Rise48 Preferred Equity Fund / Capital Call?

[Account Closed]

Looks like another bad operator is at it again with an attempt to keep their poor investments alive, this time from Rise48. I received an email last week about the "opportunity" and watched Tyson Cobb's webinar. I've invested in two of the properties going into the fund and two others. I can't even understand how any of this is legal. Rise48 is raising preferred equity at a valuation that is not market, with income growth projections that are unreasonable, and putting $7,000,000 of new investor cash back in their pockets... $7,000,000!! and they're claiming that they are putting the first million into this fund. Math can sometimes be fuzzy for me but when you pay yourself $7 million and send back $1 million, you're not contributing. You're cashing out a net $6 million directly from investors that trust you with their savings.

https://41098383.hs-sites.com/share/hubspotvideo/18605256691...

https://www.wallstreetoasis.com/forum/real-estate/rise48-pos...

I believe this is the second attempt to raise preferred equity as well. First time was from investment companies but no one was interested, so now they're offering a 18% preferred return in hopes of getting more unsuspecting retail capital. I wanted them to sell these properties years ago but I guess I can officially say goodbye to my money. Is this not another form of a capital call? Needless to say, I won't be investing. Based on what I saw of the projections, this preferred equity investment will likely be instantly wiped out as well.

I know that there are a lot of ambitious capital raisers on this platform who have raised for Rise48 and I encourage you to please think about your investors before promoting bad investments again. I worked very hard for my money and I thought I was making sound investments with a trustworthy operator and it turns out to be the opposite, all the while being left in the dark until the last minute. These are a few of their oldest investments, so I'm assuming I'll be seeing similar "opportunities" on my other two investments in the future.

[Brian Burke]

Quote from @Frank Sichelle:

For example, Rise48 has made the statement on one of their capital calls that if you contribute additional funds, the new funds will not only be in a priority position in the capital stack (which is normal) but they will also move the initial capital of those who contribute additional funds to also be in a priority position above the initial capital of those who do not contribute. To me that's financial extortion saying "contribute additional funds or else...". I won't claim to know if that is legal or not but if there are any attorneys on the bigger pockets platform, I would be very curious to hear their opinion on whether a sponsor has the ability to unilaterally erase an investors capital.

It’s legal if the operating agreement says they can do this. Remedies for non-participation in a capital call should be spelled out in the operating agreement.

If I saw a provision allowing the sponsor to unilaterally create share classes with rights superior to my investment class at will, that would be a hard-stop for me as an investor. Even placing the newly-called capital in priority is questionable—but again it depends on what the operating agreement says.

Where this gets messy is if the operating agreement is silent on capital calls and remedies.