Anyone invest with Nighthawk Equity?
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Rental Property Investor · Pearland, TX · Member since 2018 · 8 posts · 30 votes
7yIn case anyone else finds this thread, a word of warning about Nighthawk or any other large syndication firm with an associated social media influence.
Media personalities (Nighthawk Equity/Micheal Blank, Rand Partners/Jake and Gino, Rod Khleif, Simple Passive Cashflow/Lane Kawaoka, etc..)will use their influence to build their brand/name first. Objectively the process works like this:
- Use their media (podcast, blog, etc.) to pool capital from listeners/viewers to gain access as GP on deal
- Create equity group as a standalone business
- Transition to a syndication coaching service
- Use coaching service (students) to bring deals to the equity business
Where an investor needs to be careful (I invested with one of the above), is how this translates to risk the LP takes on when they partner with the equity business. In my deal I thought the track history of multimedia personality would equate to lower risk on my first syndication investment. Not the case. Quite the opposite.
What I know believe to have happened is that a coached student brough the deal to the "face" of the equity group. Then the teacher, experienced member, face of the group will present it to investors as a deal they stamp their name and reputation on. What really happens is that seasoned GP members are there in name only. The inexperienced member(s) of the general partnership that brought the deal are left to manage the deal. The more experienced general partners see this as passive income stream. The general partners are not active in the deal post closing, they are there only to advise when things go wrong.
And wrong they went for my deal. I won't name the company but holding group I partnered with held over 75M and 2000+ doors before I decided to jump in with them. Here is a list of the issues that transpired with my deal:
- They pushed Closing date multiple times. Leaving investment money dead for two months by not doing anything.
- First distribution was one month behind
- First distribution was severely under Pro Forma (5K in utility overage)
First quarter operation saw overages in CAPEX (Pro Forma was off 10x actual figure) - Second and possibly third distributions canceled due to more utility and CAPEX overages (issue is still not resolved with property)
Initially, I thought this was just bad luck, and I acknowledged this kind of risk when I signed up for it. Now, I have changed my mind. The syndication now admits proper due diligence before closing was not done (they got ONE bid for repair work on a multimillion dollar property!). And they are in no rush to solve the issue. I'll tell you why.
It doesn't affect the general partners. Not one bit. Most syndications will advertise decent COC returns (mine was 7% at aquisistion moving towards 10% when property is unloaded) for the LPs and GPs get their cut on the exit. For my deal the occupancy is at 100%, reno is on schedule, rents are getting pushed, and capex items are getting addressed. Great for when the property is sold (again for GPs not LPs). But the mis-management hurts the LPs on the path to 5 year hold and release. My 7% (said to be a conservative figure) COC is now an actual 1.6% after one year.
I would have made more money by just putting my money in a online high yield savings account.
Maybe my experience is not typical, and I hope so but Bigger Pockets needs more truth on real estate. Even if you work with a team, some memebers will get the short end of the stick while others will profit exponentially more.
49 Replies
- Lawrenceville, GA · Member since 2019 · 11 posts · 1 vote7y
@Jesse Meyer I am totally new and just starting to learn. This was a very helpful post for a new comer like me. Thank you for the insights.
- Rental Property Investor · Pearland, TX · Member since 2018 · 8 posts · 30 votes7y
Originally posted by @Paul B.:
I find it hard to believe that a GP collects no cash flow. Usually it's split between LPs and GPs, with the GPs taking anywhere from 10-50% of it, which means they certainly have an incentive to improve operations of the property as soon as they can. Furthermore, you should be getting a cut of the proceeds of the sale (again, GPs will take 10-50% depending on deal structure), so even though cash flow is disappointing, you should make something on the sale, if the GPs manage to get a good sale price.
The GP collects cash flow in the form of a quarterly administration fee (or asset management). In my deal, 2% of NOI goes to GPs before LPs get their cut.
Jonathan has a great explanation of how anything less than stellar management will leave a limited partner with little or nothing to show for it at the exit.
To be clear, I am not saying what is happening to me is wrong(illegal) or even out of the norm of normal unexpected hiccups when working in multi-family real estate. What I am saying is that if you are like me and think single family will not scale fast enough and see multi-family syndication to fit your investment risk (7-10% COC and 15%IRR), be careful. Not that simple. Lack of experience, oversight, or attention to manage the property efficiently will kill your returns quicker than you might think.
Knowing what I know now, I would not invest with anyone that puts on any seminar or provides paid coaching. Those individuals are running puppy mills to suck you into an investment that you think is cute but after a year you are going to wake up next to a dog you really don't want.
Originally posted by @Jon Schwartz:
On the GP side, you want triples and home runs, but don't sweat it too much because even base hits will be financially rewarding. But on the LP side, a base hit can leave you with a very modest return (if not a modest loss). This is not a true alignment of interests.
Interesting analysis, and it's why I avoid the deals where the bulk of the GP earnings are made regardless of the deal's performance. Showing the graph of Scenario 2 would be telling. It's true that with an asset management fee the GP gets paid every month no matter what, but I have found those fees are not significant - though they can certainly add up if a GP has many deals going at once.
Originally posted by @Jon Schwartz:
Paul, I'm glad it's working out for you, but why would you prefer this to working with more experienced operators? I, too, get to know sponsors personally and I, too, decide first-hand whether or not to trust them. In my case, though, I avoid giving my money to anybody who hasn't been through a full economic cycle, for example. I suppose the discount in fees is attractive, but I'd invest in experience with market fees over investing in inexperience with discount fees any day.
Plus, how much did it cost you to put yourself in your situation? Since you're in Dallas, I'm just assuming you're a Brad Sumrok student. How many months/years of returns did you forfeit for the opportunity? I haven't paid anything to gain access to my preferred sponsors because they don't charge for it. Why would they??
I've been listening to a fantastic podcast called "The Dream" that explores multilevel marketing. What's scary is how similar the language of multifamily marketers is to the language used by guys like Sumrok and Khleif. Obviously Sumrok isn't running a pyramid scheme -- but with such a huge bull market in multifamily over the last ten years, is it getting close to one? What's the product? Multifamily buildings or the opportunity to provide capital to people who have previously signed up?
These are the things I worry about when reviewing OMs tainted by gurus...
If you have relationships with experienced operators who still offer investor-friendly deals, then it's the best of both worlds. I'm not in a position to put $100,000 or more into one deal, and many of their deals have a high minimum. I got my feet wet at only $25,000 for my first investment. That concern, of course, is irrelevant for those with a higher pool of capital to invest.
Yes, investing with a GP that was around before the last crash is absolutely an advantage. I'll admit that none of my sponsors were in real estate before 2012. However, they all were trained by someone who started in 2002. Is that enough? Well, I will say that almost every time I look at a deal outside the group, the underwriting is less conservative. None of the deals where I've invested have assumed that the party is going to continue for another 5-8 years.
As for the fees, they are not a total deal-breaker for me. In fact, my best performing investment had an acquisition fee. But I want to believe they are justified. At the end of the day, what is my return? If I can make 80% in five years with an inexperienced sponsor charging low fees, vs. 70% in five years with an experienced sponsor taking more fees, you're right, I might prefer the latter. But I do my own underwriting and adjust to what I think the return will be. If I think the deal with the inexperienced sponsor will get me 80%, and the other one will get me 70%, after adjusting for risk, then I might take the 80%.
As for how much I paid to get access to these sponsors, it was $3,997 to join the program for one year in 2016 (it has since gone up). There is a thread on this very site where I express hesitation to pay such a fee, then a few months later in the same thread I decide it was worthwhile after all. The common refrain on this site is, "Why spend money on education when you could be putting it into a deal and learning first-hand?" It may be good advice for single family, but in the large (100+ units) multi-family world, the amount I spent doesn't get you squat. You need to have enough money available to invest that a few thousand bucks doesn't move the needle in the grand scheme of things.
What did I get for that money? I got myself educated on multi-family investing and was able to attend student events where I can build relationships with GPs. Now, does that mean that one should definitely pay that fee and join a mentoring program? No, it is possible to get educated on your own for little money. I decided that compressing the learning curve to a few months was worthwhile, as opposed to just learning lessons myself the hard way over a few years. And do I need to be part of this club to invest with these sponsors? No, I could have met them at other events and got on their mailing list. (Note: There is another mentoring group here in Texas that does require its students to by paying members, at a much higher fee than I mentioned, in order to even invest passively. The group you mentioned by name, of which I am a member, does not have that policy.) But again, it's all about compressing the timeframe. I now get a new offering sent to me literally every week, which means I can be very selective in my investments. It might have taken me much longer to meet so many different GPs on my own. After meeting dozens of people doing deals, I narrowed myself down to 5-10 GPs that I have decided I like the best. Staying active in the group keeps me up to date on the market, and I see how much more aggressive other groups are being, relatively speaking (e.g. rent growth too optimistic, exit CAP rate too low). With a typical investment of $50,000 to get into one deal, I decided that $4,000 was like an insurance policy, since I would surely lose more than that on one bad deal. To answer your question about how much investment returns I've sacrificed, I guess one could say the opportunity cost of that $4,000 is $400 per year if I had invested it and made a 10% return. Alternatively, I suppose I will have to invest $50,000 and make an 8% return for one year to recoup my money. Now that I have invested in several deals, that initial investment gets comparatively smaller with each one. I'm not here to sell the program....I'm just saying that joining it was a worthwhile investment for me, even nearly four years later. You mileage may vary. If nothing else, it got me to take action. Today I have enough invested in multi-family that a few thousand bucks is trivial.
I also have my concerns about how much longer this bull market can go, but that's a separate discussion altogether. Will the mentorship programs be to blame when the bubble bursts? They certainly got more people into the game, which naturally drives up prices and compresses returns. On the other hand, one might argue that if the paid mentors are teaching conservative underwriting, and their students are following the lessons, then perhaps it would be even more crazy out there without them.
- Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes7y
@Paul B., I hate to sound like a shrew, but for the benefit of anybody who's following this thread, I have to counter some of your points...
I'd much rather expect a 70% return from an experienced sponsor than an 80% return from an inexperienced sponsor because we'll almost definitely experience a recession in the next five years. The experienced sponsor offers downside protection. Put another way, I'd rather see my return fall a little short of 70% than well short of 80%.
"Conservative underwriting" is an underused buzz word. Again, if you dig into the numbers, you'll see that outgoing cap rate can manipulate an investment's pro forma far more than any other metric. So if an inexperienced sponsor boasts "conservative underwriting" because they pace rent growth at inflation instead of its current, above-average rate of growth, but then underestimates cap rate decompression by 50 or basis points -- well, that's not actually conservative underwriting. Cap rate compression over the last decade has made people rich much more so than rent growth or smart management. Gurus won't share that tidbit with you.
Please don't confuse correlation with causation. I think joining a program naturally correlates with diving in -- but you don't need to join a program in order to dive in! A person could read books, listen to podcasts, go to meetups, earnestly befriend experienced syndicators in their market (as I have been fortunate to do), schedule calls with national sponsors to ask questions, sign up for sponsors' email lists, etc etc etc... without paying anybody for the privilege. A person could do all of this in a few months, not years.
Paul, I appreciate our exchange, and I don't mean to be rude! I'm writing for the BP family, not just to attack, I promise!
Question for you: did you learn anything in your program about SEC pitfalls when it comes to raising capital? What I've found in LA is that the sponsors aligned with gurus tend to play fast and loose with the SEC regulations around unlicensed broker-dealers. These capital raisers' sentiment is, "Well, so long as I'm a part of the GP, it's legal. And being a part of the GP means visiting the property and looking at the underwriting, which I'm doing, so it's legal." According to my lawyer, that's not actually true. Licensed broker-dealers perform due diligence on the securities they offer their clients. Licensed broker-dealers maintain long-term relationships with their clients, too -- so claiming "investor relations" as a responsibility outside of raising capital is actually baloney. They say everything's fine until it's not, and I'm worried about the unsophisticated investors in these large programs who might lose their money when savvy investors file SEC complaints and sue as soon as the bull market ends. Has this come up in your program?
- Investor · Passiveadvantage.com · Member since 2019 · 166 posts · 91 votes7y
@Jon Schwartz do you happen to have excel sheets to share with those assumptions and graph output to evaluate syndication assumptions?
Thanks
Duke
- Rental Property Investor · DFW TX · Member since 2018 · 179 posts · 260 votes7y
The original question was about Michael Blank's Nighthawk; I have no opinion about him or his deals, though his name has come up many times.
But then someone decided to besmirch my mentor, Brad Sumrok! So this may be a little bit defensive, I apologize. I met Brad in 2010, me knowing near nothing about RE. I am a engineer and had some available savings to invest. After seeing the MF presentation, I liked the math and jumped in as an LP. Brad provided the training to become sophisticated and the network to meet more GP than I could imagine. This allowed me to go FAST! There have been a few horror stories, but the training and discussion in the group have helped me work past the issues, for instance, I became the GP on a couple occasions.
To date, I've entered 50 MF deals, 14 of those have sold and 4 have gotten supplemental loans, returning more than my initial investment - a friend pointed out, I'm playing on the house! I continued working for about 6 years, but the alternate income was a very convenient feeling (just in case!). I recall a discussion before learning about RE, where I said I could control my expenses, but I could not control my income; RE changed that.
In summary, Brad has made me more wealthy than I ever expected. As my wife worked for an airline, so I phrase it "We moved from a coach retirement to a first-class retirement". I can't say other Mentors are worse! I can't say one has to have a mentor. But a mentor will move you up the curve so much faster! And it is comforting to know that Brad, having started in 2002, looks over the deals.
You have to work out the Mentor cost-benefit for your self! Mentors are not charities!
Inside the Sumrok Network, there are hundreds of folks, who are current deal sponsors and potential deal sponsors. The big advantage to me is that I get to meet the vast number of them and "go shopping" for leads. I find the leads, then wait for them to send a deal and look at that. Currently, I seem a couple deals a week.
Some random comments about MF (which are worth what you are paying for them):
* I have attempted to create a "MF Ladder", similar to a bond ladder that old folks used to have. Every year a few sell and I buy a few. Three have sold so far this year and three more may sell. Two of those may push until next year. I think MF is better than bonds!
* It is true LPs have limited control: I don't have control over the sales - very true! I have some control on the purchase, but not much as it may slip. If you have to be in control, be a GP or stay in SF.
* The goal "I want $10K/month passive income" cause me some pause. I'm not sure I have that from cash-on-cash (CoC) distributions (I'm close). But if I include the sales, I may see $40K/mo or thereabouts, but a lot of it in big lumps.
* The CoC may or may not happen, so think of this as vacation money, not eat'in money. On one deal we had two guys in two cars hit two buildings in a week and drive off. Most of the Sumrok group deals do not have a Preferred Return. We can have a math debate on this, but if a deal is struggling, it won't be paying.
* The investment is long-term and illiquid. The normal Sumrok group deal is "3 to 5 years". Be sure you don't need the funds for a while. I got into about 3 deals each year for the first five years. It was about year 5 when the sales started.
* Returns were about 100% in the past ($200K total returned for $100K invested), but have drifted down to an expectation of 70% to 80%. As I have seen 180% when the expected was 100%, I have hope that I will still see some home-runs.
* Total return is the sum of CoC and the pop at the end. So for $100K invested and 10% CoC on a 5 year deal with 80% total return, the deal is saying you should expect $10K each year (likey $2.5/quarter) and about $30K at the end, in addition to your $100K returned.
* I like to consider IRR, the measurement that takes time value of money into account. Money returned sooner is more valuable. The IRR is effectively the annualized rate of return. I look at it getting in, but I like to use it as a figure of merit after the deal to which deals were the better deals.
To be clear, I do NOT work for Brad. I do volunteer at many of his events - if you should come, say hi!Regards,
Charles LeMaire
Originally posted by @Jon Schwartz:
@Paul B., I hate to sound like a shrew, but for the benefit of anybody who's following this thread, I have to counter some of your points...
"Conservative underwriting" is an underused buzz word.
I think this is a typo and you meant to say "overused." Everyone claims to be the real conservative and the others are just pretending to be. You'd think it's a Republican primary debate. Anyway, I am not really going to argue with the rest of your post. It's true you don't NEED a mentor. But many, including myself, have found it to be valuable and I got my money's worth several times over.
Anyway, I appreciate the civil debate.
Originally posted by @Jon Schwartz:
Question for you: did you learn anything in your program about SEC pitfalls when it comes to raising capital? What I've found in LA is that the sponsors aligned with gurus tend to play fast and loose with the SEC regulations around unlicensed broker-dealers. These capital raisers' sentiment is, "Well, so long as I'm a part of the GP, it's legal. And being a part of the GP means visiting the property and looking at the underwriting, which I'm doing, so it's legal." According to my lawyer, that's not actually true. Licensed broker-dealers perform due diligence on the securities they offer their clients. Licensed broker-dealers maintain long-term relationships with their clients, too -- so claiming "investor relations" as a responsibility outside of raising capital is actually baloney. They say everything's fine until it's not, and I'm worried about the unsophisticated investors in these large programs who might lose their money when savvy investors file SEC complaints and sue as soon as the bull market ends. Has this come up in your program?
Yes, I have definitely heard more talk of that issue recently. I just attended an event last week where Gene Trowbridge, Merrill Kaliser, and Mauricio Rauld spoke (all syndication attorneys). Mauricio talked about how people have been bending the rules about raising money, and many will be sorry when the deals don't go well and it goes under scrutiny by the SEC. I am pretty sure he has posted videos on Facebook discussing the same matter. I recommend following him if you aren't already. The gist of it is that raising money for others is not legal, unless you are a registered broker-dealer, or a GP, with the catch being that raising money is not enough of a role to be considered a GP. So far I don't think any of my fellow students have been accused of crossing that line, but I will say that SEC compliance is a high concern of Brad's and he has had Gene give webinars on several other SEC-related subjects (e.g. solicitation of investors, and even what is an acceptable Facebook post) to his students. So there is no way Brad would overlook this transgression if he thought it was happening in his program.
- 6yPaul MoorePro MemberCommercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
It is a very tough time to find good deals in multifamily. But I will say that Michael Blank/Nighthawk is locating more deals than most these days. And he is a high-integrity individual with a great team.
- Investor · Passiveadvantage.com · Member since 2019 · 166 posts · 91 votes6y
Would be interesting to have the excel sheets used in these examples to test different scenarios from an LP perspective with the associated graphs.
- Investor · Cary, NC · Member since 2012 · 218 posts · 196 votes5y
I've invested with Nighthawk on a property in Huntsville, AL about 1 year ago - and my experience has been good so far and they are exceeding their projections. If anyone wants more info you can message me.
- Rental Property Investor · Los Angeles, CA · Member since 2018 · 88 posts · 22 votes5y
Sending you a PM @Dan Rowley
- Rental Property Investor · Pearland, TX · Member since 2018 · 8 posts · 30 votes4y
Real world numbers 3 years into the syndication I invested in:
COC return 2019 = 1.6%
COC return 2020 = 1.0%
COC return 2021 = 1.0%This is with occupancy of 95% plus, remodeling units, and pushing rents higher.
Don't expect large big name syndicates to return 6-7% COC on their reputation alone. Before you make any commitment, have a clear understanding of what happens when projections are missed, budgets are broken, and unexpected items occur. Require clear transparency on where NOI is dispersed.
Don't provide an interest free loan for someone else to build up their brand and get the lion share when it's time to exit. - Investor · Miami · Member since 2022 · 48 posts · 48 votes4yDan,
Quote from @Dan Rowley:
I've invested with Nighthawk on a property in Huntsville, AL about 1 year ago - and my experience has been good so far and they are exceeding their projections. If anyone wants more info you can message me.
You are another year into the deal...how is it going? Debating on joining on an upcoming deal with Nighthawk. Would love to chat with you if you are up for it.
Thanks! - Rental Property Investor · Pearland, TX · Member since 2018 · 8 posts · 30 votes3y
Thought I would update with current return.
At the beginning of 2023 my current annualized rate of return is 0.0091%. Syndicator proposal was to unload property after 5 years (next year) and that seems like a pipe dream now. 2 years without a distribution and now on the 3rd PM. Again this is the real performance from a huge syndicator with a podcast and huge online presence.To be clear, I understand this was a flop but to go this bad is something else entirely. The transparency is also gone as well because pointed questions get vague answers. Financial statements have not been released to LPs in over 6 months. No timeframe of when property will be potentially generating cash flow again.
- 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Jesse Meyer:
Thought I would update with current return.
At the beginning of 2023 my current annualized rate of return is 0.0091%. Syndicator proposal was to unload property after 5 years (next year) and that seems like a pipe dream now. 2 years without a distribution and now on the 3rd PM. Again this is the real performance from a huge syndicator with a podcast and huge online presence.To be clear, I understand this was a flop but to go this bad is something else entirely. The transparency is also gone as well because pointed questions get vague answers. Financial statements have not been released to LPs in over 6 months. No timeframe of when property will be potentially generating cash flow again.
what kind of property was / is it ? C class B class that has tenant issues that can never be solved? beat up units constantly ? that kind of thing. just curious. - Rental Property Investor · Pearland, TX · Member since 2018 · 8 posts · 30 votes3y
Right on the line between c and b class. Delinquency.
I wonder what right do LPs have, if any, in this situation.
- Member since 2024 · 3 posts · 1 vote2y
- Member since 2024 · 3 posts · 1 vote2y
Unfortunately. Our investment with him is about to go back to the bank. We'll lose over $100k. Awful. Do your due diligence on this firm.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes2y
Quote from @Account Closed:
Unfortunately. Our investment with him is about to go back to the bank. We'll lose over $100k. Awful. Do your due diligence on this firm.
Sorry to hear. Which property?
- 2yMelanie P.Pro MemberRental Property Investor · Member since 2023 · 1k+ posts · 922 votes
Quote from @Account Closed:
Unfortunately. Our investment with him is about to go back to the bank. We'll lose over $100k. Awful. Do your due diligence on this firm.
This thread is four years old. If you had put that $100,000 into any local real estate of your own do you have any idea the type of gains you'd have over four years.
Do not send your money to investment promoters of any kind that you learn about in podcasts, on the internet, social media, etc. It's absolutely crazy that people are still dumb enough to fall for this stuff.
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