Syndication deals gone sour and the GP is now radio silent! What can I do?

[Giles D.]

Good morning everyone,

I invested in a syndication deal back in late 2021 through Simple Passive Cashflow and Truepoint Capital, with Lane Kawaoka and Kyle Jones respectively as GP's. The deal has produced 1 single distribution in that time and now they have both stopped updating the LP's on the deal and have not had an updates this year. They have now stopped responding and corresponding to emails and the only phone numbers they provide go to a medical facility in Florida and a full VM box that never gets responded to.

Am I just f'd out of my money here with no recourse or do I have any leg to stand on to try and sue them for poor due diligence and not fulfilling the promises made? I've received 2 K1's so if this is fraud then i'd imagine they've committed a federal offence by issuing false documents to the federal authorities. Yes, I am getting desperate but I'm throwing myself to this crowd to see if any one else has gone through something similar or can give me some advice or even to laugh at me and say what an idiot I was, which I know already so save yourself the time!

Regards

Giles Dalrymple

[Nate Marshall]

Quote from @Brian Burke:

@Giles D. I hate to be the one to tell you this, but your money is gone.  

I don't know anything about the deal but after reading your post I googled the company and found a press release from Nov 2021 announcing that they had purchased The Aubrey.  

I then went to CoStar and looked it up.  They bought the property in Oct 2021 for $47 million and borrowed $39.4 million from Bancorp Bank, who is a bridge lender.  Knowing what I know about Bankcorp, the loan would have had a floating rate, likely somewhere in the range of SOFR + 3-5% and would mature in October of this year.  CoStar reports the property to be 52.7% vacant, but keep in mind that this data is often inaccurate (but not enough to make a difference with vacancy that high).

Figuring this set of facts spelled trouble, I went to the Harris County Recorder's grantor/grantee index and found a foreclosure deed.  Your property was sold back to Bancorp Bank in a foreclosure sale on April 2, 2024 at 10:19AM.  There were no bidders at the foreclosure sale so the property reverted to the beneficiary (meaning the lender now owns it).  I also found a dozen mechanic's liens dating back to 2022 (meaning they didn't pay contractors that did work on the property).

I'd like to say I'm shocked that you had no idea this was coming, but I'm really not shocked.  My Google search revealed the principal of TruePoint started investing in 2020, and if that's true, this sponsor lacked all of the things that I consistently preach to look for--experience, track record, full-cycle experience, market cycle experience, and so on.  

This probably wasn't a scam (but I do not know one way or the other).  More likely, it is an inexperienced sponsor raising money from inexperienced passive investors (and experienced ones that opted to take the risk on an inexperienced sponsor) who got in way over his head and had no idea how to right this ship.  Not knowing what to do, they probably didn't even know what to say, so they buried their head in the sand.

I'm not justifying this behavior, I find it repulsive, but I've seen it so many times in the decades I've been in this industry that I'm just reporting what history has taught me has likely happened here.

It sickens me to be the one to deliver this news--the sponsor should have kept you informed every step of the way and failed in their most basic duty--to communicate with investors.  

 Happens too much. We need other ways to enforce and collect. The mafia is too soft for my taste in these matters! 

[Ian Ippolito]

Quote from @Jay Hinrichs:

Quote from @Ian Ippolito:

Quote from @Giles D.:

Good morning everyone,

I invested in a syndication deal back in late 2021 through Simple Passive Cashflow and Truepoint Capital, with Lane Kawaoka and Kyle Jones respectively as GP's. The deal has produced 1 single distribution in that time and now they have both stopped updating the LP's on the deal and have not had an updates this year. They have now stopped responding and corresponding to emails and the only phone numbers they provide go to a medical facility in Florida and a full VM box that never gets responded to.

Am I just f'd out of my money here with no recourse or do I have any leg to stand on to try and sue them for poor due diligence and not fulfilling the promises made? I've received 2 K1's so if this is fraud then i'd imagine they've committed a federal offence by issuing false documents to the federal authorities. Yes, I am getting desperate but I'm throwing myself to this crowd to see if any one else has gone through something similar or can give me some advice or even to laugh at me and say what an idiot I was, which I know already so save yourself the time!

Regards

Giles Dalrymple

In my personal opinion there were lots of red flags with Lane Kawaoka deals. And so there were many reasons that I never felt personally comfortable with pulling the trigger on them.

At the same time, you want to know how the investment is actually doing. And many times equity investors have a right to books and records. So check your operating agreement and consult with an attorney knowledgeable with Delaware law (or whatever state it's incorporated in). You could even team up with other investors to split the costs.

Ian I know your super heavy in the space.. do you have any of the deals your invested in or your club is invested in that are doing cash calls or worse going under ?  just curious I know your super diligent.

Some are just fine and some are in big trouble (or already imploded). 

Right now the ones in the worst trouble are generally in the office asset class (which has taken a huge hit from a change in office needs, post-covid).

Also there's alot of major problems and distress in aggressively structured multifamily deals (i.e. high leverage, floating rate debt instead of fixed, etc). That includes many of the deals created by students of syndication classes (who typically would entice investors with juiced projected returns from creating multiple equity classes...which also generally increases risk).  Most of the ones completely imploding are also newer sponsors who didn't have a full real cycle experience when they launched (and either didn't understand the risks they were taking or didn't care). etc.

Also, in my opinion, the longer interest rates stay "higher for longer", the more likely the stress will continue.

[Carlos Ptriawan]

it seems there are less than 30% of funds-level that has healthy DSCR-fund-level operating at above 1.4. Seems bridge-lender has MF CLO running at 90-110% LTV.

Even the GP that was touted to be good a few years ago by even the most senior folks are having trouble.

this month it seems the industrial is starting to get hit.

however as everybody knows it doesn't mean the multifamily is bad , it just means the next gp could make money after buying from a discounted deal and it seems the bottom is near.

what's certain we need to calculate who would receive those discount from the lender side, lets say assuming 10 year is settled at 4% until 2035. This industry started to make sense again after 2025.

[Mike Dymski]

I have analyzed tons of syndication opportunities and the name "Simple Passive Cashflow" would be a pass right off the bat.  There is nothing simple here.

@Russell Brazil  Agreed.  The overwhelming opinion on the forums is to open up private offerings to everyone and I get criticized when I suggest otherwise.  Lots of people would lose their entire life savings (either through fraud, market forces, or simple lack of execution).

[Gino Barbaro]

@Giles D.

Have you contacted a securities attorney?  They will be able to advise you. The only other recourse would be to contact the SEC

[Giles D.]

Quote from @Gino Barbaro:

@Giles D.

Have you contacted a securities attorney?  They will be able to advise you. The only other recourse would be to contact the SEC

It’s crossed my mind. Was going to ask that question here and I’ll be looking to see if any other investors would be interested in talking about this option. 

[Gino Barbaro]

@Giles D.

We use Kim Taylor as our securities attorney. I would go on her site, check out all her content, and then schedule a call with her team.

She's been doing it for decades, and can advise you on next steps

Gino

[Carlos Ptriawan]

Quote from @Brian Burke:

Quote from @Russell Brazil:

Instead he put said money (other peoples money at that) into higher risk assets/markets which would then be more prone to a price correction. And in doing so, completely wipe out their equity position and lead to foreclosure. 

I don't think it's that, Russell. The asset that is the subject of this thread is in Houston, and not the worst area of Houston, either. It's a 70s vintage deal, 400+ units, with a lot of nearby competition, so certainly there is some risk elevation from the asset/market, but that's the least of the problem here, in my opinion.

If the numbers on CoStar are correct, the property was purchased at the very top of the market for $47M, with a $39.4M bridge loan (that would likely mature this year).  And according to an article published by the Texas Real Estate Research Center, there was a $5.25M preferred equity tranche as well.  Add the pref to the debt and you have 95% combined senior capital in front of the investor's common equity. 

This allows the sponsor to buy a nearly $50M property with just a few million of investor equity--but it provides zero resiliency to an adverse market.  A 5% movement down wipes out 100% of the equity, and multifamily values are down 5% or more almost everywhere since late 2021.

I'm less inclined to say that they invested in a higher risk asset/market, and more inclined to say that they invested at an inopportune time with a high-risk capital structure.  This structure, if the data I'm finding is true, is unsurvivable if the market moves against them.

 What is so fascinating for me at the beginning is why on earth any lender would lend their money to them.

Every debt agency and lender itself doesn't believe the project would succeed.

It's a strange world where the thing that I and you know should not happen in the first place and indeed it happened in the real world. I think Fed rate zero per cent really makes a lot of people hallucinate.

Some of the bridge-loan is even allowing dscr 0.2, it is very similar to subprime lending, except it happened to syndication involving supposedly informed investors.

The debt agency even said that most of these projects have 0.3 NCF variance. 

[Varun Hegde]

He went on a podcast less than a month ago, so Lane Kawaoka is definitely still marketing himself as an expert.

I actually remember reading about him a couple months ago and feeling jealous, but the only way I could've built similar scale is running 90% LTV on multiple deals... sounds like that's what they did.

It doesn't surprise me that many of these syndications are blowing up left and right. Rates are a challenge, sure, but so many GPs also bake in easy operating environment and assume no cap rate expansion.

@Giles D. maybe if you offer to interview him for a podcast he'll show up? I'm thinking something like Maury or Jerry Springer

[Nate Marshall]

Too bad the mafia doesn't have a number to call where you can hire Guido and his boys. 

[Nate Marshall]

Quote from @Varun Hegde:

He went on a podcast less than a month ago, so Lane Kawaoka is definitely still marketing himself as an expert.

I actually remember reading about him a couple months ago and feeling jealous, but the only way I could've built similar scale is running 90% LTV on multiple deals... sounds like that's what they did.

It doesn't surprise me that many of these syndications are blowing up left and right. Rates are a challenge, sure, but so many GPs also bake in easy operating environment and assume no cap rate expansion.

@Giles D. maybe if you offer to interview him for a podcast he'll show up? I'm thinking something like Maury or Jerry Springer

 I'd go for Chris Hansen. Maybe we can convince him to start a To Catch A Guru program. 

[Carlos Ptriawan]

Quote from @Varun Hegde:

He went on a podcast less than a month ago, so Lane Kawaoka is definitely still marketing himself as an expert.

I actually remember reading about him a couple months ago and feeling jealous, but the only way I could've built similar scale is running 90% LTV on multiple deals... sounds like that's what they did.

It doesn't surprise me that many of these syndications are blowing up left and right. Rates are a challenge, sure, but so many GPs also bake in easy operating environment and assume no cap rate expansion.

@Giles D. maybe if you offer to interview him for a podcast he'll show up? I'm thinking something like Maury or Jerry Springer

well .... promising 15% IRR at cap rate 3.8%. All of these non-sense mathmatically speaking lol. Super higher leverage that the purchase can't be approved by agency loan.

In all practicallity , the era of 2016-2020 by aggregate should only produce 7-8% IRR if one correctly and conservatively.

They targeted the naives investor in biggerpocket that lacks basic real estate valuation.

The real problem is really the era of 2015-2020 where folks are treating CRE just like OTCBB pink stock and promoting it as a safe haven.

[Katherine Chinelli]

Thanks for letting me know never to invest in something like this. Too over my head. Thank you for sharing your story @Giles D. I am very sad to hear about this, very sad. As a new investor I feel very scared about other people claiming to be experts or "have my best interest". I only hope something good comes to you in the future to heal this horrible experience.

[Giles D.]

Quote from @Katherine Chinelli:

Thanks for letting me know never to invest in something like this. Too over my head. Thank you for sharing your story @Giles D. I am very sad to hear about this, very sad. As a new investor I feel very scared about other people claiming to be experts or "have my best interest". I only hope something good comes to you in the future to heal this horrible experience.

 Appreciate the sentiment Katherine, my loss is your gain!

[Katherine Chinelli]

Thank you, @Giles D.! 

[Chris Seveney]

@Varun Hegde

He is still posting as well on BiggerPockets

[Steven Gesis]

Quote from @Giles D.:

Good morning everyone,

I invested in a syndication deal back in late 2021 through Simple Passive Cashflow and Truepoint Capital, with Lane Kawaoka and Kyle Jones respectively as GP's. The deal has produced 1 single distribution in that time and now they have both stopped updating the LP's on the deal and have not had an updates this year. They have now stopped responding and corresponding to emails and the only phone numbers they provide go to a medical facility in Florida and a full VM box that never gets responded to.

Am I just f'd out of my money here with no recourse or do I have any leg to stand on to try and sue them for poor due diligence and not fulfilling the promises made? I've received 2 K1's so if this is fraud then i'd imagine they've committed a federal offence by issuing false documents to the federal authorities. Yes, I am getting desperate but I'm throwing myself to this crowd to see if any one else has gone through something similar or can give me some advice or even to laugh at me and say what an idiot I was, which I know already so save yourself the time!

Regards

Giles Dalrymple

 Giles, so sorry to hear about this  - amazing response @Brian Burke - this is, unfortunately, happening to many LPs in the marketplace today, many unseasoned operators showed up in 2022 and had a high IRR high-velocity fix and flip strategy for large MultiFamily offering and the combination of inexperienced investors with inexperienced operators turned into a bomb and for others a nightmare -

Important takeaway is due diligence review, not only deal level but sponsor track record - yes, past performance is not indicative of future results, but at least it's a metric to review. 

[Brandon C.]

Quote from @Giles D.:

Good morning everyone,

I invested in a syndication deal back in late 2021 through Simple Passive Cashflow and Truepoint Capital, with Lane Kawaoka and Kyle Jones respectively as GP's. The deal has produced 1 single distribution in that time and now they have both stopped updating the LP's on the deal and have not had an updates this year. They have now stopped responding and corresponding to emails and the only phone numbers they provide go to a medical facility in Florida and a full VM box that never gets responded to.

Am I just f'd out of my money here with no recourse or do I have any leg to stand on to try and sue them for poor due diligence and not fulfilling the promises made? I've received 2 K1's so if this is fraud then i'd imagine they've committed a federal offence by issuing false documents to the federal authorities. Yes, I am getting desperate but I'm throwing myself to this crowd to see if any one else has gone through something similar or can give me some advice or even to laugh at me and say what an idiot I was, which I know already so save yourself the time!

Regards

Giles Dalrymple

 It seems like a good idea to stay away from syndicates in my humble opinion. I have heard of things like this happening too many times with them.

[Brian Burke]

Quote from @Steven Gesis:

Important takeaway is due diligence review, not only deal level but sponsor track record - yes, past performance is not indicative of future results, but at least it's a metric to review. 

Agreed--but wait, there's more! One of the ways these operators got to the high IRR was to leverage the equity with a lot of debt and senior equity. So in addition to what Steven said about track record and due diligence, investors should pay close attention to how the capital is structured.

High LTVs, short maturities, mezzanine debt, outside preferred equity, and multiple share classes (the recently popular A/B equity structure) all increase risk.  This wasn't taken seriously by many sponsors (who used these methods to attract capital as well as reduce the amount of capital they needed to raise) as well as investors (many of whom didn't understand the risks nor were they educated on these risks by the sponsor outside of a paragraph buried in a 100 page PPM).

[Carlos Ptriawan]

These are some informations I could gather during GP foreclosure or capital calls.
-------------
During a general partner (GP) foreclosure on a multifamily property, how lender protect its capital:

Non-recourse loans with bad boy carve-outs: Many bridge lenders provide non-recourse loans, meaning the borrower is not personally liable. However, they include "bad boy" carve-outs that trigger full recourse if the borrower commits certain bad acts like fraud or voluntary bankruptcy filing.

Abandonment may constitute default: If the GP abandons or surrenders control of the property during foreclosure, it could be considered an unpermitted transfer that violates the loan agreement and triggers the guarantor's full recourse liability for the unpaid loan balance. This incentivizes the GP to stay engaged.

Lenders can pursue guarantor for losses: Even with non-recourse loans, bridge lenders often require the GP to sign a limited guarantee to be liable for lender losses from things like misuse of rents or failure to maintain the property. This provides some protection if the GP neglects responsibilities during foreclosure.

Ability to expedite taking control: Bridge lenders may push for a deed-in-lieu to more quickly take control of a defaulted property versus a lengthier foreclosure process. However, deeds-in-lieu have some risks that the borrower could later challenge the transfer.

Flexibility to work out solutions: Major bridge lenders emphasize their flexibility and creativity to structure deals around a borrower's unique needs. This suggests more willingness than banks to negotiate mutually agreeable resolutions on a troubled asset.

>>>>>>>>>>>>

>>>>>>>>>

Multifamily bridge loans:

Loan Size:

$1 million and up

Loan Term:

Short-term, typically ranging from 6 months to 3 years

Most common range is 12-24 months

Extension options may be available

Interest Rates:

Higher than permanent financing, often in the teens

Rates vary based on creditworthiness and collateral

Generally 7-10.5% for multifamily, 15-24% for other commercial properties

Amortization:

Typically interest-only payments

Maximum Loan-to-Value (LTV):

Up to 75% of total project cost

Capped at 70% of the completed or stabilized property value

Fees:

Origination fees, legal fees, closing costs typically 1.5-3% of loan amount

Fees can include appraisal, administration, escrow, title policy, and notary charges

Other key characteristics of multifamily bridge loans:

Fast closing process, with funds available quickly

Eligibility based more on property value than borrower credit

Often used for acquisitions, renovations, lease-up, or repositioning

Provided by private lenders, venture capital firms, and commercial real estate lenders

Need to be refinanced or paid off quickly via sale or permanent financing

>>>

here is how extension options can impact the overall cost of a multifamily bridge loan:

Extension fees: Exercising an extension option on a multifamily bridge loan typically requires paying an extension fee to the lender. This fee is commonly 0.25% or more of the loan amount. So extending the loan adds an extra cost.

New rate caps may be required: Lenders often require the borrower to purchase new interest rate caps in order to exercise an extension option. Rate caps act as interest rate hedges to limit the borrower's exposure to rising rates on floating-rate bridge debt.

Rate cap costs have increased: The cost of interest rate caps is tied to benchmark rates like SOFR. As SOFR has risen from 0.5% in March 2022 to over 5% more recently, the cost of rate caps has gone up drastically. Having to buy new, more expensive rate caps to extend the loan increases costs for the borrower.

Extensions used when rates are high: Borrowers commonly use extension options when interest rates remain high at the original bridge loan maturity date. The "extend and pretend" strategy hopes rates will be lower when the extension period ends. But there is no guarantee rates will fall, so the borrower risks paying high rates for even longer by extending.

Opportunity cost of capital: Even if the interest rate does not change when the loan is extended, there is an opportunity cost to having capital tied up in the bridge loan for a longer period instead of refinancing to a permanent loan with a lower rate. The higher bridge loan payments over the extended term increase the total cost.

>>>>>>>.

here are the key factors that determine the number of extension options lenders offer for multifamily bridge loans:

Lender's risk appetite and flexibility: The number of extension options is largely at the discretion of each individual lender. Some lenders are more flexible and willing to offer multiple extension options, while others may have stricter terms.

Borrower's creditworthiness and track record: Lenders are more likely to grant extension options to experienced borrowers with strong credit and a proven history of successful multifamily investments. Riskier borrowers may receive fewer or no extension options.

Property performance and stabilization timeline: If the lender believes the property will take longer to stabilize and meet the criteria for permanent financing, they may offer more extension options upfront. Conversely, if the property is expected to stabilize quickly, fewer extensions may be granted.

Market conditions and interest rate expectations: In volatile market conditions or when interest rates are expected to change significantly, lenders may offer more extension options to give borrowers flexibility to time their exit.

Negotiation between borrower and lender: The specific number of extension options is often negotiated on a case-by-case basis between the borrower and lender. Borrowers with strong negotiating power may be able to secure more extension options.

In summary, the number of extension options for a multifamily bridge loan is determined by a combination of the lender's policies, the borrower's qualifications, property-specific factors, market conditions, and individual negotiation. Typical bridge loans offer anywhere from zero to two 12-month extension options, but this can vary widely depending on the specific lender and deal characteristics.

[Carlos Ptriawan]

Quote from @Brian Burke:

Quote from @Steven Gesis:

Important takeaway is due diligence review, not only deal level but sponsor track record - yes, past performance is not indicative of future results, but at least it's a metric to review. 

Agreed--but wait, there's more! One of the ways these operators got to the high IRR was to leverage the equity with a lot of debt and senior equity. So in addition to what Steven said about track record and due diligence, investors should pay close attention to how the capital is structured.

High LTVs, short maturities, mezzanine debt, outside preferred equity, and multiple share classes (the recently popular A/B equity structure) all increase risk.  This wasn't taken seriously by many sponsors (who used these methods to attract capital as well as reduce the amount of capital they needed to raise) as well as investors (many of whom didn't understand the risks nor were they educated on these risks by the sponsor outside of a paragraph buried in a 100 page PPM).

To put it simply: basically it's giving all the risk to LP and if profitable, all profit goes to GP.

[Steven Gesis]

Quote from @Brian Burke:

Quote from @Steven Gesis:

Important takeaway is due diligence review, not only deal level but sponsor track record - yes, past performance is not indicative of future results, but at least it's a metric to review. 

Agreed--but wait, there's more! One of the ways these operators got to the high IRR was to leverage the equity with a lot of debt and senior equity. So in addition to what Steven said about track record and due diligence, investors should pay close attention to how the capital is structured.

High LTVs, short maturities, mezzanine debt, outside preferred equity, and multiple share classes (the recently popular A/B equity structure) all increase risk.  This wasn't taken seriously by many sponsors (who used these methods to attract capital as well as reduce the amount of capital they needed to raise) as well as investors (many of whom didn't understand the risks nor were they educated on these risks by the sponsor outside of a paragraph buried in a 100 page PPM).

 Brian, I read an article in Bloomberg the whole premise of the business plan for a particular operator was a "double pop" and a short-term fix and flip strategy all focused on high velocity  multiple refinance events, floating adjsutable rate and the hope and faith of continued rent growth coupled with low interest rates in multifamily -  never even heard of a "double pop" suppose it can theoretically work, but the in-going cost basis has to be so low, the first lift has to happen so fast like almost within a few months- so the debt has to increase with it quickly, then followed by another lift and refinance in less than 30 monhts - I do not know sounds like a bomb! - personally at SMARTLAND as experienced heavy lift multifamily operators - it is a complex process and requires a team, time and skill - Yes, you can lift a property and value moderlty quickly if you have the right tools and process in place, no doubt, but you have to also have the correct financing tools in place and appropriate cost-basis to withstand turbulence along the way - (no straight path) - the short term mezz loans into this constricted/constrained lending environment is tough, even more tough with raising cap rates, market repricing = requires more time to season and continue to hold, unfortunatley as we have discuss to the max on this forum time was not on this operators side with the short term adjustable mezz loan -

**
Pref Equity has entered many deals in the past 18 months advance of LP positions, also took a GP slice along the way  ---- 

[Victor S.]

Quote from @Chris Seveney:

@Varun Hegde

He is still posting as well on BiggerPockets

where are BP moderators when you really need them? lol posting anything "political" gets you nuked, but scamming (bigly) other members is fine? and now this "get PRO" pop-up that wants me to pay to be a member on here? GTFO

[Brian Burke]

Quote from @Steven Gesis:

 

 Brian, I read an article in Bloomberg the whole premise of the business plan for a particular operator was a "double pop" and a short-term fix and flip strategy all focused on high velocity  multiple refinance events, floating adjsutable rate and the hope and faith of continued rent growth coupled with low interest rates in multifamily -   

I wonder how this is working out for them now. Some of these capital structuring decisions won’t age well.

[JD Martin]

Quote from @Victor S.:

Quote from @Chris Seveney:

@Varun Hegde

He is still posting as well on BiggerPockets

where are BP moderators when you really need them? lol posting anything "political" gets you nuked, but scamming (bigly) other members is fine? and now this "get PRO" pop-up that wants me to pay to be a member on here? GTFO

 There's 3 dots on each post that you can report it if you see something that doesn't seem right. You may not believe it, but I doubt any of the moderators are sitting around waiting for you to post. 

And yes, posting political commentary is going to get you nuked because those are the site rules and we don't own the site. But only your post is getting nuked.

As far as the other complaints:

- "BP is not a serious site anymore" - then why even hang around and post? 

- "this scammer should be banned" - BP has always stayed out of disputes in the forums between investors. There's no good way for the site to have all of the information to make accurate calls on what has happened. I read the thread and the optics don't look good for Lane. It sounds to me like what he's done is at best unethical and at worst possibly illegal, but that's not for BP to say. I will say that the site has banned players who were quite obviously using the site to perpetrate fraud or borderline fraud. But as others have already stated here, the fund collapsing is not the same thing as a scam. The OP has options up to and including contacting financial attorneys and instruments regulators such as the SEC. Those are the real places to get relief. In any case, BP posts rank high in search engines and I can't think of anything this thread can do for his business if someone does even a modicum of due diligence.