Ashcroft capital: Additional 20% capital call

[Jon Zhou]

After many of the Ashcroft capital syndications paused distributions, I get this surprise email this morning saying all LP investors need to pay additional 19.7% of invested capital call  

anyone have experience with capital calls and syndications? Is there ever a position outcome to these or are we putting more money into a failing syndication?

“Thank you for your patience as we continue to navigate our way through this current economic cycle and unprecedented time in the capital markets. We recognize that this email contains a substantial amount of information, which is why a member of our Investor Relations team will be contacting you shortly to address any questions.

We need to solve for three major factors as it pertains to Elliot Roswell:

1. Allow the multifamily market time to stabilize.
   
2. Meet liquidity needs for the rate cap, capital expenditures and unexpectedly high debt payments.
   
3. Resume renovations which have been temporarily paused.
   

How do we achieve this?

Based on feedback from our existing lender, other potential partners, and the significant capital requirements to potentially buy down the loan to refinance, we determined the best path forward is a successful LP capital call of 19.7%. This will allow us to maintain flexibility to potentially sell the property within 24 months.

This is Ashcroft’s first capital call, and while it’s regrettable to take this step, our primary focus remains safeguarding your investment. Therefore, all LPs must participate 

Elliot Roswell is a strong asset that is poised for a strong rebound in value as markets improve. This is due to the property’s institutional quality and the continued growth within the Atlanta market. Moreover, demand and absorption rates are currently at 25-year highs and are continuing to trend in that direction with a 70% reduction in new construction permits and drop off in deliveries in early 2025.

We will maintain flexibility to sell Elliot Roswell as markets improve and anticipate doing so within the next 24 months. In the meantime, we need to cover rate caps costs and resume renovations so that we are best positioned to maximize your potential return.

Why is a capital call necessary?

• Preserving Capital: If this capital call is not successful, we will have to sell Elliot Roswell in an inopportune market. This would result in selling the asset below our basis and incurring a significant loss of LP-invested equity. Specifically, if forced to sell now it would be a total loss of capital for both Class A and Class B.
  
• Replacing Rate Caps: Our rate cap is expiring this year, and the projected replacement cost is $736k.
  
• Resuming Renovations: Given rising inflation and labor costs, our capital expenditure exceeded initial underwriting. This prompted a temporary pause to renovations. However, resuming renovations is essential to increasing revenue, and a capital infusion allows us to resume both interior and exterior renovations. We will consistently evaluate the cost vs. benefit, adjusting the renovation scope as necessary.
  
• Maintaining Lender Requirements & Loan Covenants: We (Joe & Frank) will consistently support you and our other investors through both favorable and challenging times. We’ve already extended a $2.9M interest-free short-term loan to cover various unexpected expenses, including the replacement rate cap over the past 12 months. While this was meant as a temporary solution, it must be repaid promptly to maintain compliance with loan agreements and ens

[Jay Hinrichs]

Quote from @Clark Stevenson:

Quote from @Jay Hinrichs:

Quote from @Shirley Poon:

I got the same email for the capital call several days ago as well. The email commented that the asset management fee is deferred in which I think should be not be paid out until the investors are made whole. Furthermore, there is a comment saying 24 mos return on the capital call, so that is something we'll need to get more details on. 

I've spoken to the rep in Ashcroft and looks like they've seem to exhausted a lot of options before approaching us. I think they are trying to pitch it as an opportunity for us to increase our share to when the sale happens foregoing the waterfall. I think there is more to dive into next week in the meeting and having seen the loans come up due and withholding our payouts to pay for the new floating rates. For me, I need to wait for the Vista to payout for it to then be placed for capital call for this fund. As far as they communicated, no other funds or syndications have asked for the capital call, only Fund I. 

I'm sure if this is on Bigger Pockets there is a lot of their reputation on the line to make investors whole otherwise, no additional investors will invest further due to their capital call and even loss of capital. The email is very well thought out and a lot of solutions placed on the table prior to approaching us. However, I've seen other syndicates use hard money loans to cover and also sponsors that have created a new side car to add capital until relief can be alleviated so that investors are whole. I question if this is really their final approach and wonder changing the deal structure in times of the most dire situation during high interest era is the right approach. 

The tight timeline of obtaining a % during 1 mos for those that invested more may not be feasible for those that may just invest $25k. Accounting for total amt doesn't seem to be taken into consideration. 

To play devils advocate. why should the GP/sponsor solely take the hit on something that seems to be out of most everyone's control or anticipated.. Kind of like the GFC when trillions of equity was wiped out and thousands of RE companies and investors went under. ??

If you strangle the GP ability to survive how does that help the project?

I get it if the companies kind of abandon you and move on to other deals like we are seeing with some of the other Gps on this site.. These guys always struck me as pretty conservative and never posting pics of their lambo or jet or bragging about 1000s of units etc etc.. They seemed pretty humble at least to me.

 @Jay Hinrichs you are absolutely right! GP shouldn't take the whole hit but we also need to realize that they already made 8 figures on the purchase of the assets and they also have a disposal fee in the subscription agreement so the GP's are not going to be losers in this deal regardless of their personal LP investments. 

Ashcroft is waiving the asset management fee so that's a good concession. I've been in 4 syndications and 2 performed amazingly well but I'm thinking my investment in this fund is a total loss. Fortunately, I have not rolled returns into new deals so I'm at a break even right now (assuming a total loss) and my 4th was very selective so unless something goes haywire, I should be in a good position on the exit.

People have to realize that all investments of this kind are highly speculative investments and if you don't believe where it tells you that your "entire investment is at risk," you shouldn't be investing. I read that when I signed the subscription agreement and I believed them. You win some and lose some and you just hope your winners compensate for the losers. I can tell you that I will never do another fund. They have several solid communities in this fund but the losers are dragging the whole fund down.

well the folks that get into syndicating as GPs dont do it to make 100K  year they do it to get wealthy and make millions other wise why would anyone take on the risk of managing the money and then if it does not go right be a target and open to lawsuits and such that will then suck all the money you made out of your pocket.  Reality is they need to stay in business other wise every one is going to get wiped out..  Time to invest in a company that is picking up the bones of these current crop of syndicators that are hemeroging their assets.

[Clark Stevenson]

Understood. I've done OK in my RE investment life. You get some losers from time to time. I agree with you...there are going to be some opportunities but from what I've seen so far, lenders and banks are trying to keep the failures out of the public eye for the most part. Let me know when you have an opportunity. 

[Jay Hinrichs]

Quote from @Clark Stevenson:

Understood. I've done OK in my RE investment life. You get some losers from time to time. I agree with you...there are going to be some opportunities but from what I've seen so far, lenders and banks are trying to keep the failures out of the public eye for the most part. Let me know when you have an opportunity. 

not my sandbox personally.. But I would be following @Brian Burke company he will know when the time is right to strike 

[Todd Goedeke]

@Clark Stevenson with the track record of syndications there is no sane reason for investors to use them for RE investing.

“Win some, lose some”, that’s a pretty cavalier attitude to take when hundreds of thousands of dollars are on the line. There is no need to invest thru syndications when investing directly individually or with a couple partners is available. 
Buy or use new construction to triple net lease to a manager at 10 cap terms.

[Clark Stevenson]

@Todd GoedekeI can see how you might see that be a cavalier attitude but it is a mindset that an investor must have in order to not be petrified on future projects that carry high risk. 

I am an investor in other lower risk projects that provide a safer, more predictable return but in my investments, I would never get involved on a 10 cap deal. I guess I am fortunate that I have opportunities for a better cap rate or maybe I just have a higher risk tolerance but that's how I approach investments and it has worked for the last 25 years.

[Carlos Ptriawan]

Quote from @Clark Stevenson:

Understood. I've done OK in my RE investment life. You get some losers from time to time. I agree with you...there are going to be some opportunities but from what I've seen so far, lenders and banks are trying to keep the failures out of the public eye for the most part. Let me know when you have an opportunity. 

 the way I read the sentence is like the following :

the non-lender banks are trying to keep the failure out of the public because if syndication is unsuccesful it is good for them because they get an expensive asset for cheap and/or they can resell it again to another gp group ; for the CLO lender they can mix/swap around the debt tranches to someone else. the actual guy that's losing money here is the equity owners of both the equity part such as LP investor and the debt owner such as the junior posiiton. 

And for the big bank, their biggest issue is still our residential bond, where they loaned for 3% rate ; for them, if we do refinance or we're bankrupt, that's actually good also for them, because it means money. And they know as long as they dont have to sell their bond like in SVB case they would be ok.

So whatever really happened here, either it's small investor losing money or the smaller lender is facing bankruptcy, big bank like jp morgan is still winning regardless.

[Clark Stevenson]

Quote from @Scott Trench:

Is this asset underwater? Call a commercial broker in the area and ask what cap rate similar properties are being sold at. Multiply the NOI of the property over TTM, ignoring all "adjustments" from sponsor. That's what your property is worth. Hopefully this comps with sponsor.

Now, let’s make up numbers in two cases:

Case 1:
assume a fictional asset was bought at $100M with $65M in debt. Let's say it is now worth $50M, because NOI has plummeted and cap rates have risen im a brutal 1-2 punch. a $7-8M capital call leaves you underwater by several million dollars.

I’d personally be tempted to Just hand the keys back in this case and bow out of the capital call. Sponsor diluted my equity,.. so what? My equity is negative $8M…. AFTER capital call.

Case 2:

Sponsor purchases asset for $100M using $65M in debt. Asset has plummeted to $80M in value.

Sponsor needs to raise $7M (20% capital call) to save the other $8M.

Time to participate in the capital call as an LP in this case.

Now I have no idea what the situation with this deal or fund is, this is just my framework for evaluating a situation like this. I’ll take “dilution” of nothing. But I don’t  want dilution of something reasonable.

 First, thanks so much @Scott Trench and Bigger Pockets for hosting this forum. This has been a huge help just to know I am not alone in this capital call. BIG THANKS!!! Also, a huge shoutout to @Brian Burke @Jay Hinrichs and many others who have spoken out of decades of experience.

The Ashcroft Value Fund 1 is not a single apartment community. It is 8 communities that are located: a) 2 in the greater Atlanta area b) 2 in Arlington, TX c) 2 in Orlando d) 1 in Jacksonville, FL and e) 1 between Orlando and Tampa so it gets very complicated, very quickly.

The big issue is the 2 north of Atlanta and interest rates. The Atlanta communities have been so bad that it doesn't matter what the rest of the portfolio has done and those haven't been without issues of their own. It is simply a mess.

[Carlos Ptriawan]

Quote from @Clark Stevenson:

Quote from @Scott Trench:

Is this asset underwater? Call a commercial broker in the area and ask what cap rate similar properties are being sold at. Multiply the NOI of the property over TTM, ignoring all "adjustments" from sponsor. That's what your property is worth. Hopefully this comps with sponsor.

Now, let’s make up numbers in two cases:

Case 1:
assume a fictional asset was bought at $100M with $65M in debt. Let's say it is now worth $50M, because NOI has plummeted and cap rates have risen im a brutal 1-2 punch. a $7-8M capital call leaves you underwater by several million dollars.

I’d personally be tempted to Just hand the keys back in this case and bow out of the capital call. Sponsor diluted my equity,.. so what? My equity is negative $8M…. AFTER capital call.

Case 2:

Sponsor purchases asset for $100M using $65M in debt. Asset has plummeted to $80M in value.

Sponsor needs to raise $7M (20% capital call) to save the other $8M.

Time to participate in the capital call as an LP in this case.

Now I have no idea what the situation with this deal or fund is, this is just my framework for evaluating a situation like this. I’ll take “dilution” of nothing. But I don’t  want dilution of something reasonable.

 First, thanks so much @Scott Trench and Bigger Pockets for hosting this forum. This has been a huge help just to know I am not alone in this capital call. BIG THANKS!!! Also, a huge shoutout to @Brian Burke @Jay Hinrichs and many others who have spoken out of decades of experience.

The Ashcroft Value Fund 1 is not a single apartment community. It is 8 communities that are located: a) 2 in the greater Atlanta area b) 2 in Arlington, TX c) 2 in Orlando d) 1 in Jacksonville, FL and e) 1 between Orlando and Tampa so it gets very complicated, very quickly.

The big issue is the 2 north of Atlanta and interest rates. The Atlanta communities have been so bad that it doesn't matter what the rest of the portfolio has done and those haven't been without issues of their own. It is simply a mess.

just ask the actual real time DSCR for all properties if average is below 0.9-0.8 the lp money is gone. If GP syndicator is gone for bankruptcy the lender is happy.

[Carlos Ptriawan]

These are the actual surveillance asset condition from one pool of CLO from one the bridge-lender mentioned above , look at AS-IS DSCR.

It's game over buddy, the status of their loan is 100% in trouble with 3 in watch list and most is at loan extension, to get loan extension the GP may ask for capital call for further reserve.

[Clark Stevenson]

Quote from @Carlos Ptriawan:

Quote from @Clark Stevenson:

Understood. I've done OK in my RE investment life. You get some losers from time to time. I agree with you...there are going to be some opportunities but from what I've seen so far, lenders and banks are trying to keep the failures out of the public eye for the most part. Let me know when you have an opportunity. 

 the way I read the sentence is like the following :

the non-lender banks are trying to keep the failure out of the public because if syndication is unsuccesful it is good for them because they get an expensive asset for cheap and/or they can resell it again to another gp group ; for the CLO lender they can mix/swap around the debt tranches to someone else. the actual guy that's losing money here is the equity owners of both the equity part such as LP investor and the debt owner such as the junior posiiton. 

And for the big bank, their biggest issue is still our residential bond, where they loaned for 3% rate ; for them, if we do refinance or we're bankrupt, that's actually good also for them, because it means money.

So whatever really happened here, either it's small investor losing money or the smaller lender is facing bankruptcy, big bank like jp morgan is still winning regardless.

 Actually, I was at the unfortunately named "Best Ever Conference" in Salt Lake 2 weeks ago that Joe Fairless (Ashcroft) helped start and all the talk from some very highly placed economists and analysts was that the regulated lenders and banks were the focus. I'm certain the private entities want to stay out of the spotlight. The issue with the public lenders is having a repeat performance of the negative results of entities like Silicon Valley Bank and New York Community Bancorp. Therefore, we are getting the "pretend and extend" maneuver to make loans conforming, asset swaps, capital calls, and every trick they have in their playbook to push the problem down the road.

Overall, you nailed it! The big banks are going to mop of the assets of the small banks, larger operators are going to get more realistic prices on good assets, and the little guy is going to get the sharp edge of the stick!

[Clark Stevenson]

Quote from @Carlos Ptriawan:

These are the actual surveillance asset condition from one pool of CLO from one the bridge-lender mentioned above , look at AS-IS DSCR.

It's game over buddy, the status of their loan is 100% in trouble with 3 in watch list and most is at loan extension, to get loan extension the GP may ask for capital call for further reserve.

Those are nightmare numbers. On the 2 assets in Atlanta, my assumption is the DSCR is somewhere between 0.65 and 0.85 given the numbers provided by the GP. That's why I am assuming at this point I am wiped out!

[Carlos Ptriawan]

Quote from @Clark Stevenson:

Quote from @Jay Hinrichs:

People have to realize that all investments of this kind are highly speculative investments and if you don't believe where it tells you that your "entire investment is at risk," you shouldn't be investing. I read that when I signed the subscription agreement and I believed them. You win some and lose some and you just hope your winners compensate for the losers. I can tell you that I will never do another fund. They have several solid communities in this fund but the losers are dragging the whole fund down.

 in my opinion, rentonomics are actually extremely very simple and it is NOT Speculative.
In real nature the most speculaive business is something like us what we produce in tech and biotechnology where we create product that we don't know who is going to buy that.

Rent is extremely simple, you pay $1K your cost $900 unit you make $100, this is extremely simple business.

THe thing is the valuation in 2020 is at extremely high, which is at cap 3 and cap 4.

Interest rate at that time was 0 . If interest rate remains zero and because they use short term financing, then the expected nature for this business is to sell this asset again at maturity.

However interest rate is rising, when interest rate is rising , the valuation is going down, and if interest rate is going down high enough exceeding cap rate, the equity would be wiped out. It is very simple.

IF and IF the GP uses 30 year financing (just assume this product exist), even with variable rate every 10 year, then this problem never exist.

( The very beautiful thing about 30Y fixed rate for residential guaranteed by gov. is that the equity owner is forever in good shape financially ) ...

So imo CRE is not speculative, but most investor has no clue to measure and understand the impact of interest rate, cap rate and short term / long term financing and fixed/variable debt.

[Carlos Ptriawan]

Quote from @Clark Stevenson:

Quote from @Carlos Ptriawan:

These are the actual surveillance asset condition from one pool of CLO from one the bridge-lender mentioned above , look at AS-IS DSCR.

It's game over buddy, the status of their loan is 100% in trouble with 3 in watch list and most is at loan extension, to get loan extension the GP may ask for capital call for further reserve.

Those are nightmare numbers. On the 2 assets in Atlanta, my assumption is the DSCR is somewhere between 0.65 and 0.85 given the numbers provided by the GP. That's why I am assuming at this point I am wiped out!

These bridge-lender guys are suicidal, they offered a GP at 90% LTV with appraisal as-is DSCR of 0.90.
I assume the lender just offer the loan to 'not too smart GP' so the lender can acquire this property for cheap while LP is paying the bills becoz no matter what GP is still paid by the LP anyway.

these are suicidal project. These are similar to subprime 2008 except this is slightly more complicated.

[Clark Stevenson]

Quote from @Carlos Ptriawan:

Quote from @Clark Stevenson:

Quote from @Jay Hinrichs:

People have to realize that all investments of this kind are highly speculative investments and if you don't believe where it tells you that your "entire investment is at risk," you shouldn't be investing. I read that when I signed the subscription agreement and I believed them. You win some and lose some and you just hope your winners compensate for the losers. I can tell you that I will never do another fund. They have several solid communities in this fund but the losers are dragging the whole fund down.

 in my opinion, rentonomics are actually extremely very simple and it is NOT Speculative.
In real nature the most speculaive business is something like us what we produce in tech and biotechnology where we create product that we don't know who is going to buy that.

Rent is extremely simple, you pay $1K your cost $900 unit you make $100, this is extremely simple business.

THe thing is the valuation in 2020 is at extremely high, which is at cap 3 and cap 4.

Interest rate at that time was 0 . If interest rate remains zero and because they use short term financing, then the expected nature for this business is to sell this asset again at maturity.

However interest rate is rising, when interest rate is rising , the valuation is going down, and if interest rate is going down high enough exceeding cap rate, the equity would be wiped out. It is very simple.

IF and IF the GP uses 30 year financing (just assume this product exist), even with variable rate every 10 year, then this problem never exist.

( The very beautiful thing about 30Y fixed rate for residential guaranteed by gov. is that the equity owner is forever in good shape financially ) ...

So imo CRE is not speculative, but most investor has no clue to measure and understand the impact of interest rate, cap rate and short term / long term financing and fixed/variable debt.

From an academic perspective, I agree with you...CRE should not be speculative but as @Brian Burke pointed out, for conservative operators, there were NO opportunities during this time period because all of the speculative operators bid up the prices to insane levels and they relied on rubes like me to fund this speculative bubble. Many of these worked out but this one did not.

From the real world, all investments are speculative as Silicon Valley Bank found out with the gold standard of investments- Treasuries. Why they didn't hedge this investment is a whole other story.

[Todd Goedeke]

@Clark Stevenson I call a STVR a 10 cap property meaning that a management company will pay via a triple net lease 10% of the construction value of a STVR. Value $500,000 x 10% = 50k income resulting in a 15%+ cash on cash return.

You say you have done well with your investment philosophy over 25 years. What does “ well” mean in terms of ConC return?

[Brian Bernstein]

Quote from @Carlos Ptriawan:

Quote from @Clark Stevenson:

Quote from @Carlos Ptriawan:

These are the actual surveillance asset condition from one pool of CLO from one the bridge-lender mentioned above , look at AS-IS DSCR.

It's game over buddy, the status of their loan is 100% in trouble with 3 in watch list and most is at loan extension, to get loan extension the GP may ask for capital call for further reserve.

Those are nightmare numbers. On the 2 assets in Atlanta, my assumption is the DSCR is somewhere between 0.65 and 0.85 given the numbers provided by the GP. That's why I am assuming at this point I am wiped out!

These bridge-lender guys are suicidal, they offered a GP at 90% LTV with appraisal as-is DSCR of 0.90.
I assume the lender just offer the loan to 'not too smart GP' so the lender can acquire this property for cheap while LP is paying the bills becoz no matter what GP is still paid by the LP anyway.

these are suicidal project. These are similar to subprime 2008 except this is slightly more complicated.

Damnit ,  150K Poof

[Clark Stevenson]

@Todd Goedeke Not familiar with STVR. 15% cash on cash is very good. In terms of ConC over my 25 years, my return is infinite. The reason is I started literally with nothing and a $25k loan from a credit card and now, along with my brother have 3 good, cash flowing businesses, residential RE, commercial RE, a country club, and stocks and other investments. The last syndication I participated as a LP had a ConC return north of 40% annualized but that one exited right at the top of the market.

[Dan H.]

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Chris Seveney:

Quote from @Todd Goedeke:

@Carlos Ptriawan an additional question is why Bigger Pockets does not print more posts about how to analyze syndications and the red flags involved.

 honestly I do not think that is their responsibility on the forums. They are starting passive pockets which appears geared toward passive investments. Most of the posts are from members, which there are a lot of posts about there how to analyze them, the issue is most people IGNORE them. 

Now when you want to talk about BPCON or other events and books, podcasts etc. They are a business, and not knocking them, but what sells? Someone getting rich quick in real estate and sharing their story or the guy who builds a $25M portfolio over 10-20 years?  It is the former because people want it now.

 the problem started when people is buying without thinking of the risk.

most people only want to buy the income stream from rentonomics.

the problem with basic investors are they do not understand when we invest to equity or even debt is that we are buying the spread actually.

in cheap money financial regime, with interest rate of 1% and cap rate of 7% we have positive 6% spread which I feel the risk/reward is sufficient to proper for any rentonomics to run.

but we're in expensive money regime now with interest rate of 5% and cap rate of 3-4% (depending on class) so we have negative spread of 1% where it's guaranteed investor would lose money. 

there's also issue with supply especially in sunbelt.

i meant it's not the fault of GP but it is the fault of LP mosty because they do not understand all these risk.

when interest rate is high like these, obvious choice is to move from equity investment into debt investment (conservatively of course). 

when cash could generate s much as money as when we work, obviously we can also try to add more allocation to cash position rather than equity investment.

And all of these are actually predictable, when Fed prints gazzilion tons of money during covid, the problem in 2024 is expected to happen.

What? The GP’s are not at fault?? Are you serious? Do you even know how the syndicators operate? The GP’s take advantage of unsophisticated retail investors and lure them in with promises of high returns, then they take stupid amounts of risk with that capital - acquiring run down properties at ridiculous prices (2%, 3%, 4% cap rates)and leveraging them so much with FLOATING rate debt that they basically have 0 equity in the deal. Look at Tides Equities, who is the most prolific offender. Between 2020 and 2022 they acquired something like $6B worth of real estate, more than tripling their portfolio…it is impossible for all those investments to be purchased at reasonable prices because if they were, competitors would also acquire them. The ONLY way for these syndicators to win every deal is by paying way over the competition. And why do they do this? Fees, fees, and more fees. LP’s are charged a fee at acquisition, renovation, asset management, disposition, so when the investment goes south, only the LP’s lose money while th GP’s made it out like a bandit with all the fees and 0 equity in the deal. This is how syndicators operate and you have the balls to say that they are faultless? That’s the equivalent of your financial advisor charging you a management fee, investing all you capital into crypto or penny stocks, and when your portfolio goes to 0 they say to you “well you should have known the risks.” And you’re saying the financial advisor is free of fault? I’m not saying the LP’s are faultless, but they unsophisticated and naive. The GP’s know this and prey on them. So no, the blame does not primarily lie with the LPs. The GP’s are primarily to blame. 

> GP’s take advantage of unsophisticated retail investors and lure them in with promises of high returns

The reason syndications are restricted to accredited investors is an attempt to restrict the offers to sophisticated investors.   You could state high income or high net worth does not equate to financial literacy, but without an actual test it may be the best indicator. 

Investors have to do their due diligence.  They have to recognize risk versus reward.  They have to take responsibility. 

Between 2012 enter and 2021 exit or near exit, virtually every RE syndication performed well.  Many returned near 20% annualized returns.  Did you think these returns came without risk?

I am in a syndication that for the first time I am concerned about loosing some of my investment.  Did I think this investments had zero risk?   I posted multiple times over the last few years that the previous returns of RE syndications were unlikely to continue.  Even though I posted this, I chose to enter 3 new syndication (2 fully RE related and one an RE hybrid).   I recognized there was risk.  I thought the reward justified the risk, but it appears one may not preserve my investment (time will tell). Regardless if I lose my initial investment or not, I am responsible.  I analyzed the risk and reward and decided to invest.  I knew the fed had announced intent to raise rates.  I thought it unlikely that any time soon we would see mortgages at or near 3%. I still chose to invest believing in their plan and their ability to still produce an LP return that warranted the risk.  I was not investing in RE syndications that were solely going to rehab and improve management.  I was investing in more sophisticated value add offerings. 

The GPs find the best opportunities they can recognizing that the risk/return outlook needs to be able to get LP investors.  The present their syndication opportunity to potential accredited LP investors who do their due diligence and either invest  or don’t.  The due diligence   The GP then attempt to maximize the profits for their benefit and the benefit of the LPs.

I have little doubt that active RE investors can produce a better return than RE syndications.  However, RE syndications can produce good passive returns, but they come with risks.  LPs need to understand the risks versus rewards and make educated decisions.   They must recognize their responsibility.  

I wish those invested in Ashcroft capital a best case outcome.  

[Brian Burke]

Quote from @Clark Stevenson:

Acknowledging with empathy the fresh wounds you are experiencing here, I'll present a devil's advocate position on funds:  This is a feature, not a bug.  

In a different post I saw you say that the fund owns 8 assets in 4 markets.  That's a well-designed portfolio from a geographical diversification standpoint.  If the capital stack is well-designed (I'm not opining on that because I know nothing about how this stack is structured), the feature of the fund is that 2 under-performing properties or one underperforming market shouldn't take down the whole fund, just be a headwind to achieving the desired returns.

Investing in a single-asset syndication isn't a play on multifamily real estate as an asset class.  Instead, you are investing in that specific asset.  If the asset you picked turns out to be the one running into trouble and sells at a loss, you're completely or partially wiped out.  If you happened to pick the one that is doing well, you'll do well.  But you're leaving it up to luck, and luck isn't the best strategy.  And for those who say they'll only pick the winners because they can spot them, I'd argue that your luck will one day run out too--even deals that look great in the beginning can turn on a dime.

A well-designed fund that has a couple of losers and a lot of winners has the option to sell the underperforming assets, even if at a loss, and carry on with the winners.  Eventually markets correct and the winners can produce gains that make up for the losing asset's losses and investors can eventually come out the other side whole, and have a shot at a profit, even if the continuation plan requires a capital call.  It doesn't always work out that way, but it can.  With single-asset deals that are losers, this option is off the table, if the deal is sold at a loss investors take a loss with no chance of recovery.

Just food for thought as there are pros and cons to every structure.

[Brian Burke]

Quote from @Dan H.:

Investors have to do their due diligence.  They have to recognize risk versus reward.  They have to take responsibility. 

Between 2012 enter and 2021 exit or near exit, virtually every RE syndication performed well.  Many returned near 20% annualized returns.  Did you think these returns came without risk?

I am in a syndication that for the first time I am concerned about loosing some of my investment.  Did I think this investments had zero risk?   I posted multiple times over the last few years that the previous returns of RE syndications were unlikely to continue.  Even though I posted this, I chose to enter 3 new syndication (2 fully RE related and one an RE hybrid).   I recognized there was risk.  I thought the reward justified the risk, but it appears one may not preserve my investment (time will tell). Regardless if I lose my initial investment or not, I am responsible.  I analyzed the risk and reward and decided to invest.  I knew the fed had announced intent to raise rates.  I thought it unlikely that any time soon we would see mortgages at or near 3%. I still chose to invest believing in their plan and their ability to still produce an LP return that warranted the risk.  I was not investing in RE syndications that were solely going to rehab and improve management.  I was investing in more sophisticated value add offerings. 

The GPs find the best opportunities they can recognizing that the risk/return outlook needs to be able to get LP investors.  The present their syndication opportunity to potential accredited LP investors who do their due diligence and either invest  or don’t.  The due diligence   The GP then attempt to maximize the profits for their benefit and the benefit of the LPs.

I have little doubt that active RE investors can produce a better return than RE syndications.  However, RE syndications can produce good passive returns, but they come with risks.  LPs need to understand the risks versus rewards and make educated decisions.   They must recognize their responsibility.  

I wish those invested in Ashcroft capital a best case outcome.  

Too bad BP doesn't let you vote for a post twice.  Very well said, Dan.

Of course just like any industry there are less competent operators and even downright fraud actors, but the vast majority of experienced operators (especially the ones that have been around the block a few times and survived adverse market cycles) are working with the investor's best interests in mind and strive to produce the best result possible under whatever circumstances they are dealt, even when the going gets tough.  If that wasn't the case, they wouldn't have survived in business as long as they have, and/or wouldn't have a long future.

[Carlos Ptriawan]

Quote from @Brian Burke:

Quote from @Clark Stevenson:

Acknowledging with empathy the fresh wounds you are experiencing here, I'll present a devil's advocate position on funds:  This is a feature, not a bug.  

In a different post I saw you say that the fund owns 8 assets in 4 markets.  That's a well-designed portfolio from a geographical diversification standpoint.  If the capital stack is well-designed (I'm not opining on that because I know nothing about how this stack is structured), the feature of the fund is that 2 under-performing properties or one underperforming market shouldn't take down the whole fund, just be a headwind to achieving the desired returns.

Investing in a single-asset syndication isn't a play on multifamily real estate as an asset class.  Instead, you are investing in that specific asset.  If the asset you picked turns out to be the one running into trouble and sells at a loss, you're completely or partially wiped out.  If you happened to pick the one that is doing well, you'll do well.  But you're leaving it up to luck, and luck isn't the best strategy.  And for those who say they'll only pick the winners because they can spot them, I'd argue that your luck will one day run out too--even deals that look great in the beginning can turn on a dime.

A well-designed fund that has a couple of losers and a lot of winners has the option to sell the underperforming assets, even if at a loss, and carry on with the winners.  Eventually markets correct and the winners can produce gains that make up for the losing asset's losses and investors can eventually come out the other side whole, and have a shot at a profit, even if the continuation plan requires a capital call.  It doesn't always work out that way, but it can.  With single-asset deals that are losers, this option is off the table, if the deal is sold at a loss investors take a loss with no chance of recovery.

Just food for thought as there are pros and cons to every structure.

The problem with the fund is execution, if they are reckless they could buy it wrong and we have no power to accept/refuse as money already gone

with single asset lo can do very heavy DD prior to acquisition 

[Todd Goedeke]

@Clark Stevenson ConC is calculated for each separate RE investment on an annualized basis.

[Jason Piccolo]

I just contributed my 19.7%. They seem to have a good business plan moving forward on refinancing the current debt and are adjusting the splits 85/15. Ashcroft is also offering additional GP equity on a future deal. 

[Manuel Angeles]

What have been your returns % to-date?

[Jason Piccolo]

For B shares it has been a cumulative 7% annually, but they stopped distributions more than a year ago. Moving forward with the capital call they eliminated the 70/30 split up to a 13% IRR and made it a straight 85/15.