Ashcroft capital - Paused Distributions

[Evan Mitch]

Anyone else getting notified this morning of paused Ashcroft distributions due to refinancing issues? 

We have been working on refinancing the asset in order to access the equity and create liquidity to earnestly restart the renovations. The new lender we initially signed up with for the refinance notified us that they would not be able to provide the new loan at the agreed upon terms due to current market volatility.

We continue to pursue alternative refinancing options and anticipate having a new loan closed within the next six months. To remain conservative with liquidity and continue increasing NOI through unit renovations, we are pausing distributions beginning this month. Your preferred return will continue to accrue and will be paid at the next capital event, or when cash flow allows.

While distributions are on pause, we are not collecting its asset management fee and Birchstone Residential is collecting a reduced property management fee.

[Chris Seveney]

Quote from @Evan Mitch:

Anyone else getting notified this morning of paused Ashcroft distributions due to refinancing issues? 

We have been working on refinancing the asset in order to access the equity and create liquidity to earnestly restart the renovations. The new lender we initially signed up with for the refinance notified us that they would not be able to provide the new loan at the agreed upon terms due to current market volatility.

We continue to pursue alternative refinancing options and anticipate having a new loan closed within the next six months. To remain conservative with liquidity and continue increasing NOI through unit renovations, we are pausing distributions beginning this month. Your preferred return will continue to accrue and will be paid at the next capital event, or when cash flow allows.

While distributions are on pause, we are not collecting its asset management fee and Birchstone Residential is collecting a reduced property management fee.

 Looks like they are being transparent and soften the blow by taking no management fees and lowering the PM costs. I have not invested with them, but good they are communicating this to you.

[Lisa Jones]

Yes, I got the same message and also watched the video. While I understand the reasoning behind this, it’s unsettling as they are pausing Class A and I invested their thinking in exchange for no upside I would get more reliable returns. It seems the next couple of years are going to be rough for most syndications. I also noticed they said they will likely hold the 2021 deals for the full 7 years (vs 3-5) so we are looking at no distributions until a potential Capital event in 2028. Is that your take as well?

[Zachary Inman]

Sounds like good communication, even through a bad situation. Pausing their fees is a show of good faith as well—they are likely just as frustrated as you are. I've heard of many capital calls going on right now, so paused distributions aren't necessarily a sign of a death spiral for the deal... but you probably won't see any money until exit/refi, though.

This is always the downside of syndications: lack of control. They can pull the plug on your distributions or returns anytime if the deal starts to go south. 

[Evan Mitch]

@Lisa Jones I didn't get a video link with my notification but I'm guessing we're all going crossing our fingers that we actually get the return of our capital at this point and not quite as concerned about the return on the investment.  It's about to get a lot more complicated and I suspect they couldn't answer any specific questions right now as everything is in flux. I don't expect to see any distributions until it's sold and feel like many sponsors are just kicking the can down the road with notices like this and the next step, capital calls.  

I'm not invested in their funds so it may be different for later deals but the property I'm in was purchased in 2019, meant to hold for 5 years and sell on - but I see that as highly unlikely now seeing as they're out of funds to renovate and occupancy is dropping.  

[Benjamin Aaker]

You should consider contacting the principal and getting more details. I'm happy they disclosed this to you and I don't think it is a huge cause for concern yet, but you need more information. Lenders are pretty skittish right now. A lot of syndications started up 5 years ago and planned to sell or refinance at the 5 year mark, not anticipating rates going so high. I'm not saying this happened in your case, but if so, they will be tightening their belts to try to get through.

[Sam Gattis]

For AVAF1, they paused Class B distributions few months back and just paused Class A also. 

[Account Closed]

Quote from @Evan Mitch:

Anyone else getting notified this morning of paused Ashcroft distributions due to refinancing issues? 

We have been working on refinancing the asset in order to access the equity and create liquidity to earnestly restart the renovations. The new lender we initially signed up with for the refinance notified us that they would not be able to provide the new loan at the agreed upon terms due to current market volatility.

We continue to pursue alternative refinancing options and anticipate having a new loan closed within the next six months. To remain conservative with liquidity and continue increasing NOI through unit renovations, we are pausing distributions beginning this month. Your preferred return will continue to accrue and will be paid at the next capital event, or when cash flow allows.

While distributions are on pause, we are not collecting its asset management fee and Birchstone Residential is collecting a reduced property management fee.

I know of a couple of syndicators that have had capital calls. They were up front about it, they and no one else likes it, but with the jump in rates, it is not surprising.

[Jim Peret]

Open Door Capital paused distributions on a couple funds. I've been in their Sun Belt Fund for 18 months. I received 1% annual return one month and the next month they paused distributions. At least Ashcroft is not taking asset management fee and getting reduced property management fee. Open door Capital is just focusing on funding new funds and really not putting any extra effort into investor returns.

[John P.]

Quote from @Jim Peret:

Open Door Capital paused distributions on a couple funds. I've been in their Sun Belt Fund for 18 months. I received 1% annual return one month and the next month they paused distributions. At least Ashcroft is not taking asset management fee and getting reduced property management fee. Open door Capital is just focusing on funding new funds and really not putting any extra effort into investor returns.

 I too have some money invested with ODC. Would be interested to see if they follow the lead of Ashcroft and pause/reduce fees!?

[Pretty Khare]

Quote from @Account Closed:

Quote from @Evan Mitch:

Anyone else getting notified this morning of paused Ashcroft distributions due to refinancing issues? 

We have been working on refinancing the asset in order to access the equity and create liquidity to earnestly restart the renovations. The new lender we initially signed up with for the refinance notified us that they would not be able to provide the new loan at the agreed upon terms due to current market volatility.

We continue to pursue alternative refinancing options and anticipate having a new loan closed within the next six months. To remain conservative with liquidity and continue increasing NOI through unit renovations, we are pausing distributions beginning this month. Your preferred return will continue to accrue and will be paid at the next capital event, or when cash flow allows.

While distributions are on pause, we are not collecting its asset management fee and Birchstone Residential is collecting a reduced property management fee.

I know of a couple of syndicators that have had capital calls. They were up front about it, they and no one else likes it, but with the jump in rates, it is not surprising.

 @Evan Mitch @Jim Peret  Have the distributions been resumed by Ashcroft and ODC or not yet? thanks

[Jim Peret]

Quote from @Pretty Khare:

Quote from @Account Closed:

Quote from @Evan Mitch:

Anyone else getting notified this morning of paused Ashcroft distributions due to refinancing issues? 

We have been working on refinancing the asset in order to access the equity and create liquidity to earnestly restart the renovations. The new lender we initially signed up with for the refinance notified us that they would not be able to provide the new loan at the agreed upon terms due to current market volatility.

We continue to pursue alternative refinancing options and anticipate having a new loan closed within the next six months. To remain conservative with liquidity and continue increasing NOI through unit renovations, we are pausing distributions beginning this month. Your preferred return will continue to accrue and will be paid at the next capital event, or when cash flow allows.

While distributions are on pause, we are not collecting its asset management fee and Birchstone Residential is collecting a reduced property management fee.

I know of a couple of syndicators that have had capital calls. They were up front about it, they and no one else likes it, but with the jump in rates, it is not surprising.

 @Evan Mitch @Jim Peret  Have the distributions been resumed by Ashcroft and ODC or not yet? thanks

[Jim Peret]

Not looking good for my ODC Sunbelt Diversified Fund.  Here's part of my November report. It's not even the worse of it. So 2024 will be a rough year.

As mentioned on previous updates, after careful consideration around where we are in the market and the significant run up in costs around our debt service, insurance, and taxes, we have decided to pause all distributions. However, we will continue to monitor the performance on a month to month basis, along with the overall market conditions, to inform future distribution decisions.

[Pretty Khare]

Quote from @Jim Peret:

Not looking good for my ODC Sunbelt Diversified Fund.  Here's part of my November report. It's not even the worse of it. So 2024 will be a rough year.

As mentioned on previous updates, after careful consideration around where we are in the market and the significant run up in costs around our debt service, insurance, and taxes, we have decided to pause all distributions. However, we will continue to monitor the performance on a month to month basis, along with the overall market conditions, to inform future distribution decisions.

 Sorry to hear that. Hope it starts performing well soon.

[Account Closed]

Quote from @Account Closed:

Quote from @Evan Mitch:

Anyone else getting notified this morning of paused Ashcroft distributions due to refinancing issues? 

We have been working on refinancing the asset in order to access the equity and create liquidity to earnestly restart the renovations. The new lender we initially signed up with for the refinance notified us that they would not be able to provide the new loan at the agreed upon terms due to current market volatility.

We continue to pursue alternative refinancing options and anticipate having a new loan closed within the next six months. To remain conservative with liquidity and continue increasing NOI through unit renovations, we are pausing distributions beginning this month. Your preferred return will continue to accrue and will be paid at the next capital event, or when cash flow allows.

While distributions are on pause, we are not collecting its asset management fee and Birchstone Residential is collecting a reduced property management fee.

I know of a couple of syndicators that have had capital calls. They were up front about it, they and no one else likes it, but with the jump in rates, it is not surprising.

I checked and I was mistaken. They had the syndicators put funds in to lock new interest rates. Apparently the individual investors were not impacted.

[Chris Seveney]

@Mike Hern

This is not meant to be about Ashcroft but for LP’s to be aware of - some syndications in lieu of capital calls are raising money and starting a debt fund instead of the capital call. Essentially it is the same thing as they are borrowing from LP’s and paying 8% (hopefully not giving upside)

But be careful as this may push you up the capital stack and create more risk.

It’s important to know “how” sponsors are managing and getting out of some of the holes they dug themselves in and people thinking all is good because of no capital call may be in a worse position

[Evan Mitch]

Their proposed deal:

We are excited to announce the potential addition of Related Companies as our new equity partner, leveraging their network to further enhance the performance of Preserve at Preston. With our existing senior debt at just 4.25%, our total weighted average rate, including Related, will be 6.18%, which is significantly below the current market effective rate of 8.75% (5.25% SOFR + 3.50% spread). Along with the favorable all-in cost of capital, this partnership will maintain your existing ownership position, as Related will be treated as debt for financial and tax-related purposes.

We have negotiated an equitable cashflow structure with Related, allowing a 6.0% payment on their funds from property cashflows first, and a share of 30% of cashflow thereafter. Upon sale, Related is capped at 12.5% total return, ensuring that LP’s and GP’s receive all subsequent funds thereafter.

This partnership will provide the capital needed to execute the new full-scope renovation strategy, which the Plano market is now demanding. Having completed ten (10) Halston level test renovations (Click Here to see a pic), we have identified an opportunity to achieve upwards of over $200 rent premiums on these units. As we bring the entire property up to this new scope, we anticipate bumping our current rent roll an additional 15%.

Based on our conservative and thorough analysis, we have identified this as the most accretive solution for the investment. Below is a matrix of returns comparing the outcomes of selling now versus partnering with Related, growing NOI and selling in 3 years. At all exit caps, holding the property longer creates higher returns for investors. The strategic partnership with Related not only provides potential for higher returns, but also offers us both time and flexibility. This creates an opportunity for the capital markets to stabilize, potentially leading to a more favorable exit at a lower cap rate.

Additional Terms and Projections:

Preferred equity amount: $12.0M

Cost of preferred equity: 12.5% per year

Projected distribution rate once preferred equity in place: 2-3% per year

Anticipated remaining hold: 2-3 years

We expect the market to improve over the next 2-3 years as we continue to execute our business plan. Our goal is consistently centered on what we can control -- specifically, increasing NOI and optimizing the operational performance and maintenance of the asset.

[Stuart Udis]

Suspending distributions should not be viewed as a better outcome than a capital call. It's a very short-sighted approach. You can't judge a syndication until you exit the deal and the decision making of your Sponsor and how they navigate this rough patch will be the deciding factor for how the syndication performs. I recognize capital calls are generally disliked but it might be the best way for the Sponsor recapitalize the deal. By way of example, rather than relying on a capital call, the sponsor could theoretically take on additional or more expensive debt through refinances or by creating debt or mezz funds. Furthermore, learning that the sponsor is suspending their fees or reducing management fees could be required because the generated income no longer supports these fees rather than being a decision derived from the sponsors generosity. The decision to not make a capital call could ultimately turn the deal into a loser as the cost alternative capital might be higher.

[Carlos Ptriawan]

Quote from @Evan Mitch:

Anyone else getting notified this morning of paused Ashcroft distributions due to refinancing issues? 

We have been working on refinancing the asset in order to access the equity and create liquidity to earnestly restart the renovations. The new lender we initially signed up with for the refinance notified us that they would not be able to provide the new loan at the agreed upon terms due to current market volatility.

We continue to pursue alternative refinancing options and anticipate having a new loan closed within the next six months. To remain conservative with liquidity and continue increasing NOI through unit renovations, we are pausing distributions beginning this month. Your preferred return will continue to accrue and will be paid at the next capital event, or when cash flow allows.

While distributions are on pause, we are not collecting its asset management fee and Birchstone Residential is collecting a reduced property management fee.

 70/80%  of syndications are in trouble in 2024. Especially if they have multiple portfolio in asset structure.

You would lose money 100% for sure. What we don't know whether you lose 50% or lose 100%.

[Chris Seveney]

Quote from @Carlos Ptriawan:

Quote from @Evan Mitch:

Anyone else getting notified this morning of paused Ashcroft distributions due to refinancing issues? 

We have been working on refinancing the asset in order to access the equity and create liquidity to earnestly restart the renovations. The new lender we initially signed up with for the refinance notified us that they would not be able to provide the new loan at the agreed upon terms due to current market volatility.

We continue to pursue alternative refinancing options and anticipate having a new loan closed within the next six months. To remain conservative with liquidity and continue increasing NOI through unit renovations, we are pausing distributions beginning this month. Your preferred return will continue to accrue and will be paid at the next capital event, or when cash flow allows.

While distributions are on pause, we are not collecting its asset management fee and Birchstone Residential is collecting a reduced property management fee.

 70/80%  of syndications are in trouble in 2024. Especially if they have multiple portfolio in asset structure.

You would lose money 100% for sure. What we don't know whether you lose 50% or lose 100%.

 actually you can lose MORE THAN 100% if they took accelerated depreciation, you may end up owing more than your investment. That happened I believe on those houston deals. 

[Carlos Ptriawan]

Quote from @Chris Seveney:

@Mike Hern

This is not meant to be about Ashcroft but for LP’s to be aware of - some syndications in lieu of capital calls are raising money and starting a debt fund instead of the capital call. Essentially it is the same thing as they are borrowing from LP’s and paying 8% (hopefully not giving upside)

But be careful as this may push you up the capital stack and create more risk.

It’s important to know “how” sponsors are managing and getting out of some of the holes they dug themselves in and people thinking all is good because of no capital call may be in a worse position

 Yea, many of them being very creative, as it's almost even look like  a ponzi, so they created new fund with new debt capital stack to sustain their equity portfolio to make their equity investment side alive. It's a legal ponzi. But public company do these all the time by issuing new debts/loan to themselves to payoff their operation.

It's nice when they do this to the fact that at least equity investor only get dilution but they would not be wiped out completely.

Everyone just wanna do refi at this time, at least until 2028.

[Carlos Ptriawan]

Quote from @Stuart Udis:

Suspending distributions should not be viewed as a better outcome than a capital call. It's a very short-sighted approach. You can't judge a syndication until you exit the deal and the decision making of your Sponsor and how they navigate this rough patch will be the deciding factor for

I am thinking very differently. We can judge the sydication solely just by reading their T2/T12 and proforma and also reading the market.

Even in 2019-2021, buying at cap rate 3% is crazy in my view, it's extremely crazy with aggresive underwriting expecting only 10% NOI in the upside.
Man I would rather invest in VOO/SPY than investing on asset of cap 3%.
We are now moving from cap 3 to cap 6.

Investing at bad times with very low risk/reward analysis is just waiting for doom to happen. I don't know why some LPs are not even thinking straight or unable do proper DD. It's almost guaranteed you lose money with cap 3 purchase. The GP would be just fine as they already collected their acquisition fee LOL but it's the newbie LP that loses their money right and left.

[Melanie P.]

I guess there are about 20 suckers born every minute. Every one of you in this is an accredited investor, right? A two-second glance at their materials reveals that when they distribute funds from a property sale one of the categories is: unpaid distributions. This has been the plan since the start. 

Investing in real estate is not that hard. I can't imagine what would make anyone put their money into one of these things. Pure laziness I guess. TBills are paying over 5% if you need lazy guys. No need for this nonsense.

[Carlos Ptriawan]

Quote from @Melanie P.:

I guess there are about 20 suckers born every minute. Every one of you in this is an accredited investor, right? A two-second glance at their materials reveals that when they distribute funds from a property sale one of the categories is: unpaid distributions. This has been the plan since the start. 

Investing in real estate is not that hard. I can't imagine what would make anyone put their money into one of these things. Pure laziness I guess. TBills are paying over 5% if you need lazy guys. No need for this nonsense.

 100 ! 
I like how you write it down. Haha...

All this mess actually created in some part by a guru named Shumrock if one read at therealdeal dotcom.. he teaches his student very lousy financial modelling LOL 

[Account Closed]

Quote from @Chris Seveney:

@Mike Hern

This is not meant to be about Ashcroft but for LP’s to be aware of - some syndications in lieu of capital calls are raising money and starting a debt fund instead of the capital call. Essentially it is the same thing as they are borrowing from LP’s and paying 8% (hopefully not giving upside)

But be careful as this may push you up the capital stack and create more risk.

It’s important to know “how” sponsors are managing and getting out of some of the holes they dug themselves in and people thinking all is good because of no capital call may be in a worse position

@Chris Seveney: Thanks for the input.

[Carlos Ptriawan]

Quote from @Chris Seveney:

Quote from @Carlos Ptriawan:

Quote from @Evan Mitch:

Anyone else getting notified this morning of paused Ashcroft distributions due to refinancing issues? 

We have been working on refinancing the asset in order to access the equity and create liquidity to earnestly restart the renovations. The new lender we initially signed up with for the refinance notified us that they would not be able to provide the new loan at the agreed upon terms due to current market volatility.

We continue to pursue alternative refinancing options and anticipate having a new loan closed within the next six months. To remain conservative with liquidity and continue increasing NOI through unit renovations, we are pausing distributions beginning this month. Your preferred return will continue to accrue and will be paid at the next capital event, or when cash flow allows.

While distributions are on pause, we are not collecting its asset management fee and Birchstone Residential is collecting a reduced property management fee.

 70/80%  of syndications are in trouble in 2024. Especially if they have multiple portfolio in asset structure.

You would lose money 100% for sure. What we don't know whether you lose 50% or lose 100%.

 actually you can lose MORE THAN 100% if they took accelerated depreciation, you may end up owing more than your investment. That happened I believe on those houston deals. 

 Another way they are doing it is by creating next series of fund , like ponzi, the next fund investor is subsidizing the asset of previous fund.

or the most brutal way is basically bankrupt the current LP, and buy again the same asset from the lender with new cap with the new lp