PEP fund with Lane Kawaoka

[Account Closed]

Has anyone else invested with this guy?  I got roped into this PEP fund he was advertising by a friend who had invested with him before.  The fund was advertised as a boring "preferred equity" fund that pays 10% a year (or something along those lines).  So I took money I was saving for a down payment and went in with this guy.  They sent out an email last Friday saying they are stopping distributions.  The email was replete with grammatical and spelling mistakes too for added professionalism.  Plus they sent out late Friday afternoon which always spells "disaster."  Anyone familiar with this?  Now they won't respond to my emails or calls of course.  Lane sent out a form email which he probably sends out to all his investors.  Can't believe I fell for this.  The email advertising this deal literally has a "pyramid" drawing in it.

[Christopher G.]

Most people should know that Lane has lost multiple syndication deals by now...I was in 3 with him and all were lost, they sent out a mass email to the wrong distro implying that another would be lost in early 2025 and I've heard through the grapevine that others were lost but I'm not an investor in those.  If you do the math, $10s of millions of investor $s gone and this guy changed his name from Simple Passive Cash Flow to Wealth Elevator.  Recommendation...stay away!  He is still doing deals, maybe to get that GP fee to cover his personal losses?

[Joel Owens]

Chris G sorry to hear that. Just remember ground up type project deals can sometimes have the fattest projections but also the most variables and risk. Construction can have unforseen costs, construction loans for rounds of funding can be more expensive over time, rent markets can drop, vacancies in market can increase.

Typically entitlement phase of land most risk, followed by development, followed by vacant building turn around, followed by half vacant building, followed by mainly full building with value add component, followed by brand new building with market or below in place rents and everything new with good location.

Along that spectrum of course you go from heavy equity upside potential to mainly just the cash flow return and hopefully price appreciation over time.

Investors have to decide on the spectrum of their risk assessment to capital over what period of time how they will allocate between all one type of investment or multiple and what percentages. That is an individual answer specific to each one's situation and risk tolerance level. 

[Gino Barbaro]

@Christopher G.

And he's still trying to get on podcasts. Sorry about you losing money with him. If it's any consolation, I've been there, and it just means that you're an investor. We win some and we lose some. You now have a baseline of what to avoid for your next deal.

I can't understand how he's doing deals with the agencies if he has foreclosures on his record?

Gino

[Joel Owens]

I have opposite problem. Lots of requests to have me on podcasts but finding the time..lol

[Chris Seveney]

Quote from @Gino Barbaro:

@Christopher G.

And he's still trying to get on podcasts. Sorry about you losing money with him. If it's any consolation, I've been there, and it just means that you're an investor. We win some and we lose some. You now have a baseline of what to avoid for your next deal.

I can't understand how he's doing deals with the agencies if he has foreclosures on his record?

Gino

 He is getting sued now. He and his partner appear to have also signed a PG (link below).

Funny you mention podcasts. I was in a meeting with a podcast company the other day and they are not in real estate a podcast company and they were like "if you want to grow like Marco Santorelli or Lane Kawaoka as they have been on hundreds of podcasts". I joked and said yeah not two people I want to be like since both are getting sued by investors for losing their $. 

Both of them are playing it off as "nothing to see here"..... 

Document List (state.ny.us)

[Evan Polaski]

I am always torn on the cycle of losing money and continuing on.  Anyone that has been in the business long enough will have lost money for their investors.

Ultimately, while I don't like that anyone has lost money from con men acting as syndicators, if your syndicator is more focused on talking about financial freedom and creating a better life, they are a marketer.  This also, inherently, makes the good operators harder to find out in the wild.

[Gino Barbaro]

@Chris Seveney

I've interviewed both, multiple times over the years. They did not appear to have issues with their business. From what little interaction I did have, they were both real nice.

The words trust but verify still ring true

Gino

[Chris Seveney]

Quote from @Gino Barbaro:

@Chris Seveney

I've interviewed both, multiple times over the years. They did not appear to have issues with their business. From what little interaction I did have, they were both real nice.

The words trust but verify still ring true

Gino

 I interviewed lane -I do not think they intentionally were out to scam people at all. Deals go bad and I think people think its easier than it really is and overestimate their skillset because of lack of experience. I think the bigger issue is lack of communicaiton and how they handle the situation.

[Joel Owens]

I try to buy what we think will be grand slam deals we syndicate. That way hopefully worse case we hit a single or double and still do well.

The syndicators using debt with the timing of the cycles and the stars to pull anywhere close to initial projections on the raise play a game of musical chairs where risk to loss is high.

Keep integrity. If it means doing less deals to syndicate then so be it. Keep a track record of success versus trying to grow net worth at all costs. I could not imagine deals having losses like that and the devastation to the investors and their families. I would not be able to sleep at night regardless of what the agreement said. Having said that a syndicator can never 100 percent predict what will happen with an investment. I think there is really trying to do your best as a syndicator and then gross negligence projecting deals that are riskier than they are but painting a picture of less risk to induce capital to purchase. Be upfront with investors and let them decide their risk level from a position of clarity. There are some syndicators who simply do not know what they are doing or not that experienced.

My minimum per accredited investor is 200k per deal. I have been in NNN for 20 plus years though.

Newer syndications what I see investors do that have tens of millions or higher is they will drop a small amount like 25k or 50k into those deals. It's like gambling for them but will want a much higher pref and much higher equity upside from syndicator because of little to no track record. If they lose some or all of their capital the LP with newbie syndicator then they make it up in a month with other investments and have tax write off. They only like to go deep in bigger amounts with proven performers and more regular prefs and split ratios.  

[Gino Barbaro]

@Joel Owens

The only way deals were getting done in 21-22 were with short term bridge which is why we opted out, and did only smaller deals. The only investors that should use bridge are experienced operators who have tight controls over management processes, which is why you see a lot of deals with capital calls and LP losses.

I like your criteria of 200k minimum. Savvy investor who will not break your chops every month for their draw.

Gino

[Jay Hinrichs]

Quote from @Chris Seveney:

Quote from @Gino Barbaro:

@Chris Seveney

I've interviewed both, multiple times over the years. They did not appear to have issues with their business. From what little interaction I did have, they were both real nice.

The words trust but verify still ring true

Gino

 I interviewed lane -I do not think they intentionally were out to scam people at all. Deals go bad and I think people think its easier than it really is and overestimate their skillset because of lack of experience. I think the bigger issue is lack of communicaiton and how they handle the situation.

I find it pretty wild.. I mean lane came on BP having bought some turnkey's that he did not like then the next thing I see is he is a syndicator.. Of course have no clue to his background in RE but it seemed to me on the surface this was a new venture for him and it certainly looks like he got over his ski tips.

[Jay Hinrichs]

Quote from @Gino Barbaro:

@Joel Owens

The only way deals were getting done in 21-22 were with short term bridge which is why we opted out, and did only smaller deals. The only investors that should use bridge are experienced operators who have tight controls over management processes, which is why you see a lot of deals with capital calls and LP losses.

I like your criteria of 200k minimum. Savvy investor who will not break your chops every month for their draw.

Gino

nothing tougher to manage than the 25k investor.. No thanks. This is why a lot of the crowd funders failed as well.. not only picking poor projects but they had hordes of small investors throwing  money at them.. How can you manage thousands of investors.. ??? when to them 5k investment is as important at your 500k investor.  

[Christopher G.]

@Gino Barbaro thanks for the response! Coincidentally, I just listened to episode 3690 on Next Level CRE: Power of Mindset today. Was very glad to know that Trevor McGregor coached(es) Viking Capital, GoodEgg, and Passiveinvesting.com (all who I am an LP in some of their deals)

[Joel Owens]

Yeah I noticed newly accredited investors that make maybe 150k a year when they put in 25k to 50k want to the world. Not all but lots of them. It's just like people wanting me to broker their deals as NNN investor and used to buying houses and they think 400k is lot of money then I tell them minimum for good area and commercial tenant 1 million plus down payment and 3 million and up price.

In their mind it's tough to spend that kind of money. The accredited who make 500k and up a year to millions it's easier for them to put 200k here and 300k there etc. into syndications. 

Also a person worth 2 million who invests 200k into a syndication might take them many years again to invest with you because of limited capital.  

[Chris Seveney]

@Jay Hinrichs

Hey now :) (haha we have 700 investors)

It can be done but you need a dedicated person to do it and make sure you budget for it

- spending all your time raising $ for other deals and on the podcast circuit takes away focus.

What I see with a lot of these companies that are in trouble is they believe the relationship ends when someone invests - as it’s a wam, bam thank you ma’m relationship

When someone invests that’s the start of the relationship.

[Jay Hinrichs]

Quote from @Chris Seveney:

@Jay Hinrichs

Hey now :) (haha we have 700 investors)

It can be done but you need a dedicated person to do it and make sure you budget for it

- spending all your time raising $ for other deals and on the podcast circuit takes away focus.

What I see with a lot of these companies that are in trouble is they believe the relationship ends when someone invests - as it’s a wam, bam thank you ma’m relationship

When someone invests that’s the start of the relationship.

I agree communication with investors is a must. And of course with 700 its hard to know them all personally or impossible I guess.. However as long as one understands where the focus needs to be that is critical to the care and feeding of investors.

My Oakland HML had 250 investors and right at  40 million.. I probably knew half of them personally but Mr. Langer who I inherited the company from he knew them all and spent 50 years building that company..

[Christopher G.]

Quote from @Joel Owens:

Chris G sorry to hear that. Just remember ground up type project deals can sometimes have the fattest projections but also the most variables and risk. Construction can have unforseen costs, construction loans for rounds of funding can be more expensive over time, rent markets can drop, vacancies in market can increase.

Typically entitlement phase of land most risk, followed by development, followed by vacant building turn around, followed by half vacant building, followed by mainly full building with value add component, followed by brand new building with market or below in place rents and everything new with good location.

Along that spectrum of course you go from heavy equity upside potential to mainly just the cash flow return and hopefully price appreciation over time.

Investors have to decide on the spectrum of their risk assessment to capital over what period of time how they will allocate between all one type of investment or multiple and what percentages. That is an individual answer specific to each one's situation and risk tolerance level. 

 These weren't even ground up rehabs, all were value add. He got short term debt and bought at too low of a cap rate and the market shifted; I wasn't too savvy enough at the time to realize the danger.  What really pisses me off about that crew is the total lack of ownership. Never once came 'hey team, I'm sorry, we screwed up....here's what went wrong...' It was always....black swan event, interest rates never went this high, no one foresaw this, insurance and taxes are through the roof, not our fault. Every capital call webinar had the same slides showing the interest rates increasing that was impossible to foresee....blah blah blah