Should I sue?

Question

I invested 40k in a syndication 2.5 years ago. It was a 18 unit and a few triplexes.

We were supposed to get our investment back at refi back in January (year 2)And then cash flow every month after that until they sold it in 5-7 years

We haven’t received anything. They didnt refi, then tried to sell because they found repairs they apparently didn’t know about. They couldn’t find buyers.

Now they’ve said they are holding for an Indefinite amount of time and since then they’ve stopped responding to me and email once or twice a year with corporate speak that says nothing useful.

Am I shit out of luck here or can I get a lawyer involved?

Brian Burke · Answer

@Brandon Craig totally understandable that you'd regret making this investment.  All of us who have invested in real estate for decades like Jay and I have regretted investments here and there over the years.

This investment didn't meet your expectations for a few reasons outside of the fact that it was a real estate investment.  Real estate investments can be great so hopefully you can apply what you've learned here so that if you decide to try it again you'll get a better outcome.

I think what may have went wrong here is you invested in real estate at the wrong time, and with the wrong operator (syndicator), and perhaps didn't have the expertise to sort either of those two factors out.

What might help you for the next attempt is to read (BP's book written by yours truly--The Hands Off Investor), and network (join a community where investors discuss deals, trade advice and observations--coming soon will be Passive Pockets, an offshoot of BiggerPockets which recently acquired the popular passive investing group Left Field Investors).

Jay Hinrichs · Answer

I suspect at the dollar amount you invested most attorneys would say its not worth it.

you could send in a sabor rattler letter for a few hundred bucks and see if that gets you anywhere.

Keep in mind these guys are not unique this has happened to many many syndication of MF

Just read the threads on BP.. And some of them the props have been sold and the investors completely wiped out.. At this stage its capital preservation being the goal. It would be nice though if they communicated and if they need to ride it out so be it thats just the market we are in for those types of assets. At least from what I read on BP etc.. I am not in the space I do have a few MF investments in syndication as well.. One limping along one performing OK I guess .  I mean both of them have not asked for capital calls or said they were forced to sell at a loss..

Evan Polaski · Answer

@Brandon Craig, it sounds like you got your answer from two very seasoned individuals.

As for your question about suing: I would say 98%+ of the time it is not worth it.  Chances are the subscription documents you signed are pretty protective of the GP, so there is no real case there.  Even if there was something there, they headaches and costs of going through a lawsuit likely to quickly outpace the $40k that is at risk (any good attorney will tell you it isn't worth the effort).

Unfortunately, you are in the same boat as many investors, both on these forums and not.  Both novice and seasoned.  We were in a market peak about two and a half years ago.  Many people were making money hand over fist from low interest rates, strong stock prices, hugely appreciating real estate (both LP, GP and housing prices).  We are in a correction.

So, as you note, hopefully there is still enough liquidity/cash flow in the deal to keep it afloat long enough to ultimately pay off (or at least make all your money back).  While no one can predict the future, historically, given enough time, values will return. With most syndications that are experiencing trouble, the issue comes down to: is there enough cash flow and/or reserves to keep the deal alive long enough?

Robert Rixer · Answer

Sorry to hear about your situation. From a pure decency perspective, it's unforgivable for sponsors to not communicate to their investors. Deals carry risk and you can't always control a deal taking a bad turn. But you can control how you carry yourself. Going dark on investors is just about the worst thing you can do.

Gino Barbaro · Answer

@Brandon Craig

I would chalk it up as the cost of tuition. I wish that was how much I lost on my first deal. Needless to say, it was a lot more.

What I did do, thankfully, was try to find out what went wrong.  The list is endless, but, a couple of things that stood out:

The partner was not aligned with me in terms of values or vision. All I saw was easy money, not how unethical or incompetent he was. It was definitely his fault, but I have to own up that my due diligence was pretty non existent.

I should have flown down and inspected the deal, and his other deals. That would have stopped me immediately from losing my money.

I would let an attorney review the PPM and operating agreement. Possibly have an attorney draft a letter asking for info on the deal.

What do you think the deal is worth today? You can always go to them and try to make a deal to have them buy your shares at a discount.

The worst part of my deal was the mental energy I wasted thinking about losing the money. It took me a while to come to grips with my mistake, but once I did, I was able to move on.

Is your mental energy, and focus worth the 40k? If it is, then pursue it.If not, then hope for the best but just move on.

Hope that helps.

All the best

Gino

Brandon Craig · Answer

Most recent update

“Dear Investors,

I just returned today from a being in x most of the week, conducting an on-site assessment of our properties and reviewing the status of tenants and ongoing operations. This visit has provided valuable insights into the current state of our investment, and we would like to share some key updates. Here’s a link of photos.

16-Unit Property: Next Steps

After careful consideration, we believe it is in our best interest to move forward with the sale of this 16 unit, x Apartments. Unfortunately, we will be selling this asset at a loss. The property has become increasingly costly to maintain, and a significant portion of our cash flow is being directed towards repairs. Additionally, we do not have the capital expenditure (CapEx) budget required to make the comprehensive repairs necessary to stabilize this asset fully.

Several factors have contributed to this situation:

• Property Management Issues: We previously worked with two underperforming property managers who made several critical mistakes. They rented the units to bad tenants, misallocated funds (including two months’ worth of rent), and prioritized unnecessary repairs while neglecting key structural issues. This mismanagement greatly increased our maintenance costs and delayed efforts to improve the property's condition.

• Evictions & Vacancy: Due to these missteps, we spent months working through the courts to evict problematic tenants. At present, our vacancy rate sits at 50%, but we are actively vetting a long list of prospective tenants. Our focus is on securing high-quality tenants to restore stability and improve cash flow.

Despite these challenges, we are confident that selling this asset is the best course of action to protect the overall portfolio.

Immediate Plan: Increasing Occupancy

To improve the property’s financial performance in the short term, our plan is to lease up the vacant units as soon as possible, starting with the three units that are rent-ready. Additionally, we will prioritize addressing the repairs needed in three other units that require the least amount of work. This approach will allow us to increase occupancy while minimizing additional expenditures and ensure a better overall condition for prospective tenants.

Strategic Plan: Sale of the x Apartments

Once the sale of the x Apartments is complete, we will retain ownership of 7 units within our portfolio. These remaining assets will be owned free and clear, without any mortgage debt, and will begin generating consistent cash flow, which will be directed towards regular investor distributions.

This transition represents a significant milestone in our strategy to streamline the portfolio, reduce risk, and ensure healthier returns for you all.

Looking Ahead

As always, we appreciate your trust and confidence in Poly Capital Group. We remain committed to taking the necessary steps to protect and grow your investments.

Please don’t hesitate to reach out with any questions or if you would like to discuss this matter in more detail.

Best,

Max

When asks for more details here’s what I got “We do not have a buyer yet, so we do not know numbers.Unfortunately, You won’t get your initial investment back. We will give disbursements if and when we can sell the 16 plex and after we have absorbed the loss on it.  We cannot give specific dates. There is no crystal ball of when we can sell we have been trying to. Unfortunately if we can’t sell we will loose all our investment. We will have to sell the 7 units to help pay off the debt. So we are working hard to get this apartment sold to avoid more damages.

if you live in Dallas, stay away from Poly Capital Group at all costs.

Todd Dexheimer · Answer

What are you going to sue them for? To me it sounds like you invested in a deal that didn't go as planned. There was likely a bunch of disclosures that you signed off on that said the investment could go poorly. If they haven't committed fraud or done something extreme, I would suspect your lawsuit would be a waste of money.

Chris Ludwig · Answer

I’m sorry to hear about the situation you’re in—it sounds incredibly frustrating, especially when communication from the syndicators has been so lacking. Before jumping to legal action, there are a few steps you might want to consider:

1. Review the PPM and Operating Agreement: Start by thoroughly reviewing the Private Placement Memorandum (PPM) and the Operating Agreement you received when you initially invested. These documents should outline the terms of the investment, including timelines for refinancing, distributions, and the rights of investors if things don’t go as planned. It’s crucial to understand what was promised and what legal obligations the syndicators have.

2. Document Everything: Gather all communications you’ve received from the syndicators, including emails, newsletters, and any updates they’ve provided. Keep a detailed record of your attempts to reach them and their responses (or lack thereof). This documentation will be essential if you decide to pursue legal action.

3. Attempt Direct Communication: If you haven’t already, try reaching out directly to the syndicators or the managing partners. Request a clear explanation of the current situation and their plan moving forward. Sometimes, the threat of legal action can prompt a more serious response, but it’s also possible they’ve hit significant roadblocks that they’re not effectively communicating.

4. Consult with an Attorney: If you’re not getting any satisfactory responses or if you believe the syndicators are in breach of their contractual obligations, consulting with an attorney who specializes in real estate syndications is a smart next step. They can help you assess whether you have a strong case for legal action and advise on the best course of action.

5. Consider the Costs and Benefits: Legal action can be costly and time-consuming, so it’s important to weigh the potential outcomes against the costs involved. An attorney can help you understand the likelihood of success and whether it’s worth pursuing or if there are alternative strategies that could yield better results.

6. Explore Investor Groups: If you’re not alone in this—meaning if there are other investors in the same syndication who are also unhappy—you might consider banding together. A collective approach could put more pressure on the syndicators and make legal action more feasible if it comes to that.

Unfortunately, these situations can be complex, and getting your investment back may take time and effort. However, understanding your rights and options is the first step in protecting your investment and making informed decisions moving forward.

Wishing you the best of luck, and I hope you’re able to resolve this situation quickly.

Should I sue?

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