily remained the same even though rents have gone up considerably and the payments have slowly started to get later and later in the month. Now they seem to be almost a month behind.
He is trying to see if anything fishy has been going on and what could be done about it. Basically he wants to get out, get anything owed if possible and sell off his portion. I would like to know what his options are and what may be the best way to proceed. Any assistance would be greatly appreciated! Thank you!
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
REITs are publicly traded and would show up on a brokerage statement. They have to file periodic SEC reports so you can look at those to see what's going on with the finances.
Private placements are not public. You should have a private placement memorandum and an operating agreement from the promotor of the syndication. This is probably what you have. You're getting checks from someone, I take. They should also be sending monthly or at least annual accountings of income and expenses. Review those to see what's going on.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
REITs are publicly traded and would show up on a brokerage statement. They have to file periodic SEC reports so you can look at those to see what's going on with the finances.
Private placements are not public. You should have a private placement memorandum and an operating agreement from the promotor of the syndication. This is probably what you have. You're getting checks from someone, I take. They should also be sending monthly or at least annual accountings of income and expenses. Review those to see what's going on.
REITs are publicly traded and would show up on a brokerage statement. They have to file periodic SEC reports so you can look at those to see what's going on with the finances.
Private placements are not public. You should have a private placement memorandum and an operating agreement from the promotor of the syndication. This is probably what you have. You're getting checks from someone, I take. They should also be sending monthly or at least annual accountings of income and expenses. Review those to see what's going on.
Thank you for your response. Yes he is getting payments and I have a few months expense and payout sheets. Ive looked through them and I don't have confidence in them. Many write offs/expenses such as $17 for fridge, $20 for sink, etc. Seems like they are just trying to create write offs. Everyone's payments are the same no matter if there is an increase in rent taken in. Seems funny to me.
Menifee, CA · Member since 2016 · 23 posts · 1 vote
8y
I'm hoping someone can tell me what steps to take (we already wrote a letter asking for current accounting, expenses, value, etc) or would be in a position to look over documents and helps us solve this issue. We also need to try to determine the current value of the property.
Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
8y
@Jason Wutzke I don't know all the specific facts, my suggestion though is to gather all the details from the operator or sponsor before assuming you are getting ripped off.
Your dad via your grandmothers prior ownership and payout structure might all be legit as certain performance models only pay a preferred return based on original invested capital. In this scenario, there is no obligation to pay anything more.
Your homework is to connect with the operator/sponsor and ask about the waterfall payouts and to secure a copy of the operating agreement.
@Jason Wutzke I don't know all the specific facts, my suggestion though is to gather all the details from the operator or sponsor before assuming you are getting ripped off.
Your dad via your grandmothers prior ownership and payout structure might all be legit as certain performance models only pay a preferred return based on original invested capital. In this scenario, there is no obligation to pay anything more.
Your homework is to connect with the operator/sponsor and ask about the waterfall payouts and to secure a copy of the operating agreement.
Good luck.
Thank you very much that does make a lot of sense. I will work on getting documents to show what was in the initial agreement.
Investor · Houston, TX · Member since 2015 · 233 posts · 188 votes
8y
@Jason Wutzke, as mentioned above he needs to find out what his operating agreement reads. If he has a PPM it's a private syndication and in that case he would need to reach out to the sponsor.
But as @Brian Adams indicated, if the property is not performing highly or efficiently, the sponsor may not be required to distribute payment (if there is a preferred return it will be distributed later) and instead will use those funds in other areas such as expenses and mortgage.
Ultimately he needs to read over the operating agreement.
Financial Engineer · Atlanta, GA · Member since 2016 · 20 posts · 14 votes
8y
I will also add that you should review the GP/LP split in the operating agreement.
If the was written heavily in favor of the GP, the returns could be structured in such a way that anything above a specific threshold goes exclusively to the General Partners. For example, if that threshold was set at 10%, and the property performed 11%, 15%, and 13% over the last three years, you would indeed only see the 10% distribution.
Santa Rosa, CA · Member since 2017 · 325 posts · 701 votes
8y
This may be too basic of advice, ignore if so. If you don't know anything about syndication and waterfalls (and I sure didn't) the link below is to some basic and easy to follow information. Just to get the terms straight. specifically the 101, 201, and 202 documents are great to understand terms and basic layout.
Also, given that this is worth 1/2 a million dollars (1.2% of 42 million plus appreciation), taking all your paperwork to a real estate syndication attorney for a few thousand in advice seems like a good investment. Not to sue them necessarily, just to get experienced eyes on the paperwork vs reality. If it takes them 5 hours to sort through it at $200 an hour, not a bad investment.
Menifee, CA · Member since 2016 · 23 posts · 1 vote
8y
@Juan Vargas , @Salem VanderStel, @John Nachtigall Thank you, you all make really good points. It is very clear that I need to find out more info especially regarding the original contract and agreement. I have requested current financials and other information regarding the investment so hopefully once I can review that info hopefully I will have a better picture on how to proceed. Thank you
Financial Engineer · Atlanta, GA · Member since 2016 · 20 posts · 14 votes
8y
@Jason Wutzke No problem. Once you get the agreement and some more info, give us an update. I'd be happy to help you back the agreement's math to your distributions so that you can know if it's getting distributed properly.
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
8y
Do they send monthly financial statements? If they do, you should be able to see what is happening. If they are sending that, but you're still concerned, then ask for the paper trail.
Menifee, CA · Member since 2016 · 23 posts · 1 vote
8y
@Sam Grooms I have contacted the people in charge and am working on getting the original contracts. Hopefully I should have them over the next week or so. Thanks for checking in