All Forum Posts by: Zach Haptonstall

Just another big sponsor threatening the smaller community for providing transparency... typical.

@Zach Haptonstall Please let me know where I made false accusations and I will gladly recant my statements. I tried to include all supporting information, links, articles, etc. where possible. In regards to the two items you noted:

1) The unilateral decisions referenced was an open question for a member of the community hopefully with a legal background to opine because I said I did not have one. 

2) The comment regarding "closer to a ponzi scheme" is in reference to the practice of claiming positive financial leverage on loans that have an interest rate falsely giving the illusion of positive leverage because interest has been prepaid either through a buydown or a lower than market interest rate cap. What this means is that investor's initial capital contribution is used to artificially inflate cashflow from operations and distributions. I made no reference to Rise48 being a ponzi scheme. Please let me know if this method is not used by Rise48 and I will even make sure to recant my statement regarding claiming positive financial leverage.

I believe those were the two items that you noted but please let me know if I was incorrect about anything else (number of capital calls, repayment of funds to Rise48, valuations, etc.).

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.

Quote from @Jeremy Dyer:

We want to ensure we understand your concerns fully and address them appropriately.  

Um, no thank you, I’ve seen how “concerns” from other investors have been addressed.
Also, thank you for the recent updates on the individual properties that a capital call is likely required. I’m glad Rise48 is finally admitting the need of capital calls and hope that the “we have never and don’t ever expect to issue a capital call” marketing is removed going forward.

Other areas that should be called out:
1) Disclose the distress in your current portfolio to existing investors as well as when marketing new investment opportunities. Even the preferred equity fund makes no reference to current values of the properties from brokers which I know opinions of value have been received.
2) Call out what “pay back working capital loans” for what is really is, putting cash back in Rise48’s pockets.
3) Stop lying about lenders requiring the above referenced GP loans to be paid back. That is just a flat out lie, no lender would have any issue with a GP contributing more capital to a property.
4) Stop highlighting positive financial leverage on your new investment opportunities when all you’re doing is paying massive fees upfront to buy down the rate. That is NOT positive financial leverage, it’s closer to a Ponzi scheme in which you’re raising additional investor capital in order to distribute it right back to them and claim it as operating cashflow.

We’re in a new era, it’s time to start protecting limited partners from deceptive investments.