All Forum Posts by: Forest Wu

No one wants to name names and understandably so. I think any list of bad sponsors needs to be broken down into two categories: 1) Inexperienced sponsors that got caught up in a rising interest rate environment, and 2) Bad sponsors that are either acting malicious and/or greedy.

There are many many many sponsors, particularly those on BP and raising capital on social media, that fall within the first category.

Category #1 - Inexperienced Sponsors:

Ashcroft, Opendoor, Elevate, Western Wealth, Tides, ZMR, GVA

Category #2 - Malicious/Greedy sponsors:

Appleway, Nitya, Rise48, any "fund of fund" sponsor that's come out of Rise 48, Grant Cardone, Affinity, Nightingdale, Rockstar Capital

This is just a short list but I think it's important to protect LPs. The wall street oasis community does a good job at calling out the terrible sponsors. https://www.wallstreetoasis.com/forum/real-estate/mf-syndica...

@Gino Barbaro 

As 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. 

@Forest Wu

I recorded a podcast with Ash Patel yesterday from Best Ever, and he made a great point. LPs have been enriched, just like Gps the past ten years. The market has corrected the past two years, and now everyone is complaining. I rarely heard anyone thanking GPs for their 20+ IRR for over a decade.

I just sold our third syndication two months ago with a 20+ IRR, averaging over 20 IRR for three syndications. Unfortunately, it is human nature to complain much more than it is to be grateful.

There are good deals out there and good sponsors. 

Gino

Goinvestclearly has some of these rankings. And, if you want to really see how LPs feel in a non public environment, there’s an “LP only” forum on Left Field Investors that discussed “red flag” sponsors that investors won’t work with again. 

@Forest Wu

There are companies out there that have GPs on their platform, and rank them. Check out --> go invest clearly.

Why don't we also put a list of good GPs, which there are a lot. And from my experience, I think investors who are investing passively bear some of the responsibility. When I invested in my first syndication over 20 years ago, the lead was terrible, but if I had known how to vet a sponsor, done underwriting, due diligence, I would have avoided the deal.

Gino

Don't forget mortgage notes.  Returns of 12% with a 3 year hold. Not a bad way to diversify and beats most asset classes on a cash on cash basis. No need to chase future yields when you get 12% out of the gate!

Thanks for the vote of confidence in my investments :) . 

Hoping to keep things cordial and keep away from the personal attacks but I estimated wrong.