Hughberry homes - another wonderful venture from Hughes Private Capital

[Pinaki Ghosh]

It seems after defrauding many investors Hughes Private Capital has stop paying their investor and started a new scheme called Hughberry Homes Fund -  it's under Hughes Private Capital Website - I have been contacted by many people who have been cheated through 1031 exchanges by Hughes Private Capital - - they looted people's retirement and they should be in jail. The 2 owners of Hughes Private capital (also owner of Hughberry homes) folks tried to run a ponzi scheme on us until we dragged them to court.

Be careful and be aware - a pig is still a pig does not matter how much lipstick you put on . Please see my post on Hughes Private Capital and you can read my story.

For their other funds I hear the same story

Everybody gets payment for 3 or 4 months and then it stops and the investors find that their house (bought through 1031 exchange) was actually worth far less than what they were told. When they try to sell it back as per contract then they are refused a buy back. 

If this is your story please send me your contact and I will put you in touch with the other folks who has been defrauded

pinaki  at utexas dot edu

[Victoire Van der Pas]

Dear investors: I am a former HPC investor and successfully sued them 2018-2021 (see my profile). I have done a financial analysis on Hughberry, since this is the fund that is currently soliciting investors. 

HUGHBERRY HOMES

Hughberry Homes LLC is the latest fund of Hughes Private Capital LLC. The form D paperwork was filed in on 23 May 2022. The fund buys vacation rentals and solicits funds from accredited investors with a minimum of $50K investment. Hughes Private Capital announced in its Q3 2022 newsletter that the fund has already purchased two homes and is planning to buy another 2 to 5 in the current market of Scottsdale, AZ.

The Airbnb website shows Hughberry homes as an Airbnb host with four properties in the Scottsdale, AZ area. The addresses are:

4016 E Oak St, Phoenix, AZ 85008

6902 E Hearn Rd, Scottsdale, AZ 85254

6445 E Kings Ave, Scottsdale, AZ 85254

16621 E Greenbrier Ln, Fountain Hills, AZ, 85268

The homes are villa style homes with a resort pool. The Greenbrier home has an infinity pool, an outdoor party pad and stunning views. The more modest Kings Ave home was pimped up with an illegally converted garage with pinball machines. The homes have 4-5 bedrooms and can sleep up to 14 guests. Because of the amenities and many beds, these homes tend to be popular with groups to use as weekend pool party places, Superbowl parties, stag parties and the like. Two of the homes are located in Scottsdale and all are in Maricopa County. As of January 2023, short term rentals have to be licensed in Scottsdale, but Hughberry homes are not. It is unlikely they are complying with the local hotel taxes since the mandatory privilege tax ID on the listings is absent and those taxes are not listed as an expense in the cash flow projections.

CASH FLOW

The current prices for a night in a Hughberry home range from $275-$350, including weekends. As of 6 May, the Airbnb calendars for the Hughberry homes showed zero future bookings for three homes. Only one home showed a sprinkle of bookings for the next two months. The Scottsdale market is saturated with similar vacation rental homes.

To calculate cash flow, I used the current pricing from the Airbnb listings and the booking calendar. The average rate of a Hughberry home in May 2023 is $308/day, including weekend nights. With only 11 days booked for the remaining 96 days rental days available for the month, the current occupancy stands at 11%. Assuming a best-case scenario for May is that the month would end up with 25-50% occupancy for a rental revenue of $9,548-$19,096. With operating expenses and debt service running between $33,839-$36,609 using Hughberry’s expense formulas, the investors would face a net loss of $17,512-$24,291 for May.

Let us compare the current situation with the Hughberry solicitation to investors. The projected May income per HPC is $37,593 using a return projection of 2.5%. With the current daily rate of $308/day, the four homes would have to be rented for 122 days out of the available 124 days in May for 98% overall occupancy. We are currently in May, and it is not happening.

HPC further claims that the investors should expect returns to increase from 2.5% to 7.4% in about a year. With HPC’s rental revenue projection of $123,162 for April 2024 and a current rate of $308/night, the four homes need to be rented for 400 days out of the 120 available days or 333% occupancy. That is impossible, so let us assume that the homes have 100% occupancy instead. That would mean that the average rental rate would have to increase from $308 to $1,028/day. We are currently looking at homes that see very few guests. Expecting that these would be at 100% occupancy at triple the current rate seems highly opportunistic.

In summary, cash flow is negative. If the year ends with 25-50% occupancy at the current rates, the fund stands to lose investor cash between $210-$290K for the year. The fund needs cash from new investors to keep the fund afloat.

ASSETS AND INVESTOR EQUITY

The acquisition company 12 Bridges LLC bought four homes from the MLS in the last few months. 12 Bridges LLC already sold three of these homes to Hughberry and fractionalized interest held by individual investors. More than half of the interest in the homes is still in Hughberry's name. The remaining Hughberry portion is available for purchase as fractional ownership interest by outside investors or those moving from Vista.

HPC's acquisitions company 12 Bridges LLC paid $3,065,000 for the three homes. The homes were resold to investors and Hughberry for a total of $4,917,032 shortly afterwards. The mark up of these homes was $1,852,032 or 60%. However, unbeknownst to the current fractionalized investors, these homes also carry mortgages that exceed their market value. The total outstanding mortgages on the three homes amount to $3,474,041 for a Loan-to-Value (LTV) of 113% based on the Fair Market Value (FMV) of $3,065,000. In short, the houses are under water and the fractionalized investors have negative equity even though they have paid an estimated $1.7M for their fractionalized interest.

Although Hughberry claims it owns four homes, it actually owns only three at this time. 12 Bridges LLC purchased the fourth one, Greenbrier, in Dec 2022 and still holds it in the name of 12Bridges LLC. It is available for purchase by Hughberry investors. The Guardian watchdog Mr. Aaron Noe as the manager of 12 Bridges is now in charge of it. 12 Bridges purchased the home for $1,100,000 back in December 2022 with a mortgage of $1,225,000. Interested parties who want to buy a fractionalized underwater interest can contact 12 Bridges LLC or its manager Mr. Noe. It is not the first time Mr. Noe engaged in the sale of a Hughberry property. He signed the warranty deed of the Kings property when 12 Bridges sold the home for $1,584,720 to three fractionalized investors (43.16%) and Hughberry in March 2023. 12 Bridges LLC transferred the property to the investors subject to a $1,107,087 mortgage signed by Krch, Sixtberry and Hughes. The investors did not sign and were not aware of the debt. Considering 12 Bridges purchased the home three months earlier for $745,000, the profit for HPC was $839,720 or 113%. The investors of Kings now own underwater property with an LTV of 149%.

In summary, 12 Bridges LLC marked up homes significantly it sold them to Hughberry investors. The Hughberry properties are underwater due to mortgages. It appears that the Hughberry property owners don't have any equity in their homes.

GREG HUGHES

Have a look at the following two upscale vacation rentals in Scottsdale, AZ. They are more expensive and far more in demand than the Hughberry homes. Current weekend pricing is about $1,000/day and calendars are filling up months in advance. Unlike Hughberry homes, Malcomb has a short-term rental license from Scottsdale. Its license number is 2025013 with a 24-hour emergency contact number listed for Jane Bils at 480-794-0593. Desert Cove is unlicensed and has not applied for the mandatory license as of yet.

8231 E Malcomb Dr, Scottdale, AZ 85250 (Malcomb) and

6309 E Desert Cove Ave, Scottsdale, AZ 85250 (Desert Cove)

The owner of these homes is Polo Estates Manufactured Home Community, LLC, a South Carolina entity with a mailing address at 7965 Meadow Vista Drive, Reno, NV 89511. The Hughes Family trust with Gregory W Hughes and Tanja A Hughes as trustees owns this Reno property as their homestead. Polo Estates purchased Malcomb for $2,500,000 on 14 Feb 2022 and Desert Cove for $2,110,000 on 18 Feb. Obviously, Polo Estates Manufactured Home Community LLC had deep pockets because it paid cash $4,610,000 in less than a week. While Guardian went through the chapter 7 and 11 bankruptcy filings, Polo Estates was busy with a 75% cash out on Malcomb (24 March) and Desert (11 April). The manager of Polo Estates Manufactured Home Community, LLC signed the deed of trust: Gregory William Hughes.

NOTE: Dear investors, I hope you can use my analysis to make an informed decision that is suitable for your personal circumstances. I am not an attorney. I am a former HPC investor and CPA who spent years litigating and following these people. Please see my Biggerpockets profile. I understand you may be upset but please do not contact me personally asking for legal advice. If you are taking legal action against HPC or associated individuals/entities, I may be able to provide professional litigation support to your attorney.