Seeking Capital Call guidance/advice.

[Danny Skolnick]

I am a current LP investor with Rise 48. Two of my investments are now experiencing capital calls.

Rise 48 went from “never having done a capital call” to having done capital calls on 21 of their properties.

I would like to know how many of you here are in the same situation, if you decided to contribute to the Capital Call and why.

This is not intended to disparage Rise 48 in anyway however, my intent here is to discover how other LPs are navigating their Capital Calls and how/why they are making the decision they are making.

Even if you’re not exposed to the Rise 48 Capital calls but you have experience and input please share.

Do you believe their new underwriting ? Do you believe in their Co Star Cap Rate projections ?

If you contributed, why do you still believe and trust in their ability?

I’ve watched all the webinars and asked personal questions. Most of my questions have been answered however, based on the original pitch slides compared to the current pitch for new capital I’m having a hard time with further trust and credibility in Rise. Why? Well, Rise has a few explanations as to why they need to do so many capital calls and understandably they center around interest rates along with supply and demand, concessions etc. However, I’m not convinced that in the first 21 acquisitions they simply weren’t experienced enough and I was foolish enough to trust them. Now, with more experience they need more of my capital to correct their mistakes.

One particular item that bothers me the most is in their original pitch deck breakeven analysis, they stated: “We have $5,112,000 of cash reserves in place that are not allocated to anything. This means the property could be at 50% occupancy for over 5 consecutive years and we have enough reserves to cover all expenses and debt service without doing a cash call.”

Their Response to me referring to this statement was,

“The analysis above assumed rates would not increase this significantly. We assumed rates would increase by 200 basis points over 2 years. Rates increased by 550 basis points in 13 months. Since inception, the property was negatively cash flowing due to the increase in interest rates. We funded the debt service shortfalls and did distributions to investors out of cash reserves as we thought we had plenty of runway for rates to come down. We thought we could outrun the market by renovating the interiors and pushing NOI. However, the rates remained high throughout ownership. We effectively burned through all of the reserves in covering debt shortfalls and distributions.”

The above does not sit well with me at all. Should it ? 

Also, they are offering a “corporate guarantee” to LPs who contribute twice the capital call amount. I reviewed the long legal document on the corporate guarantee and again it wasn’t reassuring. The corporate guarantee can be dismissed via a bankruptcy declaration, etc.

Below is another exchange that does not maintain or build trust in underwriting and assumptions moving forward.

Your original pitch deck shows at 6.6% rate you could still provide returns. What happened? Why are you not able to meet your original pitch ? The 6.6% assumed rates would slowly climbe over 2-3 years and rental market would stay strong. Under that scenario, we would have been able to withstand the issues. Unfortunatley, the commercial real estate rental market flipped in the second half of 2022. Instead of 3-5% annual rent growth, we got -3% average annual rent growth for the past three years. We also have been inundated with a soft market due to the significant supply hitting the market. We did everything we could to continue pushing NOI but market forces have effectively resulted in us not being able to push NOI as much as we asssumed in the original UW. **Misspelling is within Rise48’s response to me**

The specific property referenced above never really had any conveyance of distress for the 3 years of monthly reporting. Yes, the distributions were paused and the DSCR was very low however, Rise never conveyed in layman's terms that the property was doing so poorly. Nor, did they share they had paid distributions from reserves. Also, they quickly refuted an article by the RealDeal about their DSCR's

To be clear this is not intended to disparage Rise 48 however, outside of communicating with Rise I have no other medium of exchange on this manner to seek discovery of information. Additionally, discussing this with Rise 48 further is IMO, a conflict of interest as they want my money and I don’t want to give any more.

If you can provide insight or experience here I’d sincerely appreciate it. Thank You!