List of Syndicators/GPs to AVOID?
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Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votesAs always, it will be a case by case basis.
This thread is about GPs to avoid. Many LPs thanked their sponsors for good returns with millions of dollars in guaranteed fees, and tens of millions in carried interest. To those sponsors, LPs shouldn't say "thank you." They should say, "you're welcome."
GPs solicited investors by promising huge returns and citing their track records. Some did this very publicly. Then those GPs "earned" fees just for buying the buildings... the same buildings that will now result in many cases in total wipeout for their investors. Some of them are now asking for more capital to bail out these buildings and have very real risk of losing that too.
LPs absolutely have a right to be mad, and a total or near total wipeout of invested capital in the last 3-5 years absolutely invalidates a decade of performance in many, but not all, cases, in my view, especially in the 2010s, when almost anyone with a pulse could make money in multifamily.
However, what matters more to me than whether a fund or deal is wiped out, is how the sponsor handles it.
"Good" in the context of losing, to me, looks like this:
Sponsor honestly appraises the situation, and provides a blunt assessment of where they made a bad bet, failed in due diligence, operated poorly, or were totally irresponsible with leverage and timing. Sponsor realistically and honestly susses out this from market challenges, which of course are real.
Sponsor tells investors that they are committed to operating their current business and stewarding investor capital. Sponsor recommits full-time attention to their job, which is to oversee the tens of millions, hundreds of millions, and/or billions of Assets they deploy.
Sponsor is regularly seen on-site at every property in their portfolio, regardless of personal cost.
They raised the big bucks, and things aren't going well. Are they going to be on vacation? Are they going to start up the next fun side project or fund? Or are they going to go to work and do everything they can to make their investors whole on their CURRENT deals?
I'm in a deal that's gone south as an LP. My sponsor is doing "Good" in the context of losing.
We all knew what we were getting into. We knew the bet. He executed it. It's his full-time job. It's all he does. He lives within an easy drive of every property in the portfolio.
Doesn't change that I am getting flushed on the deal. But, I may/will invest with him again. He operated it well. Executed the plan, keeps the units occupied. Just supply and interest rates crushed us. I expect many investors will not be happy, but they also won't publicly roast him for fleecing them.
Other sponsors aren't doing "good" in the context of losing. They will get roasted.
Some deserve it.
134 Replies
- Investor · UT · Member since 2018 · 33 posts · 26 votes2y
Quote from @Forest Wu:
Hi! One of my last posts was asking about syndications/PE opportunities. Unfortunately, I've come across quite a few people who are really upset with how their syndication experience has been. Quite a few people have lost a lot of money. I think it'll be very helpful to increase transparency on those operators who have betrayed their investors trust or simply are poor performers. So let's do the following:
1/ List the GP / syndication that you've had a terrible experience with
2/ At a high level (and as much as you're comfortable sharing), provide a reason for why the GP / Syndication should be avoided from your experience (or an acquaintance's experience)
3/ Any lesson learned to help future investors
Let's help each other avoid future mistakes and bring hold GPs/operators accountable.
I appreciate the context, transparency & honesty shared here.
For the most part, I’m an inexperienced LP investor.
My first two investments with the Djuric Family Office / now Blake Capital Group, started in 2021 and my experience has been awful.
One deal collapsed in Dec 2023, which I found out 4 months after the property was sold back to the bank, by the operator. To date Blake Capital investors have not been formally notified and despite repeated requests I’m not able to get anything of legal value to support the collapse and narrative around it. All I’ve received is bad property managers and rising debt costs are to blame, GPs have lost a lot of money also, this is the first deal failure for the GPs …
The second deal has had two capital calls and is scheduled for foreclosure in August, unless additional funds are raised from the last capital call. My request for the root cause of the failure has yet to be answered.
My frustration comes from the lack of transparency into how the deal was structured with GPs/Operators. Seems like unless you invest directly with the operator, you’re going to be treated as a secondhand investor with lagging communications, investor reporting, tax docs, etc.
Extremely poor communication, most often I’ve had to repeatedly ask for a response.
Inconsistent investor reporting, sometimes monthly, sometimes quarterly, most of which has been received 2-4 months past the reporting period.
Investor portal that appears to be used for show only. I had to push for my investment to be registered and funds to be documented. The accounting has never been added and 8 months later and the portal still shows I’m actively invested in the failed deal.
K-1s received late Q3.
I was naïve and inexperienced, and I accept some degree of blame for this, however I feel I have been very misled and there appears to be no accountability for this.
Are LPs able to file a Suspected Securities Fraud or Wrongdoing report with the SEC? Any other recourse LPs can take?
Appreciate any advice on this.
Thanks, Cheryl
- Member since 2023 · 72 posts · 44 votes2yQuote from @Cheryl A.:
Quote from @Forest Wu:
Hi! One of my last posts was asking about syndications/PE opportunities. Unfortunately, I've come across quite a few people who are really upset with how their syndication experience has been. Quite a few people have lost a lot of money. I think it'll be very helpful to increase transparency on those operators who have betrayed their investors trust or simply are poor performers. So let's do the following:
1/ List the GP / syndication that you've had a terrible experience with
2/ At a high level (and as much as you're comfortable sharing), provide a reason for why the GP / Syndication should be avoided from your experience (or an acquaintance's experience)
3/ Any lesson learned to help future investors
Let's help each other avoid future mistakes and bring hold GPs/operators accountable.
I appreciate the context, transparency & honesty shared here.
For the most part, I’m an inexperienced LP investor.
My first two investments with the Djuric Family Office / now Blake Capital Group, started in 2021 and my experience has been awful.
One deal collapsed in Dec 2023, which I found out 4 months after the property was sold back to the bank, by the operator. To date Blake Capital investors have not been formally notified and despite repeated requests I’m not able to get anything of legal value to support the collapse and narrative around it. All I’ve received is bad property managers and rising debt costs are to blame, GPs have lost a lot of money also, this is the first deal failure for the GPs …
The second deal has had two capital calls and is scheduled for foreclosure in August, unless additional funds are raised from the last capital call. My request for the root cause of the failure has yet to be answered.
My frustration comes from the lack of transparency into how the deal was structured with GPs/Operators. Seems like unless you invest directly with the operator, you’re going to be treated as a secondhand investor with lagging communications, investor reporting, tax docs, etc.
Extremely poor communication, most often I’ve had to repeatedly ask for a response.
Inconsistent investor reporting, sometimes monthly, sometimes quarterly, most of which has been received 2-4 months past the reporting period.
Investor portal that appears to be used for show only. I had to push for my investment to be registered and funds to be documented. The accounting has never been added and 8 months later and the portal still shows I’m actively invested in the failed deal.
K-1s received late Q3.
I was naïve and inexperienced, and I accept some degree of blame for this, however I feel I have been very misled and there appears to be no accountability for this.
Are LPs able to file a Suspected Securities Fraud or Wrongdoing report with the SEC? Any other recourse LPs can take?
Appreciate any advice on this.
Thanks, Cheryl
I'm really sorry to hear about this and wish that I have advice on how to help. I'm hoping that someone in this forum might have some thoughts on how best to approach things.
@Melanie P. - sorry to tag you but I've noticed that you always have some great wisdom to share. Any thoughts here?
- 2yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
Keep running across these Bad GP posts. We don't do SFH or MFH or any combination of them or deal structures (syndications) related to them.
We are in the Self-Storage and Country Subdivision development or acquisition business. When we fail, it is because of us.
If a guy walked up to me with a gun and robbed me, it was my fault.
I take full accountability for any decision I make or any situation, I put us in.
With that said, how about making a List of Poor LP investors?
Even if you got a list of Good or Bad GP's you're putting your investment into the hands of other LP's and are lazy and not doing your due diligence.
I have asked this before on these bad GP posts.
What is your Due diligence list. Should be very similar to Self Storage.
1. What are the financing terms? The amort period and the balloon period should be very close to the Funds cycle timing. If your payout is to be 5 years, then have fixed for 5 years. If you got greedy like all of the SFH who got foreclosed using ARMS years ago. Own up. If you're the LP investor and you are now relearning the downside of ARM debt, you're reliving and relearning a lesson that was taught years ago. You should lose your money. If you're a GP and wanted your returns to look a little better and went with variable at 3% versus locking in 4.5% for the term of your fund, take your spanking, along with the LPs. You both either got greedy or didn't do a proper deal analysis.
2. What is the Capital or Capex needs for the project and are they on target?
3. Occupancy. What is the Current occupancy? How do they plan to get to their Occupancy target? Are they on track? What is the occupancy of surrounding MFH locations?
4. Rental pricing. What are the current prices? What are the Syndication targets? How do they plan to achieve? What are the rates for the surrounding market?
5. What is the Breakeven target? Where you get your capital back?
6. Read the contract/brochure. If x or xx occur, what are the potential outcomes?
7. You are the BANKER. You should have done a sensitivity test on all of the points above. Did you? It's not Passive, you have to act as the Banker. If you have never been a Banker reviewing a loan, then you are just gambling. Take your losses.
Which is easier? To complain and blame? Or build something? Go build a Due diligence work sheet based on the above. Post it on here. Ask for other GP and LPs to improve it. Then BP, make every LP or Syndication investor read it, before they start posting.
Start small and Make Your Big Mistakes Early.
It's your money, your Right, even if you're Wrong. Always own your decisions.
- Member since 2023 · 72 posts · 44 votes2y
Quote from @Henry Clark:
Keep running across these Bad GP posts. We don't do SFH or MFH or any combination of them or deal structures (syndications) related to them.
We are in the Self-Storage and Country Subdivision development or acquisition business. When we fail, it is because of us.
If a guy walked up to me with a gun and robbed me, it was my fault.
I take full accountability for any decision I make or any situation, I put us in.
With that said, how about making a List of Poor LP investors?
Even if you got a list of Good or Bad GP's you're putting your investment into the hands of other LP's and are lazy and not doing your due diligence.
I have asked this before on these bad GP posts.
What is your Due diligence list. Should be very similar to Self Storage.
1. What are the financing terms? The amort period and the balloon period should be very close to the Funds cycle timing. If your payout is to be 5 years, then have fixed for 5 years. If you got greedy like all of the SFH who got foreclosed using ARMS years ago. Own up. If you're the LP investor and you are now relearning the downside of ARM debt, you're reliving and relearning a lesson that was taught years ago. You should lose your money. If you're a GP and wanted your returns to look a little better and went with variable at 3% versus locking in 4.5% for the term of your fund, take your spanking, along with the LPs. You both either got greedy or didn't do a proper deal analysis.
2. What is the Capital or Capex needs for the project and are they on target?
3. Occupancy. What is the Current occupancy? How do they plan to get to their Occupancy target? Are they on track? What is the occupancy of surrounding MFH locations?
4. Rental pricing. What are the current prices? What are the Syndication targets? How do they plan to achieve? What are the rates for the surrounding market?
5. What is the Breakeven target? Where you get your capital back?
6. Read the contract/brochure. If x or xx occur, what are the potential outcomes?
7. You are the BANKER. You should have done a sensitivity test on all of the points above. Did you? It's not Passive, you have to act as the Banker. If you have never been a Banker reviewing a loan, then you are just gambling. Take your losses.
Which is easier? To complain and blame? Or build something? Go build a Due diligence work sheet based on the above. Post it on here. Ask for other GP and LPs to improve it. Then BP, make every LP or Syndication investor read it, before they start posting.
Start small and Make Your Big Mistakes Early.
It's your money, your Right, even if you're Wrong. Always own your decisions.
Thanks for the thoughts! But not sure what you're trying to get at. I think getting people's experiences with GPs is part of the due diligence checklist. We learn more from our mistakes than our successes, so these insights (e.g., oversights from LPs, redflags they should've seen etc.) are helpful. Running sensitivity analyses, evaluating the market, understanding the financing terms etc. are also all part of the checklist.
- Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes2y
Id say think multifamily (mark kenny) is one of the worst, had no financial reporting and lost all investor money. Dont mind putting him on blast here. These syndicators need to have reputations destroyed so they don't loose more peoples money
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Forest Wu:
Quote from @Henry Clark:
Keep running across these Bad GP posts. We don't do SFH or MFH or any combination of them or deal structures (syndications) related to them.
We are in the Self-Storage and Country Subdivision development or acquisition business. When we fail, it is because of us.
If a guy walked up to me with a gun and robbed me, it was my fault.
I take full accountability for any decision I make or any situation, I put us in.
With that said, how about making a List of Poor LP investors?
Even if you got a list of Good or Bad GP's you're putting your investment into the hands of other LP's and are lazy and not doing your due diligence.
I have asked this before on these bad GP posts.
What is your Due diligence list. Should be very similar to Self Storage.
1. What are the financing terms? The amort period and the balloon period should be very close to the Funds cycle timing. If your payout is to be 5 years, then have fixed for 5 years. If you got greedy like all of the SFH who got foreclosed using ARMS years ago. Own up. If you're the LP investor and you are now relearning the downside of ARM debt, you're reliving and relearning a lesson that was taught years ago. You should lose your money. If you're a GP and wanted your returns to look a little better and went with variable at 3% versus locking in 4.5% for the term of your fund, take your spanking, along with the LPs. You both either got greedy or didn't do a proper deal analysis.
2. What is the Capital or Capex needs for the project and are they on target?
3. Occupancy. What is the Current occupancy? How do they plan to get to their Occupancy target? Are they on track? What is the occupancy of surrounding MFH locations?
4. Rental pricing. What are the current prices? What are the Syndication targets? How do they plan to achieve? What are the rates for the surrounding market?
5. What is the Breakeven target? Where you get your capital back?
6. Read the contract/brochure. If x or xx occur, what are the potential outcomes?
7. You are the BANKER. You should have done a sensitivity test on all of the points above. Did you? It's not Passive, you have to act as the Banker. If you have never been a Banker reviewing a loan, then you are just gambling. Take your losses.
Which is easier? To complain and blame? Or build something? Go build a Due diligence work sheet based on the above. Post it on here. Ask for other GP and LPs to improve it. Then BP, make every LP or Syndication investor read it, before they start posting.
Start small and Make Your Big Mistakes Early.
It's your money, your Right, even if you're Wrong. Always own your decisions.
Thanks for the thoughts! But not sure what you're trying to get at. I think getting people's experiences with GPs is part of the due diligence checklist. We learn more from our mistakes than our successes, so these insights (e.g., oversights from LPs, redflags they should've seen etc.) are helpful. Running sensitivity analyses, evaluating the market, understanding the financing terms etc. are also all part of the checklist.
the biggest mistake LP's make is they do not have an attorney review the documents. I saw a forum thread where people were investing and had never even seen or asked for the PPM. Then they were shocked when they found out where their money was going...
Sidenote was on a call with five individuals yesterday who I speak with once a month, 4/5 are invested in a real estate syndication and everyone is going bad. I think the number of syndications that are going bad is significant. Many of them have a common theme - inexperienced sponsors. Not to say good sponsors are not having troubles, but it is clear delineation between a good sponsor who communicates and a bad sponsor who does not.
7e investments53 Reviews - 2yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
OP My point:
1. Show us your checklist.
2. Walk us thru your deal analysis and deals.
3. Go make a post and add value. Build a better due diligence checklist.
4. If you haven't done a deal, then make a post saying you're in Analysis Paralysis, want to do a Syndication investment, what should you do. Asking people for the Best markets, the Best GP, the best PM's, etc; adds no value. If you were in my market, I would not give you the name of my best team members. You have to pay for your learning.
5. If you are just hesitant on REI, then switch industries. Look up medical for Shock Wave therapy and/or Pre Nuvo body scan.
I just don't like Enabler or Victim approaches. If you follow the thought process to the next steps:
1. Make a list of Good/Bad GP's. Thus far no one has shown a Due Diligence list or attempted. So why would you want to take LP advice on what a Good or Bad GP is? This Enables Lazy investing. More people "like" this GP, thus should invest there. You don't even know if it fits your REI type or Risk/Reward analysis.
2. Make a list of LP deal analysis and share. Who says the other LP's can even do a deal analysis and also understand Risk/Reward analysis? Or if it fits your investment strategy? And then why share your deal analysis? Ask the more prominent posters on this thread no matter what REI strategy. Please post each deal analysis you do, and tell us whether it is good or bad; before they even invest in it.
The last Bad GP post on BP, the investments were Broadway Plays, Defunct brand Names, Mastermind programs, and Crypto arbitrage. All of those people investing in that deserve to lose their money. People should lose their money. It's part of the learning process and also an efficient market.
The majority of the Syndication issues right now are due to Greed on both the GP and LP's sides. The numbers look better using Variable Rate interest. They should have locked down their financing for the period of the investment or had the Balloon terms come close to the investment life cycle. Syndication pro formas look better with a low interest rate, LP's want a better return, no one did a Risk/Reward analysis.
If you were in a new construction syndication and got caught with a 300% increase in Lumber costs due to Trump applying Tariffs to Canada for anti dumping, and then Covid shut down both the logging and Lumber Mill industries in Canada I can understand getting nailed. No one would have factored in a Black Swan event. So, a really good GP could have some very bad results.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Henry Clark
"If you were in a new construction syndication and got caught with a 300% increase in Lumber costs due to Trump applying Tariffs to Canada for anti dumping, and then Covid shut down both the logging and Lumber Mill industries in Canada I can understand getting nailed. No one would have factored in a Black Swan event. So, a really good GP could have some very bad results."I was just into about my 20th new build in a 90 home project when this happened to us.. lumber packages did not quite 3X but they certianly went up 2X along with a host of other components.. the one benefit we had was we could have lumber escalation clauses in our contracts that passed this on to the buyer.. And or we simply raised our prices and values went up a ton and remained sticky.. So with retail sales ( unlike if your building something were your relying on rent) we did just fine market absorbed it.. But the real sweet part of it is that the rise in price stayed way up there and lumber dropped back down.. so we made it and continue to make a better profit on the last 30 houses.. Values at least in our market were quite sticky and on top of that our competition when rates sky rocketed de engineered their houses to get their prices down. We went the EXACT opposite we loaded ours up and raised prices yet again.. So that our net profits now are over DOUBLE our original proforma..
So with commercial projects or MF they cant just DOUBLE the rent to keep proforma on target.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Jay Hinrichs:
@Henry Clark
"If you were in a new construction syndication and got caught with a 300% increase in Lumber costs due to Trump applying Tariffs to Canada for anti dumping, and then Covid shut down both the logging and Lumber Mill industries in Canada I can understand getting nailed. No one would have factored in a Black Swan event. So, a really good GP could have some very bad results."I was just into about my 20th new build in a 90 home project when this happened to us.. lumber packages did not quite 3X but they certianly went up 2X along with a host of other components.. the one benefit we had was we could have lumber escalation clauses in our contracts that passed this on to the buyer.. And or we simply raised our prices and values went up a ton and remained sticky.. So with retail sales ( unlike if your building something were your relying on rent) we did just fine market absorbed it.. But the real sweet part of it is that the rise in price stayed way up there and lumber dropped back down.. so we made it and continue to make a better profit on the last 30 houses.. Values at least in our market were quite sticky and on top of that our competition when rates sky rocketed de engineered their houses to get their prices down. We went the EXACT opposite we loaded ours up and raised prices yet again.. So that our net profits now are over DOUBLE our original proforma..
So with commercial projects or MF they cant just DOUBLE the rent to keep proforma on target.
also Henry I dont want to make it sound like I knew all this was going to happen.. I just made the best decisions I could make at the time I let my group of investors know that the project was going to extend as we wanted to slow down and let prices come up better to have the project go a little long that to build another batch of homes and have them sit and paying debt service. 90% of my homes have closed within 10 days of CO and I have given no more than 5 or 6 credits for interest rate buy downs. And if I did I raised the price.. we are blessed with 70% of our buyers paying cash or very nearly all cash.. price points 650 to 1 mil per house.
U need great LPS who understand and dont hammer you if you go a little long and a very good banker who also works in lock step with our needs.. If I had investor like we are seeing right now that miss one interest payment and go ape @@@ it would have been very difficult to keep us on track and end up beating performa by 50% or better. - 2yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
Some of our builders got caught with the lumber hike on the jobs they had. They switched to 30 day quotes. Plus added lumber escalation clauses like you. These are all build to order homes. Some of the owners had to scale back since they couldn’t take the cost hikes. Our neighbor built a 4,800 sqft ranch with full basement. Got hammered on the cost increase but could handle it.
My position is if your an LP your also the banker.
It's easy for me as a developer. I just yell at myself when I screw up. But we look at 400% COC on our self storage and 100 to 200% COC on our country subdivision lots so there is room for errors.
- Investor · UT · Member since 2018 · 33 posts · 26 votes2y
Quote from @Henry Clark:
OP My point:
1. Show us your checklist.
2. Walk us thru your deal analysis and deals.
3. Go make a post and add value. Build a better due diligence checklist.
4. If you haven't done a deal, then make a post saying you're in Analysis Paralysis, want to do a Syndication investment, what should you do. Asking people for the Best markets, the Best GP, the best PM's, etc; adds no value. If you were in my market, I would not give you the name of my best team members. You have to pay for your learning.
5. If you are just hesitant on REI, then switch industries. Look up medical for Shock Wave therapy and/or Pre Nuvo body scan.
I just don't like Enabler or Victim approaches. If you follow the thought process to the next steps:
1. Make a list of Good/Bad GP's. Thus far no one has shown a Due Diligence list or attempted. So why would you want to take LP advice on what a Good or Bad GP is? This Enables Lazy investing. More people "like" this GP, thus should invest there. You don't even know if it fits your REI type or Risk/Reward analysis.
2. Make a list of LP deal analysis and share. Who says the other LP's can even do a deal analysis and also understand Risk/Reward analysis? Or if it fits your investment strategy? And then why share your deal analysis? Ask the more prominent posters on this thread no matter what REI strategy. Please post each deal analysis you do, and tell us whether it is good or bad; before they even invest in it.
The last Bad GP post on BP, the investments were Broadway Plays, Defunct brand Names, Mastermind programs, and Crypto arbitrage. All of those people investing in that deserve to lose their money. People should lose their money. It's part of the learning process and also an efficient market.
The majority of the Syndication issues right now are due to Greed on both the GP and LP's sides. The numbers look better using Variable Rate interest. They should have locked down their financing for the period of the investment or had the Balloon terms come close to the investment life cycle. Syndication pro formas look better with a low interest rate, LP's want a better return, no one did a Risk/Reward analysis.
If you were in a new construction syndication and got caught with a 300% increase in Lumber costs due to Trump applying Tariffs to Canada for anti dumping, and then Covid shut down both the logging and Lumber Mill industries in Canada I can understand getting nailed. No one would have factored in a Black Swan event. So, a really good GP could have some very bad results.
Hi Henry, I think you're missing my point. My frustrations aren't specifically with the deal mechanics, even though I'm very disappointed in how they turned out.
My frustrations come from the lack of GP "soft skills" / broken promises that were made around full transparency (good & bad), open and timely communications, prompt delivery of investor updates & k-1s, communication in laymen terms, actively updated & accurate portal, etc.
These are points on my due diligence checklist, but they are very hard to vet and at the end of the day LPs put a degree of blind faith in GPs to keep their word. Much like we all do in other areas of life (e.g. doctors).
I'm a technology professional, not a real estate professional & not a banker. Having a forum to share LP experiences like this is a valuable tool to have to help me complete my due diligence checklist.
Changing topics, can anyone help me understand how deals are structured behind the scenes when multiple GPs partner to run the investment, bringing in their own set of LPs? For example with one of my investments I'm being told by the operator that I'm not directly invested in the deal, but instead invested with the GP (DFO) that brought me in, however the executed PPM, OM and the bank I wired funds to all say otherwise.
Despite requesting the GPs explain this to me in more detail I haven't been able to get them to explain. Leads me to believe there's something sketchy going on here.
Best wishes to all,
Cheryl
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@Cheryl Abram
It’s typically called a co-investment which they can be very complex. (For those reading I don’t recommend these types of investments) the only way to get more info would be to get the partnership agreement which they should provide to you.
Who is the sponsor ?
7e investments53 Reviews - 2yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
Was responding to the OP. Went back and read your post. My response to you is the same as to the OP. Own the issue.
Don’t tell me you have a checklist. Make a separate post and post it. Ask for others to review and make recommendations. See Chris Seveneys response to you? That should be an item you or someone should add to the checklist.
You described your background which is probably very similar to other LPs. Career person looking for a passive REI strategy. There is nothing Passive about a Syndication.
Move the discussion forward. Make a post to build a great deal analysis and checklist. Post your deals. Use your checklist and show what got missed.
.
The poor communication on the backside is normal. This isn’t an SEC traded investment, no liens or 1st positions, no personal guarantees on behalf of the GP,
If you go back thru and show us your deal analysis versus your checklist you will probably see an investment marketed at 14% return which should have been Risk adjusted down to 8%.I have had 25% of my wealth at the time wiped out in one month doing one investment. It was my fault with greed. I deserved to lose my money. But I learned from it.
Move the discussion and actions forward.
- Investor · UT · Member since 2018 · 33 posts · 26 votes2yHi Chris, I would also not recommend these types of investments. My experience has been complete madness. The co-investment structure was not well explained to LPs, significant delays receiving investor reports / tax docs if you're not directly invested in the deal with the operator, when the deal fails co-sponsors that you are not invested with refuse to help citing advance from lawyers.
Quote from @Chris Seveney:
@Cheryl Abram
It’s typically called a co-investment which they can be very complex. (For those reading I don’t recommend these types of investments) the only way to get more info would be to get the partnership agreement which they should provide to you.
Who is the sponsor ?
Sponsors are: Community Investment Properties, Legacy Wealth Holdings, Djuric Family Office (aka Blake Capital).
How is it the fully executed operating agreement clearly states investment directly in the deal, however sponsors say no the investment is with one co-sponsor only, but there's no legal contract to support this?
Thanks, Cheryl - 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Cheryl A.:
Hi Chris, I would also not recommend these types of investments. My experience has been complete madness. The co-investment structure was not well explained to LPs, significant delays receiving investor reports / tax docs if you're not directly invested in the deal with the operator, when the deal fails co-sponsors that you are not invested with refuse to help citing advance from lawyers.Quote from @Chris Seveney:
@Cheryl Abram
It’s typically called a co-investment which they can be very complex. (For those reading I don’t recommend these types of investments) the only way to get more info would be to get the partnership agreement which they should provide to you.
Who is the sponsor ?
Sponsors are: Community Investment Properties, Legacy Wealth Holdings, Djuric Family Office (aka Blake Capital).
How is it the fully executed operating agreement clearly states investment directly in the deal, however sponsors say no the investment is with one co-sponsor only, but there's no legal contract to support this?
Thanks, Cheryl
complex no kidding this is absolutely not appropriate for your average passive investor..If they dont perform it takes a big amount of money for some attorney to unravel it for you. - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@Cheryl Abram
Something does not seem right. Did they file a form D with the sec based on the name of the entity ?
Might be time to do a separate post on this if not performing well and see who else is invested and start to rattle cages
7e investments53 Reviews - Investor · Newport Beach, CA · Member since 2019 · 190 posts · 176 votes2y
Hi Cheryl - I would highly recommend that you speak with an securities attorney. It is well worth the small investment it would take for a consultation to understand what your rights and path forward are. To me, it sounds like you invested in a "fund of funds" which isn't a new structure but rather it's been newly weaponized amass large amounts of retail investments. Most of the time, these groups that are referring to themselves as the general partner, are not actually the general partner in the direct investment. They've simply created a legal entity in which they are the general partner to raise capital and then place that capital in the investments of other operators.
What the operator is likely saying is that you did not invest in the direct real estate investment offering, you invested in a llc/partnership that invested in the operator's direct real estate investment llc/partnership to acquire the property. This is purely an assumption though and one that can be confirmed if reviewing the operating/partnership agreements. Three questions: 1) Is the operating agreement you signed for the direct entity that owns the property or an entity which invested in another entity which owns the property? This can also be confusing because there is often what's called a "pass through" or "disregarded" entity in the structure. 2) Did the operator sign any of your subscription paperwork? 3) Did you wire funds directly into the operator's bank account or the co-GP/fund of funds bank account?
Either way, I would highly recommend seeking counsel if you aren't receiving clear communication. What might end of having to happen is that you seek a judgement/control of the fund of funds that you invested in which then has limited partner interest in the direct offering.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Bobby Larsen:
Hi Cheryl - I would highly recommend that you speak with an securities attorney. It is well worth the small investment it would take for a consultation to understand what your rights and path forward are. To me, it sounds like you invested in a "fund of funds" which isn't a new structure but rather it's been newly weaponized amass large amounts of retail investments. Most of the time, these groups that are referring to themselves as the general partner, are not actually the general partner in the direct investment. They've simply created a legal entity in which they are the general partner to raise capital and then place that capital in the investments of other operators.
What the operator is likely saying is that you did not invest in the direct real estate investment offering, you invested in a llc/partnership that invested in the operator's direct real estate investment llc/partnership to acquire the property. This is purely an assumption though and one that can be confirmed if reviewing the operating/partnership agreements. Three questions: 1) Is the operating agreement you signed for the direct entity that owns the property or an entity which invested in another entity which owns the property? This can also be confusing because there is often what's called a "pass through" or "disregarded" entity in the structure. 2) Did the operator sign any of your subscription paperwork? 3) Did you wire funds directly into the operator's bank account or the co-GP/fund of funds bank account?
Either way, I would highly recommend seeking counsel if you aren't receiving clear communication. What might end of having to happen is that you seek a judgement/control of the fund of funds that you invested in which then has limited partner interest in the direct offering.
Bobby,, this is probably a rookie question.. But I was curious as to why these fund of funds deals happen this way.. Is it so these funds can legally take comp as they are not licensed broker dealers ? So they take and equity stake in exchange of raising investor capital ?
Just curious why this had popped up so often now. - Investor · Newport Beach, CA · Member since 2019 · 190 posts · 176 votes2y
Quote from @Jay Hinrichs:
Quote from @Bobby Larsen:
Hi Cheryl - I would highly recommend that you speak with an securities attorney. It is well worth the small investment it would take for a consultation to understand what your rights and path forward are. To me, it sounds like you invested in a "fund of funds" which isn't a new structure but rather it's been newly weaponized amass large amounts of retail investments. Most of the time, these groups that are referring to themselves as the general partner, are not actually the general partner in the direct investment. They've simply created a legal entity in which they are the general partner to raise capital and then place that capital in the investments of other operators.
What the operator is likely saying is that you did not invest in the direct real estate investment offering, you invested in a llc/partnership that invested in the operator's direct real estate investment llc/partnership to acquire the property. This is purely an assumption though and one that can be confirmed if reviewing the operating/partnership agreements. Three questions: 1) Is the operating agreement you signed for the direct entity that owns the property or an entity which invested in another entity which owns the property? This can also be confusing because there is often what's called a "pass through" or "disregarded" entity in the structure. 2) Did the operator sign any of your subscription paperwork? 3) Did you wire funds directly into the operator's bank account or the co-GP/fund of funds bank account?
Either way, I would highly recommend seeking counsel if you aren't receiving clear communication. What might end of having to happen is that you seek a judgement/control of the fund of funds that you invested in which then has limited partner interest in the direct offering.
Bobby,, this is probably a rookie question.. But I was curious as to why these fund of funds deals happen this way.. Is it so these funds can legally take comp as they are not licensed broker dealers ? So they take and equity stake in exchange of raising investor capital ?
Just curious why this had popped up so often now.Yes, that's my assumption. The "co-GP" world quickly transitioned to fund of funds when questions started getting raised about unlicensed capital raising.
I don't know if this is the case but I also think operators use the fund of funds model to bypass the 506c accredited investor requirements. They market to the general public while accepting investments from entities that are considered accredited, although the underlying investors in those entities are not.
- Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes2y
There is a lot of moving parts in this space, which is ever evolving.
Co-sponsors deals seem to have generally all but left. In this relationship, a (typically) unlicensed party raised money for the "main GP", and was given a share of the GP. In exchange they brought the capital and managed the Investor Relations for the investors this person brought to deal. In this scenario, typically, the actual LP (you, Cheryl) are invested in the actual offering led by the "main GP". There is one set of legal documents that you signed into the main offering, you funded the main bank account, you get a K-1 from the same entity as every other investor. A reason the "main GP" may be saying they don't want to deal with you is because per the SEC rules, GPs must have active involvement in the day to day of the actual offering, so if "main GP" starts doing the communication with you, it can be viewed as the co-sponsor no longer having active involvement, and create SEC scrutiny for all parties of the deal.
That SEC scrutiny did happen many years ago across the industry. It resulted in many "co-sponsors" getting their broker dealer license and raising capital for outside investments in a more black and white way. But there are a lot of "main GPs" that either don't know there was scrutiny or figure since there seemed to be no major action, the SEC blessed the relationship (but didn't change the rules, so who knows when it will rear its head again).
Enter the "Fund of Fund" model, which is more commonly truly a feeder Fund. A true fund of funds would mean the FoF raises capital into a single offering, and then that offering is invested across multiple other investments. A feeder fund is a single offering that is all funneled into another single offering. These were launched because all those "co-sponsors" that didn't want to get licensed needed a cleaner way to be in deals. High level, relationships remain the same. The Feeder Fund sponsor goes out and matches their network to a "main GP's" deal. The difference: the feeder fund is the LP in the "Main GPs" deal, and you are an LP in the feeder Fund. As such, you would sign docs for the feeder fund, you would send your investment to a bank account controlled by feeder fund, and the K-1 you are getting is from the feeder fund. Effectively, it just adds another layer. The Feeder Fund GP (FF GP) is the person that used to be the cosponsor. That person has negotiated a cut of fees and carry with the main GP that actually operates the deal. The FF GP does not need to have a FINRA license, because they are now a GP of their own offering. In this arrangement, similar to the co-sponsor arrangement, if you reach out to the "main GP", you are NOT an investor with them. You are an investor in the Feeder Fund, and the Feeder Fund is the LP in the main GPs deal.
At the end of the day, the legal arrangement has changed, but the functional arrangement is basically the same.
The pro of a feeder fund is if you trust your FF GP and they are well connected, they can be performing due diligence on multiple operators. The downside is it is another layer of costs (legal, accounting, possibly more splits and fees), a second layer of communication, and effectively needing to vet two groups, the main GP and the FF GP.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Evan Polaski:
There is a lot of moving parts in this space, which is ever evolving.
Co-sponsors deals seem to have generally all but left. In this relationship, a (typically) unlicensed party raised money for the "main GP", and was given a share of the GP. In exchange they brought the capital and managed the Investor Relations for the investors this person brought to deal. In this scenario, typically, the actual LP (you, Cheryl) are invested in the actual offering led by the "main GP". There is one set of legal documents that you signed into the main offering, you funded the main bank account, you get a K-1 from the same entity as every other investor. A reason the "main GP" may be saying they don't want to deal with you is because per the SEC rules, GPs must have active involvement in the day to day of the actual offering, so if "main GP" starts doing the communication with you, it can be viewed as the co-sponsor no longer having active involvement, and create SEC scrutiny for all parties of the deal.
That SEC scrutiny did happen many years ago across the industry. It resulted in many "co-sponsors" getting their broker dealer license and raising capital for outside investments in a more black and white way. But there are a lot of "main GPs" that either don't know there was scrutiny or figure since there seemed to be no major action, the SEC blessed the relationship (but didn't change the rules, so who knows when it will rear its head again).
Enter the "Fund of Fund" model, which is more commonly truly a feeder Fund. A true fund of funds would mean the FoF raises capital into a single offering, and then that offering is invested across multiple other investments. A feeder fund is a single offering that is all funneled into another single offering. These were launched because all those "co-sponsors" that didn't want to get licensed needed a cleaner way to be in deals. High level, relationships remain the same. The Feeder Fund sponsor goes out and matches their network to a "main GP's" deal. The difference: the feeder fund is the LP in the "Main GPs" deal, and you are an LP in the feeder Fund. As such, you would sign docs for the feeder fund, you would send your investment to a bank account controlled by feeder fund, and the K-1 you are getting is from the feeder fund. Effectively, it just adds another layer. The Feeder Fund GP (FF GP) is the person that used to be the cosponsor. That person has negotiated a cut of fees and carry with the main GP that actually operates the deal. The FF GP does not need to have a FINRA license, because they are now a GP of their own offering. In this arrangement, similar to the co-sponsor arrangement, if you reach out to the "main GP", you are NOT an investor with them. You are an investor in the Feeder Fund, and the Feeder Fund is the LP in the main GPs deal.
At the end of the day, the legal arrangement has changed, but the functional arrangement is basically the same.
The pro of a feeder fund is if you trust your FF GP and they are well connected, they can be performing due diligence on multiple operators. The downside is it is another layer of costs (legal, accounting, possibly more splits and fees), a second layer of communication, and effectively needing to vet two groups, the main GP and the FF GP.
Kind of reminds me of RE wholesalers. .IE I am not selling RE there fore I dont need a license I am just selling a contract.. which this activity is being called out by the states as brokering without a license.. I could see the feds stepping in here and clean this up a tad if a bunch of these deals have or are going to go bad. - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Jay Hinrichs:
Quote from @Evan Polaski:
There is a lot of moving parts in this space, which is ever evolving.
Co-sponsors deals seem to have generally all but left. In this relationship, a (typically) unlicensed party raised money for the "main GP", and was given a share of the GP. In exchange they brought the capital and managed the Investor Relations for the investors this person brought to deal. In this scenario, typically, the actual LP (you, Cheryl) are invested in the actual offering led by the "main GP". There is one set of legal documents that you signed into the main offering, you funded the main bank account, you get a K-1 from the same entity as every other investor. A reason the "main GP" may be saying they don't want to deal with you is because per the SEC rules, GPs must have active involvement in the day to day of the actual offering, so if "main GP" starts doing the communication with you, it can be viewed as the co-sponsor no longer having active involvement, and create SEC scrutiny for all parties of the deal.
That SEC scrutiny did happen many years ago across the industry. It resulted in many "co-sponsors" getting their broker dealer license and raising capital for outside investments in a more black and white way. But there are a lot of "main GPs" that either don't know there was scrutiny or figure since there seemed to be no major action, the SEC blessed the relationship (but didn't change the rules, so who knows when it will rear its head again).
Enter the "Fund of Fund" model, which is more commonly truly a feeder Fund. A true fund of funds would mean the FoF raises capital into a single offering, and then that offering is invested across multiple other investments. A feeder fund is a single offering that is all funneled into another single offering. These were launched because all those "co-sponsors" that didn't want to get licensed needed a cleaner way to be in deals. High level, relationships remain the same. The Feeder Fund sponsor goes out and matches their network to a "main GP's" deal. The difference: the feeder fund is the LP in the "Main GPs" deal, and you are an LP in the feeder Fund. As such, you would sign docs for the feeder fund, you would send your investment to a bank account controlled by feeder fund, and the K-1 you are getting is from the feeder fund. Effectively, it just adds another layer. The Feeder Fund GP (FF GP) is the person that used to be the cosponsor. That person has negotiated a cut of fees and carry with the main GP that actually operates the deal. The FF GP does not need to have a FINRA license, because they are now a GP of their own offering. In this arrangement, similar to the co-sponsor arrangement, if you reach out to the "main GP", you are NOT an investor with them. You are an investor in the Feeder Fund, and the Feeder Fund is the LP in the main GPs deal.
At the end of the day, the legal arrangement has changed, but the functional arrangement is basically the same.
The pro of a feeder fund is if you trust your FF GP and they are well connected, they can be performing due diligence on multiple operators. The downside is it is another layer of costs (legal, accounting, possibly more splits and fees), a second layer of communication, and effectively needing to vet two groups, the main GP and the FF GP.
Kind of reminds me of RE wholesalers. .IE I am not selling RE there fore I dont need a license I am just selling a contract.. which this activity is being called out by the states as brokering without a license.. I could see the feds stepping in here and clean this up a tad if a bunch of these deals have or are going to go bad.Good video Mauricio posted here about co-gp's. As the dust continues to be stirred and slowly settles I believe regulators are going to be stepping in and really getting things under wraps as people have treated the past few years like the wild west. I think there are a lot of people who are going to realize they did not understand the trouble they are going to be getting themselves into.
7e investments53 Reviews - Investor · Newport Beach, CA · Member since 2019 · 190 posts · 176 votes2y
Quote from @Evan Polaski:
There is a lot of moving parts in this space, which is ever evolving.
Co-sponsors deals seem to have generally all but left. In this relationship, a (typically) unlicensed party raised money for the "main GP", and was given a share of the GP. In exchange they brought the capital and managed the Investor Relations for the investors this person brought to deal. In this scenario, typically, the actual LP (you, Cheryl) are invested in the actual offering led by the "main GP". There is one set of legal documents that you signed into the main offering, you funded the main bank account, you get a K-1 from the same entity as every other investor. A reason the "main GP" may be saying they don't want to deal with you is because per the SEC rules, GPs must have active involvement in the day to day of the actual offering, so if "main GP" starts doing the communication with you, it can be viewed as the co-sponsor no longer having active involvement, and create SEC scrutiny for all parties of the deal.
That SEC scrutiny did happen many years ago across the industry. It resulted in many "co-sponsors" getting their broker dealer license and raising capital for outside investments in a more black and white way. But there are a lot of "main GPs" that either don't know there was scrutiny or figure since there seemed to be no major action, the SEC blessed the relationship (but didn't change the rules, so who knows when it will rear its head again).
Enter the "Fund of Fund" model, which is more commonly truly a feeder Fund. A true fund of funds would mean the FoF raises capital into a single offering, and then that offering is invested across multiple other investments. A feeder fund is a single offering that is all funneled into another single offering. These were launched because all those "co-sponsors" that didn't want to get licensed needed a cleaner way to be in deals. High level, relationships remain the same. The Feeder Fund sponsor goes out and matches their network to a "main GP's" deal. The difference: the feeder fund is the LP in the "Main GPs" deal, and you are an LP in the feeder Fund. As such, you would sign docs for the feeder fund, you would send your investment to a bank account controlled by feeder fund, and the K-1 you are getting is from the feeder fund. Effectively, it just adds another layer. The Feeder Fund GP (FF GP) is the person that used to be the cosponsor. That person has negotiated a cut of fees and carry with the main GP that actually operates the deal. The FF GP does not need to have a FINRA license, because they are now a GP of their own offering. In this arrangement, similar to the co-sponsor arrangement, if you reach out to the "main GP", you are NOT an investor with them. You are an investor in the Feeder Fund, and the Feeder Fund is the LP in the main GPs deal.
At the end of the day, the legal arrangement has changed, but the functional arrangement is basically the same.
The pro of a feeder fund is if you trust your FF GP and they are well connected, they can be performing due diligence on multiple operators. The downside is it is another layer of costs (legal, accounting, possibly more splits and fees), a second layer of communication, and effectively needing to vet two groups, the main GP and the FF GP.
The other GP not having an active involvement because they stopped communicating with the investor is nowhere near as bad as the lead GP refusing to communicate with one of their LPs and she would be considered their LP in this structure. In the co-GP structure you're mentioning, each GP is equally responsible and liable for the actions, or in this case the lack of action, of the other GPs. Refusing to speak to an LP, whether the GP sourced the LP or not, is an SEC violation.
- Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes2y
@Bobby Larsen, I agree that, especially in a co-GP/co-sponsor structure where there is (or should be) a clear record of all LPs in the offering, it is on all GPs to make sure all LPs are communicated with.
If it is a feeder fund structure, legally I could see it being much more complex if the FF GP stops communicating. The main GP likely has no record of the Feeder Fund LPs, so has no obligation to communicate what is otherwise private information to an unknown 3rd party.
@Jay Hinrichs, I agree with your wholesaler analogy. While moving to the Fund of Funds or Feeder Fund model, as I understand it, is more clear cut than the capital raisers for hire model (co-GP/co-Sponsor), but all it takes is some marketing about how "easy" it is to launch a fund of funds, market your course to the world, and take any client that comes your way.
- Investor · UT · Member since 2018 · 33 posts · 26 votes2y
Quote from @Bobby Larsen:
Hi Cheryl - I would highly recommend that you speak with an securities attorney. It is well worth the small investment it would take for a consultation to understand what your rights and path forward are. To me, it sounds like you invested in a "fund of funds" which isn't a new structure but rather it's been newly weaponized amass large amounts of retail investments. Most of the time, these groups that are referring to themselves as the general partner, are not actually the general partner in the direct investment. They've simply created a legal entity in which they are the general partner to raise capital and then place that capital in the investments of other operators.
What the operator is likely saying is that you did not invest in the direct real estate investment offering, you invested in a llc/partnership that invested in the operator's direct real estate investment llc/partnership to acquire the property. This is purely an assumption though and one that can be confirmed if reviewing the operating/partnership agreements. Three questions: 1) Is the operating agreement you signed for the direct entity that owns the property or an entity which invested in another entity which owns the property? This can also be confusing because there is often what's called a "pass through" or "disregarded" entity in the structure. 2) Did the operator sign any of your subscription paperwork? 3) Did you wire funds directly into the operator's bank account or the co-GP/fund of funds bank account?
Either way, I would highly recommend seeking counsel if you aren't receiving clear communication. What might end of having to happen is that you seek a judgement/control of the fund of funds that you invested in which then has limited partner interest in the direct offering.
Hi Bobby, I also believe this is what is being asserted. The assertion is I invested with DFO, not directly with Waterford Grove LLC.
The investor OM is Waterford, Houston with three co-sponsors:
- Community Investment Properties
- Legacy Wealth Holding (operator)
- Djuric Family Office (now Blake Capital)
Three questions:
1) Is the operating agreement you signed for the direct entity that owns the property or an entity which invested in another entity which owns the property? This can also be confusing because there is often what's called a "pass through" or "disregarded" entity in the structure.
The operating agreement I received is:
OPERATING AGREEMENT OF WATERFORD GROVE HOUSTON LLC
Signed by all co-sponsors and Class B Members
Note: there are no LP signatures on the operating agreement.
2) Did the operator sign any of your subscription paperwork?
Note the xxx’s are my masking sensitive data.
The PPM I signed is:
PRIVATE PLACEMENT MEMORANDUM WATERFORD GROVE HOUSTON LLC
SUBSCRIPTION AGREEMENT
TO: WATERFORD GROVE HOUSTON LLC
Attn: xxx, Attorney
Address: xxx
Telephone: xxx
Email: xxx to lawyer at Legacy Wealth Holdings
Signed by the contact at DFO that brought me into the deal. His title is listed as manager.
3) Did you wire funds directly into the operator's bank account or the co-GP/fund of funds bank account? my funds were wired to Waterford Grove Houston, LLC
This was not explained pre-investment and there is absolutely nothing legally pointing to my investment with DFO, except for the K-1s I've received come from DFO Waterford LLC.
Where’s a good resource to find counsel?
Thanks, Cheryl
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