All Forum Posts by: Jason Merchey

Oh, ok I hadn't considered that. So you are saying that Ashcroft Capital has not been served with a lawsuit by one or more disgruntled investors in the last say, three months. OK good to know, I was nervous there for a minute!

Oh ya I find stocks to be discomfitting investments, or as James says, gambles. You are basically holding a tiny fraction of ownership of a publicly traded company you know a little bit about--and there is much you do not know. Some companies will pay you 1%, 2%, 3% or so of your value of shares in dividends--the "profit" from owning these shares. Now, you can conceivably sell for more than you bought the shares for--if everyone else in the market is pretty sure that selling is a bad idea (that's why they want to pay you more than you paid for that sliver of the ownership). Or you could sell for less than you paid, which is a principal loss. Furthermore, the government and states tax you 20%, 30%, maybe 40% of your principal gain and keeps that (for the first year, or maybe 20% after that). Which means you really need to be lucky, or perseverent, or both, in order to come out ahead. Now, the market has gone up about 8% throughout its history (taxes aside) but in some time periods you might lose 40% of the value of the shares you have. You have no hard assets. The value of these shares are very much based on the psychology of the buyers/sellers, and the short term profit predictions/results of the companies--and "investors" are very fickle and easily spooked and companies are pretty hard to get your head around. Many of the companies that were in business in prior years went out of business while shares were held by the public. Operators of the business play financial games as well. Finally, put a mad man in charge of a country and some weird stuff can happen to the values and the velocities of companies--as we saw with Germany in the 1930s and are seeing in the United States right now.

Quote from @Jay Hinrichs:

Quote from @Jason Merchey:

Quote from @Jay Hinrichs:

Quote from @Kristi K.:

Quote from @JD Martin:

Quote from @David Pike:

If you invested $100k and then put $19k in for the capital call, you would potentially get your capital call back ($19K) plus 25% of the $100k so $25k.

So you're looking at either a $75k loss if you gamble the $19k, a $100k loss if you don't participate and are wiped out, or a $119k loss if you participate but are still wiped out. That's too big a gap for me; I'd have to just eat the current loss and move on. If you had better than house odds at being made whole, it might make sense but there's just no upside here. What a shame. I haven't reread the thread but I know I remember some people predicting the cap call on #1 would just be the beginning. 

Edit: I went back and read the whole thread, which is not the big thread that's been going for a while. Wow. It looks to me like, prompted or not, a lot of cheerleaders showed up to encourage the OP to dive on in, the water is fine. I'd be interested in seeing how many of those posters are still around these days.  

This article came out yesterday. It doesn't really say much though

 https://heraldspost.com/ashcroft-capital-lawsuit/

the article just brings up what every lawyer says when a deal goes bad..  nothing new here.
In hindsight limited partners maybe should have just invested with  companies that took on NO debt and lived with the return you know 4 to 5% .. plus any appreciation over time.  It was industry competing for the same investor dollars on the same assets so you need leverage to juice returns.. we see it on BP all the time.. the Max leverage refi till you die get max doors investors.. And the pay cash own less doors smaller returns sleep well investors.. Personal choice right ?

I personally think leverage is appropriate for syndications, and isn't the principal cause of the kind of financial distress I'm hearing about and seeing on my statements. I have other sponsors who are in the <69% LTV range and they are just experiencing some difficulties but nowhere near capital calling. I would say your standard, fairly responsible 2017-2022 era syndication nowadays might be experiencing challenges in distributing income, but still maintaining the asset well, achieving occupancies in the >89% range, and seeing rent growth of (2%) to +1%. Certainly they are nowhere near being able to sell for a profit. If they used variable rate financing, they are probably out to sea with no wind. My best funds are showing 3.0-3.5% returns annualized at this time, and my least healthy called up $2m in capital, or in the case of Ashcroft, brought in some new investor capital to shore things up. I guess I should be happy that Ashcroft is keeping the lights on, all things considered....
All in all it's not a great time to hold a 2-5 year old syndication I believe. But, those who can survive will still be able to get to a positive IRR and no loss of investor capital, I believe.

well sure hope thats the case.. these companies that go busto are going to affect new companies trying to raise dollars today.. kind of like in 2011 when I was trying to cobble investor money together and so many had been wiped out in 08 to 2010 people just where sitting on their cash.. it was frustrating the best buying opportunity of the last 100 years and investors too conservative to make a move.. one particular deal  100 lot subdivision in ATL metro all done shovel ready I had in escrow for get this 100k total 1k a lot.. And investors were like ya but it does not cash flow :)  3 years later those sold for 35k a lot..  I did manage to buy one 15 lot deals for 3k a lot and sold within 18 months for 30k per lot.. So there are going to be deals now and in the near future but investor who have lost or are tied up wont particpate because of past history or they are simply out of bullits..

I hear you. But the best investors will be opportunistic and nimble and get deals taken down, and then institutional money will flow into the scene, and voila--a new cycle begins. All this predicated on the idea that the economy isn't forced into recession--that will definitely hamper NOI growth.

As to my two cents, I think it depends on a sponsor's strengths and characteristics and strategy. So for example, with one sponsor I like and trust, their fund started in I think 2021, and they use variable rate financing + rate caps to be nimble and able to sell an asset without a grossly high disposition fee. It's a strategy that works beautifully in a rising market. In a falling market, one can get stuck paying rate caps and never getting the chance to sell for a profit. However, in I think 2022 they sold an asset held for 12-18 months and the IRR was through the roof! But that party quickly ended and now it's akin to being out to sea with no wind.

So when you ask if I'm into MF in 2025, well I think certain sponsors have certain arrows in their quivers that allow them to take down assets even in this market--after all, with NOI down 20-25%, and therefore values, it's a good time to buy if you can. I have seen some sponsors do so, and time will tell if they were loaded for bear and are able to sell when the market improves, thus making it a success, or if like Brian Burke points out, it's wiser to keep the powder dry and wait for unambiguous signs that the market is on the way up--when more institutional capital enters the scene and pushes cap rates down, among other factors.

One thing I would point out though is that I believe the Trump Administation through its extreme ideology, incompetence, and foul intentions--and sometimes a noxious combination of all three--is what really causes me to hesitate even at a time that most would consider to be the bottom of the market. I say this because if the rule of law means nothing, and if the economy is endangered by the Emperor with no clothes, then recession and inflation or even stagflation are on the horizon--and in that case investing in MF in 2025 is folly.

So I am torn between trying to dollar cost average into new MF syndications now that a lot of the pie-in-the-sky type syndicators have either been caught standing when the music stops or--as in the case of one of my other sponsors--having iterally been sued for malfeasance. And, on the other hand, keep my powder dry and worry I'm missing a great opportunity to invest with NOIs are quite low and cap rates are not particularly compressed....

I have read Burke's book, but I would love a crystal ball.....

Quote from @Brian Burke:

It depends on how you define multifamily investing.  Small stuff, like duplexes, 4-plexes, even 20-unit type of stuff is still viable for wealth building over the long term if you can find long-term financing such as local bank debt, and you are in a decent rental market.

If you define it as large multifamily, such as 100-unit and up apartment complexes, it gets more complicated.  This sector has been virtually un-investable for over three years, and remains so today.  It pains me to say it because this has been my primary business for over two decades and no one likes to see their industry non-viable, but I just have to call balls and strikes.  I sold 3/4 of my portfolio in 2021 and 2022 and my only wish is that I could have sold it all.

Maybe in a year or two I'll see the signs that point to a good re-entry point.  Today is certainly better than any time in the last three years, but there is just no rush--bottoming will be a process, not an event.

Bri you know I respect you, but I think that larger firms have been taking down investments in all parts of the cycle. Their cash flow projections (and payments) are down from 5 years ago, but with 5.0% fixed institutional money for ten years (more or less) and vertical integration and great reputations in the industry and good renovation plans/capabilities, they have not been unwilling to pull the trigger on new acquisitions.

Now, this is either because they are fools and are addicted to getting their funds filled out with assets because like the proverbial shark they can't not keep moving forward. Or, they have the juice to pick up deals from distressed investors as NOI pressures caused values to drop 20%+. You know what they say, buy low/sell high. I appreciate your perspective, and I think it's wise to use prudent judgment and to play for time if the many deals you see from week to week are just not penciling based on Praxis' strategies and strengths.

So I suppose time will tell if my other sponsors were fools these past two years or were simply opportunistic and all-weather-investors.

Quote from @Kristi K.:

Quote from @JD Martin:

Quote from @David Pike:

If you invested $100k and then put $19k in for the capital call, you would potentially get your capital call back ($19K) plus 25% of the $100k so $25k.

So you're looking at either a $75k loss if you gamble the $19k, a $100k loss if you don't participate and are wiped out, or a $119k loss if you participate but are still wiped out. That's too big a gap for me; I'd have to just eat the current loss and move on. If you had better than house odds at being made whole, it might make sense but there's just no upside here. What a shame. I haven't reread the thread but I know I remember some people predicting the cap call on #1 would just be the beginning. 

Edit: I went back and read the whole thread, which is not the big thread that's been going for a while. Wow. It looks to me like, prompted or not, a lot of cheerleaders showed up to encourage the OP to dive on in, the water is fine. I'd be interested in seeing how many of those posters are still around these days.  

This article came out yesterday. It doesn't really say much though

 https://heraldspost.com/ashcroft-capital-lawsuit/

Holy wow! I had no idea this was occurring. I guess the company is not going to send out an email saying Hey we are in big trouble, we just wanted you to know! Now I am feeling anxious, but tentatively pleased to think that in the case of one of my syndications, when trouble came they brought in investor capital, which will ultimately affect the IRR because now there are more mouths to feed, but it allowed them to play to time and hope for a time when the market will allow a sale for a profit. It was the responsible thing to do, I suppose, and probably easier to swallow than a capital call. And as I mentioned, with my other Ashcroft syndication, they paused distributions for Class B investors and are paying Class A. Anyway I just don't know enough about Ashcroft to make determinations about what if any blame the team holds, but I can't say I am happy about this news.

Quote from @Jay Hinrichs:

Quote from @Kristi K.:

Quote from @JD Martin:

Quote from @David Pike:

If you invested $100k and then put $19k in for the capital call, you would potentially get your capital call back ($19K) plus 25% of the $100k so $25k.

So you're looking at either a $75k loss if you gamble the $19k, a $100k loss if you don't participate and are wiped out, or a $119k loss if you participate but are still wiped out. That's too big a gap for me; I'd have to just eat the current loss and move on. If you had better than house odds at being made whole, it might make sense but there's just no upside here. What a shame. I haven't reread the thread but I know I remember some people predicting the cap call on #1 would just be the beginning. 

Edit: I went back and read the whole thread, which is not the big thread that's been going for a while. Wow. It looks to me like, prompted or not, a lot of cheerleaders showed up to encourage the OP to dive on in, the water is fine. I'd be interested in seeing how many of those posters are still around these days.  

This article came out yesterday. It doesn't really say much though

 https://heraldspost.com/ashcroft-capital-lawsuit/

the article just brings up what every lawyer says when a deal goes bad..  nothing new here.
In hindsight limited partners maybe should have just invested with  companies that took on NO debt and lived with the return you know 4 to 5% .. plus any appreciation over time.  It was industry competing for the same investor dollars on the same assets so you need leverage to juice returns.. we see it on BP all the time.. the Max leverage refi till you die get max doors investors.. And the pay cash own less doors smaller returns sleep well investors.. Personal choice right ?

I personally think leverage is appropriate for syndications, and isn't the principal cause of the kind of financial distress I'm hearing about and seeing on my statements. I have other sponsors who are in the <69% LTV range and they are just experiencing some difficulties but nowhere near capital calling. I would say your standard, fairly responsible 2017-2022 era syndication nowadays might be experiencing challenges in distributing income, but still maintaining the asset well, achieving occupancies in the >89% range, and seeing rent growth of (2%) to +1%. Certainly they are nowhere near being able to sell for a profit. If they used variable rate financing, they are probably out to sea with no wind. My best funds are showing 3.0-3.5% returns annualized at this time, and my least healthy called up $2m in capital, or in the case of Ashcroft, brought in some new investor capital to shore things up. I guess I should be happy that Ashcroft is keeping the lights on, all things considered....
All in all it's not a great time to hold a 2-5 year old syndication I believe. But, those who can survive will still be able to get to a positive IRR and no loss of investor capital, I believe.

My personal experience is that I had high hopes and they talked a good game. On one of my deals, I'm seeing lower than hoped for occupancy and NOI, and distributions have been reduced by about 3/4ths. On the other, I believe distributions have stopped for Class B investors, but Class A investors are still receiving the agreed-upon amount. Overall I'm disappointed of course.

Quote from @David Pike:

I'm an investor in Fund 2. They just issued a 19% capital call. If everyone participates, the best case scenario is that they lose 75% of your investment. This is beyond disappointing. They over-paid for and over-levered the properties in Fund 2 not to mention not diversifying geographically. Stay away from Ashcroft. 

Yikes! I bet Joe F. is not so confident about his and the other leaders' abilities to figure things out now.........

Well this truly validates stuff I remember reading in Brian Burke's book about how the sponsor and the decisions they make and the operations they run are CRITICAL in the success or failure of a syndication/fund. Also how "fairly new" is a recipe for, as he puts it, "like a pilot who is inexperienced, such a GP might just be flying you to the scene of the crash."