Investment in The Summit Lofts in Georgetown TX. Is this a scam?
Investor · Midlothian, VA · Member since 2013 · 14 posts · 1 vote
We were called by Novak Capital Management offering us to invest a minimum of $125,000 in a development named the Summit Lofts in Georgetown TX (209 mi south of Austin. They project a profit of 200% in 3-4 years. Is this a scam? How can we verify their legitimacy?
See the agents BiggerPockets members work with in Georgetown, TX.
See agentsDianne;
It sounds like he was trying to see if you were a qualified investor. From these posts, it does not appear that you are. Although you may have funds, you need to educate yourself more before investing in such an endeavor. For example, most investors would know that IRR is Internal Rate of Return. If you don't understand an investment, you should not invest in it.
I live in Georgetown and drive past this development almost daily. It is very upscale and thus far seems successful. The brownstones are selling well. The Sheraton and most of the commercial buildings are built and occupied (except one restaurant space), the apartments appear to be all leased up. They are breaking ground now on the lofts.
One observation I would make is that being at the highest end of the rental price range in Georgetown, they might be the most impacted when there is an eventual downturn in the market.
The Novak brothers are well known in this area and have a good reputation. I have also been solicited to invest with them, but have not. I think they are probably a good company, but my focus is on single family homes which I personally own and manage, and also on lending money. So their type of investment is not what I am looking for. I have no affiliation with them. I make no recommendation one way or another regarding them.
My take away from this thread is that it is easy to get the wrong impression about a business, a development, or an investment simply by relying on internet information. No one on this thread so far has had first hand information as I have. Long-distance investing is hazardous, in my opinion. A person must do much more research, and not just rely on the internet.
My recommendation to you is to invest in things closer to your home that you can personally inspect and research locally.
Regards,
Bill Crider
That was a typo about the location. He did say it was 20 miles from Austin. My concern came when he started to press us for an answer. I can find the development on the internet, but my concern is the way the "deal" is structured. He can't tell me of any other investors in my area and he says they have two brothers: one a surgeon and the other an NFL from player who have put millions into this. So why do they need my money? The paperwork they sent asks for a lot of personal information that I am uncomfortable giving - like SS#, and they already have my address.
@Dianne Pettitt You're uncomfortable for a reason. Follow your instincts.
If it's the same summit they will be selling those at 300k a piece. Probably the 125k if the estimated price to build each.
That doesn't mean they will sell though. At that price it is likely.
That was a typo about the location. He did say it was 20 miles from Austin. My concern came when he started to press us for an answer. I can find the development on the internet, but my concern is the way the "deal" is structured. He can't tell me of any other investors in my area and he says they have two brothers: one a surgeon and the other an NFL from player who have put millions into this. So why do they need my money? The paperwork they sent asks for a lot of personal information that I am uncomfortable giving - like SS#, and they already have my address.
I would seriously question this development. You can call the Georgetown Planning and Zoning department to even see if this project is real. If it is Coming in 2018 as their website states, the city will know all about it.
It sound like the developers are a surgeon, a former NFL player and a brother. I didn't hear seasoned developer anywhere in those titles. I also agree with what others have said, if they really could get 200% returns in such a short period with acceptable risk, they would have investors beating down their door.
My response from your other thread about this subject...
Hi @Dianne Pettitt , do you have any more information? Are you asking if the company is legitimate or if it's possible to double your money in 3-4 years in this area via multi-use? Either way I don't think anyone would be able to give you much help unless there were more info to be had.
I would be extremely skeptical of someone that would say you can double your money in such a short time. It will take at least this long to develop the land and then you would have to obtain leases or sell whatever it is you're developing. What is their strategy? Develop and operate? Develop and sell to an operator? These exit strategy would be essential to know how you would "double" your money.
How did you get in touch with these people and what is their track record? do they have any referrals or a book of past projects that have similar performance? These would be just basic starting points for me if I was going to invest with anyone, much less anyone I didn't already know something about, and possibly thought could be illegitimate.
This company just cold called us. They plan to build and sell. I asked who would buy and they replied that a big bank in Canada bought the other part of the project that is completed on the same 32 acres.
I called the Austin branch of Consumer Protection Division of the AG's office and they said that they have no complaints about the company. They didn't seem to know the name. Said I could file a complaint.
When I tole the man who called us that I needed more time to think about it, the caller said he could give me "references", but the they were internal people, like one of the owners and the "manager" of the project! I am not going to invest with these folks. So far, they haven't reached out again since Friday.
Yes, it sounds sketchy imo. I know Georgetown is doing well but if they have a track record like their website suggests then they should have no problem pulling in money from folks that they have done well by. It could be that they have burned a bridge or two. In my projects, I work like a mofo to pull it off. If things don't turn out as well as expected then the investor should be protected no matter what. If that is the case for these folks as well then they should simply reach out to their past investors unless they did them wrong. My two cents.
Is this it? https://novakbros.com/novak-capital-projects/summi...
It looks like they have some experienced people under the "Novak" umbrella, but they all seem to be with different entities. I would be very, very careful. 200% in 4 years is >31% per year. Not totally impossible, but at that scale, difficult. I'd probably research a little more, but If they are cold calling looking for suckers, then when you sign on you're likely a sucker.
I always think this... "If the project is that hot they would not be cold calling, they would have investors beating down their door!"
You may be right to be skeptical, but condos built for $125 sold for $300 sounds about normal, but this is a net 100% return, not 200% Perhaps they told @Dianne Pettitt "double your money" which is 100% not 200%. It just depends on the market and whether the team can execute. I have no issue with cold calling either.
This person mailed us a lot of papers and glossy pictures of the area. Said they were not actual pictures, but renderings of proposed project. The papers had a chart with the horizontal heading "Average monthly rent" for a 835 sq. ft. unit across the top and on the left vertical side was the exit CAP rate (36 month hold). The right vertical column showed: the "IRR" (don't remember how he attempted to explain that one) , total return/unit and equity multiple. With the $125,000 investment and a rent of $1545 it showed a return of $219,224. I don't remember what he said the IRR meant. It actually is a lot to absorb verbally over the phone and make such a decision without any written computations. He said he didn't know how it was all computed. The table didn't include the "organizational cost" or the management fee, but in the "Confidential Private Placement Memo (50 pages) : they listed it as $35,000 and $15,000 respectively. That document stated that "neither the SEC or any state securities commission has approved or disapproved that the memorandum is truthful or complete"!!!! Another 50+ page document of the "Limited partnership agreement" was included also.
None of this gave me a $125,000 comfort level. He asked us a couple of times if we could afford to lose all our funds. Was he recording the conversation to protect himself against future lawsuits? Investing for me is about a return and not a total loss of my principle.
So the guy called again yesterday and when my husband said that we didn't want to move forward, he asked why, tried to keep us talking and telling him what kinds of things we were investing. He already had asked a lot of personal information in the first call and the signing documents asked for more. Is this ultimately about ID theft and loss of funds? I don't know and I don't want to find out.
I am wondering if I should let others know about this potentially risky "investment"!?
@Dianne Pettitt it sounds like you've made your decision.
Just going back to what you discussed earlier. You said they were planning on developing and selling units. Now it seems the strategy has changed to leasing units? This whole thing sounds like confusion on either your part or theirs. Are they developing and leasing it up and then selling it off after some performance has been established?
You need to know how you're getting your money out. This doesn't seem clear; what you're conveying to us on BP.
Just my two cents here. If you don't fully understand the investment, do not invest.
I really don't understand the question of " Can you afford to lose all of your funds?" Maybe that's a qualifying question for them to determine how much money you have, or if this is the right investment for your risk profile. Meaning you shouldn't be putting all of your eggs in one basket. Especially a new development. Anyone else ever been asked that question?
Scott,
Thank you for your input. The developer plans to sell the building. The owner will rent out the units at the estimated price, over 3 years and that represents the return to the investor.
I don't fully understand how they computed the figures and he said he couldn't explain it. The phone guy also asked what he could do to make us comfortable "trusting him". Then he offered the aforementioned references. This has already taken up more of my time than I want to give!
I have not heard from anyone, in Texas, or elsewhere who know of this group and their work. Definitely not moving forward.
Thanks for your interest,
Dianne
Dianne;
It sounds like he was trying to see if you were a qualified investor. From these posts, it does not appear that you are. Although you may have funds, you need to educate yourself more before investing in such an endeavor. For example, most investors would know that IRR is Internal Rate of Return. If you don't understand an investment, you should not invest in it.
I live in Georgetown and drive past this development almost daily. It is very upscale and thus far seems successful. The brownstones are selling well. The Sheraton and most of the commercial buildings are built and occupied (except one restaurant space), the apartments appear to be all leased up. They are breaking ground now on the lofts.
One observation I would make is that being at the highest end of the rental price range in Georgetown, they might be the most impacted when there is an eventual downturn in the market.
The Novak brothers are well known in this area and have a good reputation. I have also been solicited to invest with them, but have not. I think they are probably a good company, but my focus is on single family homes which I personally own and manage, and also on lending money. So their type of investment is not what I am looking for. I have no affiliation with them. I make no recommendation one way or another regarding them.
My take away from this thread is that it is easy to get the wrong impression about a business, a development, or an investment simply by relying on internet information. No one on this thread so far has had first hand information as I have. Long-distance investing is hazardous, in my opinion. A person must do much more research, and not just rely on the internet.
My recommendation to you is to invest in things closer to your home that you can personally inspect and research locally.
Regards,
Bill Crider
+1 For what @Bill Crider shared. I too am a Georgetown resident and know the quality of what the Novak Brothers have built here. I'm not certain who you spoke with that sounded so flaky, but you can rest assured that their business wasn't built on a scam.
If you google Jeff Novak, I'm sure you can find his contact information. Call him directly and tell him about your experience with the sales call and concern with the pitch. I'm certain he will want to hear about it and will explain to you, himself, what is going on with the project.
That's how we do in in Georgetown. Don't get upset - just go to the source. (He is a very nice guy, by the way.)
20-30% annualized returns for passive investors for a commercial development deal is common...and required to offset the related risks. I'd recommend analyzing 50 private placement offerings to gain knowledge and define your criteria for investing in them.
Properly investing in syndications can be mostly passive but it takes upfront work and education to get there. Otherwise, you are going to be an interview victim on American Greed (or, more likely, simply invested in mediocre or poor opportunities...or investments that don't align with your goals and criteria).
@Bill Crider excellent post.
DIanne,
I too received a call from Novak and started doing my own research. First of all, it is legit, but the sales approach left many questions for me. Before I put down $125K I have to be very comfortable with the proposal and the terms of my investment. First of all, any investment should be looked at this way - if you cannot afford the loss, don't do the investment. Secondly, do a solid demographic research of the area around Georgetown and contact folks there. (planning commission, BBB, town counsel members on the zoning and planning, banking references, and google all the principals). Thirdly, take a solid look at the project and expected rates of rent and occupancy rates. The local real estate companies should be able to provide this info. Find other projects in other areas of the country that match the type use and see what their success rates are (I found one in my own backyard - there is a project doing the exact same thing here in Peachtree Corners GA). This investment is similar to an REIT, and you need to really research the company viability. Fourthly, the rate of return using conservative numbers is about $90K over 3 years which is just below 100%. Using this, the rate of return is about 25% per year over the investment time. You also need to look at how the return is calculated and that is included in the packet about the partnership. My approach is to look seriously at demographics, how the local economy is doing, the occupancy rate for apartments in the area, true average rents and if this project will support the added value (with a planned community it probably would). The last factor, after doing due diligence is to do a gut check on your intuition. If you have a doubt, pass on the investment as it is not for you if you cannot fully commit. For me, I have not yet finished my research, so I cannot tell you my choice. It looks good and sometimes, if it looks to good to be true, it isn't. Beware, but reseach before dropping a potential investment that may be really good.
Rick ODom
Peachtree Corners, GA
Rick.
Thank your for all that good advice. That is a huge amount of time to research all the aspects that you presented. Certainly, you are more dedicated than I am! The components you outlined are excellent factors to consider.
I did try to reach out to the BBB but got no response. I made various other calls that I stated in my thread. My husband ( who is much more conservative than I am) and I weren't comfortable with the whole situation.
I still wonder why they reach out to so many folks so far away. Virginia and Georgia are a long way from Texas. Aren't there potential investors in their area; people who can easily eyeball the situation and check things out much more readily? I guess this just wasn't for me!
Lol. By the way, Georgetown is 20 Miles north of Austin. I would be suspect of anyone promising passive returns north of 20% and not knowing exactly where Georgetown is located
Yeah, I was thinking a typo also but George West instead of Georgetown. There aint nothing selling for 300k there I don't think lol.
I've recently networked with some folks who have brought some private commercial development investment opportunities to the table. Does anyone have any experience with this type of investment? I know the advertised returns aren't guaranteed but 7% annualized monthly cash flow with upside of an additional 13-20% annually when the property sells, aligns well with my investment goals. How does someone get comfortable that they're placing money with someone reputable and that the target returns are realistic? Any educational sources someone could point me to would be appreciated.
@Mike Dymski you sound like you're knowledgeable in this area. Any thoughts?
I have provided over 20% CoC returns to my investors on 2 full cycle deals in the past and have references I can provide so it is not impossible, but it depends on what type of deal you are investing in. For me I purchased value play apartment communities and there was a period of no returns until the properties were stabilized after 1 year. I currently own and operate 4 communities that pay out distributions here in Texas but not at the 20% level because they are yield play newer properties. Once we go full cycle and sell them, we will of course be profiting and then with the CoC returns over time along with the appreciation be over the 20% return amount.