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

[Chris Seveney]

@Giles D.

Lane I believe is a frequent contributor here on BP - I believe he changed the name of his company to the wealth elevator.

Maybe tag him in the post.

[Giles D.]

@Lane Kawaoka Correct, they did change the company name, I've tried and failed many times to get in contact with him. His COO was supposed to call me yesterday with a pre-arranged time and he never called. Emailed both of them and they have yet to respond.

I've tried all avenues to contact them but they've stopped responding. Hence why i'm opening this up to the forum to see if anyone else is having issues with these guys. 

[Brian Burke]

@Giles D., is the deal you invested in called "The Aubrey" in Houston?

[Giles D.]

It is, it has NOT gone well.

[Giles D.]

magically the COO has just sent me an invite to talk. Guessing someone here is in contact with the team over there!

[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.  

[Giles D.]

Thank you for your honesty and due diligence Brian. 

I've prepared for this mentally but it still doesn't prepare you for the reality of losing the money. God will judge them in the end.

Regards

Giles

[Giles D.]

If anyone has any experience or can give me a recommendation on what to do now I'd greatly appreciate it. Assume I'll receive a total loss on the final K1?

[Chris Seveney]

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.  

 How the heck does a sponsor get foreclosed on and not notify their investors. Wow. I hope it was an "omission" and a bad email address or something - geesh.

[Giles D.]

no, this was none of that. There's a shared drive on google where the monthly reports were supposed to go but they stopped updating this year. They also have a website for the investment documents and tracking of distributions, which was a 1 line entry as that's the only one I received. 

[Chris Seveney]

@Giles D.

You may actually owe the IRS money if they claimed bonus depreciation. This has happened on other funds that lost everything. People got the double whammy.

[Jordan Connett]

@Giles D.

Unfortunately, i think Chris is right. check your past K-1s and see if they did a cost segregation and accelerated the depreciation. Sadly there are a lot of new syndicators that done know totally what to do.

[Carlos Ptriawan]

Quote from @Jordan Connett:

@Giles D.

Unfortunately, i think Chris is right. check your past K-1s and see if they did a cost segregation and accelerated the depreciation. Sadly there are a lot of new syndicators that done know totally what to do.

Everyone that purchased MF with bridge lender after 2020 is almost guaranteed to lose money….

I heard it started moving to industrial too this year and some debt funds also got hit on different circumstances  

[Dan H.]

Definitely the good returns of residential syndications of a few years ago are largely a thing of the past. 

Note syndication are open to existing relationships or accredited investors only because their reporting/disclosures do not meet the requirements of public companies.  This equates to higher risk. 

I believe one of the syndications I am an LP is doing poorly but the GPs have not yet admitted as much publicly.  I hope I am wrong, but I was aware of the risks when I invested.  

Commercial residential MF has taken a beating.  It makes sense that most syndications in that space have taken a beating. 

Office space is even worse.  

Good luck

[Chris Seveney]

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

 @Lane Kawaoka do you want to provide an update on this?

[Victor S.]

Quote from @Chris Seveney:

 @Lane Kawaoka do you want to provide an update on this?

of course he doesn't lol

covering his investors on this "project" should be small potatoes for this high roller:

"Today I own over 10,000 rentals and handling assets worth $2.1 billion..."

[Giles D.]

@Chris Seveney @Jordan Connett would you be able to shed some light on what to look for on the K1. I know they talked about cost segregation leading up to the investment.

[Jordan Connett]

@Chris Seveney -  on your historical K1 look to see if you had a positive or negative. usually the first year is when they would do the cost seg and you'll see a large loss. Often it will be around 20-25% of your initial investment as a loss.

[Giles D.]

correspondence between me and Lane.

Giles,

One of the biggest misnomers is that the tax benefits on syndications are worse than owning rentals which is false especially when doing a cost segregation.

I just got back the estimate for Aubrey Apartments in Houston to which we will likely implement in year 1 of the deal.

Based on our consultant's estimates, it looks like for every 100k invested, passive investors look to get back 58k in losses in the first year alone.

Assumptions: 10M of losses first year, 70LP/30GP split assuming total capital raise of 12M... 10/12 x 70% = 58%. Math don't make sense, it does not matter as it will be on your 2021 K1 form to hand off to your CPA.

[Giles D.]

So when a deal is successful and sold (full cycle) what happens then?

All investors will have to pay back the depreciation recapture (losses taken throughout the hold) and capital gain (the big payout on the end which is sale minus cost basis). But don't despair because although this is the case when you look at it myopically, in reality most investors go into multiple deals accumulating 100s of thousands of passive activity losses in their first few years investing. Those losses do not go away, but they become suspended to be used to offset future passive income and sales/capital events like this in the future. When you exit a deal, what normally ends up happening (like Tom Brady keep winning more Super Bowls) is that you go into two more deals (with now double the amount of capital) and you will likely find that with those new K1s you could result in you having way more passive losses you began with If you can see where this is going... yes, experienced investors with a lot of capital deployed might have 500k-1M+ suspended passive losses and have not paid taxes in years and do not appear to pay taxes for years! (you can find how much suspended passive losses you currently have on your IRS Form 8582 - which your CPA is likely not giving to you and in that case you should get a new one)

PS - I am not an CPA or attorney but I became FI doing this for myself after 10 years working as a w2 engineer :( and I am sick and tired of seeing highly educated and hard working professionals getting stuck.

[Giles D.]

there it is! good to know that Lane was sick and tired of seeing hard working professionals get stuck, so decides to do the sticking himself.

[Chris Seveney]

Quote from @Victor S.:

Quote from @Chris Seveney:

of course he doesn't lol

covering his investors on this "project" should be small potatoes for this high roller:

"Today I own over 10,000 rentals and handling assets worth $2.1 billion..."

if you believe they own 10,000 rentals outright then I have some swampland in florida.
the "i own" is "I am a GP/Co-GP" who manages a LLC that the GP owns 30% of that has X doors. the use of  "I" is always misleading. The question also is how much debt is on the assets? 

[Carlos Ptriawan]

Quote from @Giles D.:

So when a deal is successful and sold (full cycle) what happens then?

All investors will have to pay back the depreciation recapture (losses taken throughout the hold) and capital gain (the big payout on the end which is sale minus cost basis). But don't despair because although this is the case when you look at it myopically, in reality most investors go into multiple deals accumulating 100s of thousands of passive activity losses in their first few years investing. Those losses do not go away, but they become suspended to be used to offset future passive income and sales/capital events like this in the future. When you exit a deal, what normally ends up happening (like Tom Brady keep winning more Super Bowls) is that you go into two more deals (with now double the amount of capital) and you will likely find that with those new K1s you could result in you having way more passive losses you began with If you can see where this is going... yes, experienced investors with a lot of capital deployed might have 500k-1M+ suspended passive losses and have not paid taxes in years and do not appear to pay taxes for years! (you can find how much suspended passive losses you currently have on your IRS Form 8582 - which your CPA is likely not giving to you and in that case you should get a new one)

PS - I am not an CPA or attorney but I became FI doing this for myself after 10 years working as a w2 engineer :( and I am sick and tired of seeing highly educated and hard working professionals getting stuck.

 Cost segregation benefits the GP but not lo

[Carlos Ptriawan]

Quote from @Giles D.:

there it is! good to know that Lane was sick and tired of seeing hard working professionals get stuck, so decides to do the sticking himself.

 If you think about it by following the risk rewards and the money trails … folks should only invest to the lender side.

The liberalization of accredited investor in 506b/c is simply problematic , investor was used to be institution

[Russell Brazil]

Funny enough his BP profile says this in his bio....

"My parents got screwed with the 401K and stock market and it's my mission to get everyone out of that "garbage!" I used to own three rentals in Seattle but after 2012 when the prices got too high I realized that sophisticated buy-and-hold investors invest where the numbers make sense with cash flow, not appreciation (gambling). I bought 100k homes for blue-collar working families that rented for 1000 dollars a month that more than paid for all repairs, vacancy, insurance, professional property management, and capital expenses."

What he wrote here indicates he actually doesnt have any background in financial analysis, and doesnt understand that the cash flow, or cap rates are a reflection of the risk. Seattle which he shied away from has lower cash flow/cap rates specifically because it is lower risk. Being lower risk means that it is more resilient to price drops, or deltas from expected appreciation rate. 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. 

There is a reason you need to be accredited to invest in these syndications. These companies do not have the type of oversight or reporting requirements that public companies have. They are by that very nature going to have higher risk based just on that fact alone.  There are good syndicators out there like Brian Burke above. But most of the people I personally know running these syndications...I wouldnt trust them to run a corner store. But even with the best operators, this is investing. There is risk. You can have the best operator who has the the highest degree of ethics, and you can still lose your money. There is always the risk of losing the entirety of the investment.