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

[Carlos Ptriawan]

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

same illustration would be, if I'm investment sales guy and come to your office and say "hey we know company that going from $1 to $100 because this company has cure for cancer, please invest 1 mil to this company, would you believe it ??"

i guess some of the lp folks are not even care about the actual rental situation because some of the question are really surrounding waterfall only  , while metrics like ltv/dscr/EGI and the suitability of biz plan is not being asked.

You’re just full of poor logic and flawed reasoning. I’m honestly not surprised you continued investing in the syndicators despite “predicting a bubble and telling yourself not to.”  

In your cure for cancer scenario, the investment sales guy, you know…the guy implementing the scam is obviously to blame. Like what? I’m not saying that those who invest in his scam shouldn’t have been more cautious and smarter, but the blame that falls on them is no where near the amount that falls on the investment sales guy aka the SCAMMER. Are you seriously this dense? When a woman wears revealing clothing and gets sexually assaulted, would you blame the woman for wearing revealing clothes or the guy who assaulted her? When an elderly person gets a call from a scammer in India and falls for it, would you blame the elderly person or the scammer? It might do you some good to google “victim blaming”

 Just use common sense , those apartment is still operating whether the cap rate is 2 or 9.

The actual question is why LP want to invest at cap rate 3 market is beyond me

That is your argument? Really? Honestly quite a pathetic one. If you're going to continue claiming that the GP's/syndicators are 100% guilt free and that the LP's are 100% to blame you're going to need a much better argument than "Just use common sense." You do know what the term "unsophisticated" means right?

As evidenced by your inconsistency in assigning fault in the 2008 Financial Crisis and today's GP's vs LP's and your inability to explain your inconsistency, you clearly haven't thoroughly thought out why you believe that the homeowners/borrowers are not to blame in 2008 and why LP's are to blame today. Perhaps you should do that before blindly blaming victims.

LOL , please use basic math in excel sheet :

see the spread right there is very thin.
You have apartment running at cap rate 3. you have bridge loan with SOFR running at 5-6%+1.2/1.5 spread.
You have building worth 1 mil. Your NOI is only hardly 30K per year. Hardly any cash flow.
You can't even serve your debt service.

How do you make money if you are the GP ? your liability is higher than asset.
What do you want your GP to do ? raise from $2500 rent to $3000 ? then everyone would move to next apartment.

These are index-based of core-apartment from all biggest apartment owners in US. In short every apartment valuation went down 15% in this year alone. And these should not be surprising becoz the spread is just negative. It's recession in CRE-world.

I'm not really sure what the relevance of these charts and data is...the whole discussion here is syndicators taking advantage of unsophisticated LP's. My whole point is that these LP's are unable to perform these types of analyses and that is why the syndicators prey on them, but you are suggesting that LP's should do the same analysis that you just did...but since they are unsophisticated, they are unable to...You are making my point for me and don't even know it...

The fact you don't understand the above data meaning you are not qualified to invest at CRE , the chart is about all the market risk.

this is why you can’t blame everything to the GP.

[Wesley Leung]

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

same illustration would be, if I'm investment sales guy and come to your office and say "hey we know company that going from $1 to $100 because this company has cure for cancer, please invest 1 mil to this company, would you believe it ??"

i guess some of the lp folks are not even care about the actual rental situation because some of the question are really surrounding waterfall only  , while metrics like ltv/dscr/EGI and the suitability of biz plan is not being asked.

You’re just full of poor logic and flawed reasoning. I’m honestly not surprised you continued investing in the syndicators despite “predicting a bubble and telling yourself not to.”  

In your cure for cancer scenario, the investment sales guy, you know…the guy implementing the scam is obviously to blame. Like what? I’m not saying that those who invest in his scam shouldn’t have been more cautious and smarter, but the blame that falls on them is no where near the amount that falls on the investment sales guy aka the SCAMMER. Are you seriously this dense? When a woman wears revealing clothing and gets sexually assaulted, would you blame the woman for wearing revealing clothes or the guy who assaulted her? When an elderly person gets a call from a scammer in India and falls for it, would you blame the elderly person or the scammer? It might do you some good to google “victim blaming”

 Just use common sense , those apartment is still operating whether the cap rate is 2 or 9.

The actual question is why LP want to invest at cap rate 3 market is beyond me

That is your argument? Really? Honestly quite a pathetic one. If you're going to continue claiming that the GP's/syndicators are 100% guilt free and that the LP's are 100% to blame you're going to need a much better argument than "Just use common sense." You do know what the term "unsophisticated" means right?

As evidenced by your inconsistency in assigning fault in the 2008 Financial Crisis and today's GP's vs LP's and your inability to explain your inconsistency, you clearly haven't thoroughly thought out why you believe that the homeowners/borrowers are not to blame in 2008 and why LP's are to blame today. Perhaps you should do that before blindly blaming victims.

LOL , please use basic math in excel sheet :

see the spread right there is very thin.
You have apartment running at cap rate 3. you have bridge loan with SOFR running at 5-6%+1.2/1.5 spread.
You have building worth 1 mil. Your NOI is only hardly 30K per year. Hardly any cash flow.
You can't even serve your debt service.

How do you make money if you are the GP ? your liability is higher than asset.
What do you want your GP to do ? raise from $2500 rent to $3000 ? then everyone would move to next apartment.

These are index-based of core-apartment from all biggest apartment owners in US. In short every apartment valuation went down 15% in this year alone. And these should not be surprising becoz the spread is just negative. It's recession in CRE-world.

I'm not really sure what the relevance of these charts and data is...the whole discussion here is syndicators taking advantage of unsophisticated LP's. My whole point is that these LP's are unable to perform these types of analyses and that is why the syndicators prey on them, but you are suggesting that LP's should do the same analysis that you just did...but since they are unsophisticated, they are unable to...You are making my point for me and don't even know it...

The fact you don't understand the above data meaning you are not qualified to invest at CRE , the chart is about all the market risk.

this is why you can’t blame everything to the GP.

What are you even talking about? The fact that, after several posts, you still have no idea what we are discussing means that you need to work on your reading comprehension and logical reasoning ability. If you are, in fact, a real estate investor with that level of reading comprehension, then I commend you (assuming your investments are performing).

I, personally, understand what your data and charts mean. I operate my own real estate investment and development business and have been successfully in operation for many years. There are many people out there who are not qualified to invest in CRE...I am not one of them.

We are not talking about me and my knowledge, we are discussing the many retail investors/LPs, who are not sophisticated enough to perform their own analysis nor due diligence. For example, a doctor or software engineer, who makes good money, but does not understand real estate nor finance. I, personally, do NOT invest in syndicators. Does this make sense to you? Do you know what we are talking about now? If not, I can try to explain it as if you were five years old and use candy bars in lieu of real estate if that helps, but somehow I doubt it.

Alternatively, let's try a different method. Why don't you explain back to me, what you think we are discussing. 

[Carlos Ptriawan]

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

same illustration would be, if I'm investment sales guy and come to your office and say "hey we know company that going from $1 to $100 because this company has cure for cancer, please invest 1 mil to this company, would you believe it ??"

i guess some of the lp folks are not even care about the actual rental situation because some of the question are really surrounding waterfall only  , while metrics like ltv/dscr/EGI and the suitability of biz plan is not being asked.

You’re just full of poor logic and flawed reasoning. I’m honestly not surprised you continued investing in the syndicators despite “predicting a bubble and telling yourself not to.”  

In your cure for cancer scenario, the investment sales guy, you know…the guy implementing the scam is obviously to blame. Like what? I’m not saying that those who invest in his scam shouldn’t have been more cautious and smarter, but the blame that falls on them is no where near the amount that falls on the investment sales guy aka the SCAMMER. Are you seriously this dense? When a woman wears revealing clothing and gets sexually assaulted, would you blame the woman for wearing revealing clothes or the guy who assaulted her? When an elderly person gets a call from a scammer in India and falls for it, would you blame the elderly person or the scammer? It might do you some good to google “victim blaming”

 Just use common sense , those apartment is still operating whether the cap rate is 2 or 9.

The actual question is why LP want to invest at cap rate 3 market is beyond me

That is your argument? Really? Honestly quite a pathetic one. If you're going to continue claiming that the GP's/syndicators are 100% guilt free and that the LP's are 100% to blame you're going to need a much better argument than "Just use common sense." You do know what the term "unsophisticated" means right?

As evidenced by your inconsistency in assigning fault in the 2008 Financial Crisis and today's GP's vs LP's and your inability to explain your inconsistency, you clearly haven't thoroughly thought out why you believe that the homeowners/borrowers are not to blame in 2008 and why LP's are to blame today. Perhaps you should do that before blindly blaming victims.

LOL , please use basic math in excel sheet :

see the spread right there is very thin.
You have apartment running at cap rate 3. you have bridge loan with SOFR running at 5-6%+1.2/1.5 spread.
You have building worth 1 mil. Your NOI is only hardly 30K per year. Hardly any cash flow.
You can't even serve your debt service.

How do you make money if you are the GP ? your liability is higher than asset.
What do you want your GP to do ? raise from $2500 rent to $3000 ? then everyone would move to next apartment.

These are index-based of core-apartment from all biggest apartment owners in US. In short every apartment valuation went down 15% in this year alone. And these should not be surprising becoz the spread is just negative. It's recession in CRE-world.

I'm not really sure what the relevance of these charts and data is...the whole discussion here is syndicators taking advantage of unsophisticated LP's. My whole point is that these LP's are unable to perform these types of analyses and that is why the syndicators prey on them, but you are suggesting that LP's should do the same analysis that you just did...but since they are unsophisticated, they are unable to...You are making my point for me and don't even know it...

The fact you don't understand the above data meaning you are not qualified to invest at CRE , the chart is about all the market risk.

this is why you can’t blame everything to the GP.

What are you even talking about? The fact that, after several posts, you still have no idea what we are discussing means that you need to work on your reading comprehension and logical reasoning ability. If you are, in fact, a real estate investor with that level of reading comprehension, then I commend you (assuming your investments are performing).

I, personally, understand what your data and charts mean. I operate my own real estate investment and development business and have been successfully in operation for many years. There are many people out there who are not qualified to invest in CRE...I am not one of them.

We are not talking about me and my knowledge, we are discussing the many retail investors/LPs, who are not sophisticated enough to perform their own analysis nor due diligence. For example, a doctor or software engineer, who makes good money, but does not understand real estate nor finance. I, personally, do NOT invest in syndicators. Does this make sense to you? Do you know what we are talking about now? If not, I can try to explain it as if you were five years old and use candy bars in lieu of real estate if that helps, but somehow I doubt it.

Alternatively, let's try a different method. Why don't you explain back to me, what you think we are discussing. 

 Why in the world we shall explain to you lol
not my job to teach you 

if you understand the above chart in 30 secs you would know it is not good time to invest.

[Wesley Leung]

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

same illustration would be, if I'm investment sales guy and come to your office and say "hey we know company that going from $1 to $100 because this company has cure for cancer, please invest 1 mil to this company, would you believe it ??"

i guess some of the lp folks are not even care about the actual rental situation because some of the question are really surrounding waterfall only  , while metrics like ltv/dscr/EGI and the suitability of biz plan is not being asked.

You’re just full of poor logic and flawed reasoning. I’m honestly not surprised you continued investing in the syndicators despite “predicting a bubble and telling yourself not to.”  

In your cure for cancer scenario, the investment sales guy, you know…the guy implementing the scam is obviously to blame. Like what? I’m not saying that those who invest in his scam shouldn’t have been more cautious and smarter, but the blame that falls on them is no where near the amount that falls on the investment sales guy aka the SCAMMER. Are you seriously this dense? When a woman wears revealing clothing and gets sexually assaulted, would you blame the woman for wearing revealing clothes or the guy who assaulted her? When an elderly person gets a call from a scammer in India and falls for it, would you blame the elderly person or the scammer? It might do you some good to google “victim blaming”

 Just use common sense , those apartment is still operating whether the cap rate is 2 or 9.

The actual question is why LP want to invest at cap rate 3 market is beyond me

That is your argument? Really? Honestly quite a pathetic one. If you're going to continue claiming that the GP's/syndicators are 100% guilt free and that the LP's are 100% to blame you're going to need a much better argument than "Just use common sense." You do know what the term "unsophisticated" means right?

As evidenced by your inconsistency in assigning fault in the 2008 Financial Crisis and today's GP's vs LP's and your inability to explain your inconsistency, you clearly haven't thoroughly thought out why you believe that the homeowners/borrowers are not to blame in 2008 and why LP's are to blame today. Perhaps you should do that before blindly blaming victims.

LOL , please use basic math in excel sheet :

see the spread right there is very thin.
You have apartment running at cap rate 3. you have bridge loan with SOFR running at 5-6%+1.2/1.5 spread.
You have building worth 1 mil. Your NOI is only hardly 30K per year. Hardly any cash flow.
You can't even serve your debt service.

How do you make money if you are the GP ? your liability is higher than asset.
What do you want your GP to do ? raise from $2500 rent to $3000 ? then everyone would move to next apartment.

These are index-based of core-apartment from all biggest apartment owners in US. In short every apartment valuation went down 15% in this year alone. And these should not be surprising becoz the spread is just negative. It's recession in CRE-world.

I'm not really sure what the relevance of these charts and data is...the whole discussion here is syndicators taking advantage of unsophisticated LP's. My whole point is that these LP's are unable to perform these types of analyses and that is why the syndicators prey on them, but you are suggesting that LP's should do the same analysis that you just did...but since they are unsophisticated, they are unable to...You are making my point for me and don't even know it...

The fact you don't understand the above data meaning you are not qualified to invest at CRE , the chart is about all the market risk.

this is why you can’t blame everything to the GP.

What are you even talking about? The fact that, after several posts, you still have no idea what we are discussing means that you need to work on your reading comprehension and logical reasoning ability. If you are, in fact, a real estate investor with that level of reading comprehension, then I commend you (assuming your investments are performing).

I, personally, understand what your data and charts mean. I operate my own real estate investment and development business and have been successfully in operation for many years. There are many people out there who are not qualified to invest in CRE...I am not one of them.

We are not talking about me and my knowledge, we are discussing the many retail investors/LPs, who are not sophisticated enough to perform their own analysis nor due diligence. For example, a doctor or software engineer, who makes good money, but does not understand real estate nor finance. I, personally, do NOT invest in syndicators. Does this make sense to you? Do you know what we are talking about now? If not, I can try to explain it as if you were five years old and use candy bars in lieu of real estate if that helps, but somehow I doubt it.

Alternatively, let's try a different method. Why don't you explain back to me, what you think we are discussing. 

 Why in the world we shall explain to you lol
not my job to teach you 

if you understand the above chart in 30 secs you would know it is not good time to invest.

I don't need you to explain anything to me .

Not everyone knows how to read those charts. I DO. But I guarantee there are many LP's invested in syndicates who do not. Obviously if they had the financial knowledge to read those charts, then they probably wouldn't be invested in these syndicates. That is my point. The syndicates/GP's take advantage of unsophisticated retail investors, so they are primarily to blame for all these overleveraged properties. I know you reading comprehension is incredibly poor, so just keep re-reading the bolded sentence over and over again until it makes sense to you or ask someone with better reading comprehension ability to explain it to you.

[Carlos Ptriawan]

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

same illustration would be, if I'm investment sales guy and come to your office and say "hey we know company that going from $1 to $100 because this company has cure for cancer, please invest 1 mil to this company, would you believe it ??"

i guess some of the lp folks are not even care about the actual rental situation because some of the question are really surrounding waterfall only  , while metrics like ltv/dscr/EGI and the suitability of biz plan is not being asked.

You’re just full of poor logic and flawed reasoning. I’m honestly not surprised you continued investing in the syndicators despite “predicting a bubble and telling yourself not to.”  

In your cure for cancer scenario, the investment sales guy, you know…the guy implementing the scam is obviously to blame. Like what? I’m not saying that those who invest in his scam shouldn’t have been more cautious and smarter, but the blame that falls on them is no where near the amount that falls on the investment sales guy aka the SCAMMER. Are you seriously this dense? When a woman wears revealing clothing and gets sexually assaulted, would you blame the woman for wearing revealing clothes or the guy who assaulted her? When an elderly person gets a call from a scammer in India and falls for it, would you blame the elderly person or the scammer? It might do you some good to google “victim blaming”

 Just use common sense , those apartment is still operating whether the cap rate is 2 or 9.

The actual question is why LP want to invest at cap rate 3 market is beyond me

That is your argument? Really? Honestly quite a pathetic one. If you're going to continue claiming that the GP's/syndicators are 100% guilt free and that the LP's are 100% to blame you're going to need a much better argument than "Just use common sense." You do know what the term "unsophisticated" means right?

As evidenced by your inconsistency in assigning fault in the 2008 Financial Crisis and today's GP's vs LP's and your inability to explain your inconsistency, you clearly haven't thoroughly thought out why you believe that the homeowners/borrowers are not to blame in 2008 and why LP's are to blame today. Perhaps you should do that before blindly blaming victims.

LOL , please use basic math in excel sheet :

see the spread right there is very thin.
You have apartment running at cap rate 3. you have bridge loan with SOFR running at 5-6%+1.2/1.5 spread.
You have building worth 1 mil. Your NOI is only hardly 30K per year. Hardly any cash flow.
You can't even serve your debt service.

How do you make money if you are the GP ? your liability is higher than asset.
What do you want your GP to do ? raise from $2500 rent to $3000 ? then everyone would move to next apartment.

These are index-based of core-apartment from all biggest apartment owners in US. In short every apartment valuation went down 15% in this year alone. And these should not be surprising becoz the spread is just negative. It's recession in CRE-world.

I'm not really sure what the relevance of these charts and data is...the whole discussion here is syndicators taking advantage of unsophisticated LP's. My whole point is that these LP's are unable to perform these types of analyses and that is why the syndicators prey on them, but you are suggesting that LP's should do the same analysis that you just did...but since they are unsophisticated, they are unable to...You are making my point for me and don't even know it...

The fact you don't understand the above data meaning you are not qualified to invest at CRE , the chart is about all the market risk.

this is why you can’t blame everything to the GP.

What are you even talking about? The fact that, after several posts, you still have no idea what we are discussing means that you need to work on your reading comprehension and logical reasoning ability. If you are, in fact, a real estate investor with that level of reading comprehension, then I commend you (assuming your investments are performing).

I, personally, understand what your data and charts mean. I operate my own real estate investment and development business and have been successfully in operation for many years. There are many people out there who are not qualified to invest in CRE...I am not one of them.

We are not talking about me and my knowledge, we are discussing the many retail investors/LPs, who are not sophisticated enough to perform their own analysis nor due diligence. For example, a doctor or software engineer, who makes good money, but does not understand real estate nor finance. I, personally, do NOT invest in syndicators. Does this make sense to you? Do you know what we are talking about now? If not, I can try to explain it as if you were five years old and use candy bars in lieu of real estate if that helps, but somehow I doubt it.

Alternatively, let's try a different method. Why don't you explain back to me, what you think we are discussing. 

 Why in the world we shall explain to you lol
not my job to teach you 

if you understand the above chart in 30 secs you would know it is not good time to invest.

Are you an idiot? I don't need you to explain anything to me and by the looks of your reading comprehension ability, I don't doubt that many things need to be explained to you in your daily life.

Not everyone knows how to read those charts. I DO. But I guarantee there are many LP's invested in syndicates who do not. Obviously if they had the financial knowledge to read those charts, then they probably wouldn't be invested in these syndicates. That is my point. The syndicates/GP's take advantage of unsophisticated retail investors, so they are primarily to blame for all these overleveraged properties. I know you reading comprehension is incredibly poor, so just keep re-reading the bolded sentence over and over again until it makes sense to you or ask someone with better reading comprehension ability to explain it to you.

 What you said is described in this article.
https://therealdeal.com/magazine/may-2024/multifamily-syndic... 

... 

But investing carries risk and trust can cloud judgment. Syndicators that produced stellar returns when rates were low have watched deals struggle or fail over the past year. Interest payments on floating-rate loans have soared, rent growth plateaued and value-add plans stalled.

...

It’s not just doctors. Anyone in a higher income bracket is up for grabs: engineers, particularly those in tech, plus pilots, sales executives, even attorneys.

“It’s those that make $500,000 to $1 million a year and generally don’t know what to do with their money,” said Aleksey Chernobelskiy, who advises limited partners.......

“Some people do it right, but more than half don’t. Then one person is clueless about real estate investing, and they’re being led by another person clueless about real estate investing.”
ALEKSEY CHERNOBELSKIY, LIMITED PARTNERS ADVISER

...

If you are clueless and can't do DD on CRE, you better subscribe to Aleksey service.

[Carlos Ptriawan]

Quote from @Scott Rye:

Quote from @Paul Azad:

Quote from @Chris John:

Quote from @Wesley Leung:

But I must agree with Carlos' sentiments, most GPs knew exactly what they were doing and the risks they were taking with other people's money.

The return/risk ratio between GP and LP is never equal in any project.

If project is succesful the return/risk ratio is 18:1 for GP and 2:1 for LP (my own calculation)
But if project is unsuccesful, GP doesn't really lost money because they already made all the profit from acquisition fee and so on ; while LP is losing all equity.

If "LP" wanna have better return risk reward I think investing at "GP fund" level or just invest at public REIT, is slightly better. Public investment IMO is way better for capital preservation.

The very reason why syndication is very good business for the GP is the reason why GP is trying to find "unsophisticated money" tht think CRE is like forever cash-flow ; while it never like that in the first place.

[Basit Siddiqi]

You both are arguing two different topics and saying the same thing over and over.

It is just looking worse now cause you both are coming off as be-littling the other and calling each other names.

[Clark Stevenson]

Quote from @Nicholas L.:

@Wesley Leung

I don't invest in syndications personally and have zero interest in doing so.  But I assume the best syndications are the ones that aren't advertised and that you don't know about...

I plan to stick to individual properties (high control, low liquidity) and REITs (low control, high liquidity).  Syndications seem to me to be low control, low liquidity...

Obviously others have different goals and priorities and so syndications will be a better fit for them.  

 I've only done one syndication lately and you are absolutely correct. Since the AVAF1 fund stopped distributions, I got much better at evaluating the numbers. The one syndication I entered wasn't advertised and the fees were much lower for the GP and the GP has much more skin in the game. Also, the business case was much stronger than any LP deal I've done. They are assuming a low agency debt and there is no high interest mezzanine financing involved.

[Lisa Jones]

Can you DM me and share details about the sponsor?

[Joel Owens]

You pay cash and offer a high pref. Tenant in place with long term lease on NNN. No payments to stop if high quality tenant and strong location.

All these rosy pro-forma's folks you all are in investing in where all the debt and rental growth and all that are called VARIABLES to an investment. The more you have of those the more you have a chance of things not going as predicted. That is why land development as an example for multi-family carries extreme risk. The project takes many, many years to even get to a point where they are starting to lease up units. The longer a development play goes in an investment cycle the longer risk can increase in many cases unless project started on upward cycle so when project comes online for lease up market is mid to up cycle and gets full before the downturn.

There are all kinds of LP investments.

As example:

1. Raw land purchase and flip

2. Land entitlement ( getting zoning and all approvals and selling to a developer)

3. Land develop ( taking a project and finishing it out until stabilization )

4. Existing property full stabilized being sold off by the developer or 2nd or 3rd generation owner.

5. A property that was stabilized but now is disrepair and aging. Work to get existing use performing again fully.

6. A property to be torn down or re-adapt the use to something else

7. Then there are deals that are debt based LP investments and equity based.

There are all kind of so called returns and timelines. You have to decide what is right for YOU and the risk tolerance to your capital. 

[Aman S.]

Quote from @Clark Stevenson:

Quote from @Nicholas L.:

@Wesley Leung

I don't invest in syndications personally and have zero interest in doing so.  But I assume the best syndications are the ones that aren't advertised and that you don't know about...

I plan to stick to individual properties (high control, low liquidity) and REITs (low control, high liquidity).  Syndications seem to me to be low control, low liquidity...

Obviously others have different goals and priorities and so syndications will be a better fit for them.  

 I've only done one syndication lately and you are absolutely correct. Since the AVAF1 fund stopped distributions, I got much better at evaluating the numbers. The one syndication I entered wasn't advertised and the fees were much lower for the GP and the GP has much more skin in the game. Also, the business case was much stronger than any LP deal I've done. They are assuming a low agency debt and there is no high interest mezzanine financing involved.

 @Clark Stevenson Can you please DM/share sponsor info? Thanks

[Andrew Hogan]

First off @Jon Zhou Really sorry to hear that. Unfortunately I hear this happening more and more in the industry. 

Nobody is immune to storms. 

Are there certain things sponsors can do to help avoid such things and weather the storm?

- Absolutely. 

Depends how your PPM was written up but typically I see the ability to be diluted vs contributing additional capital.

When deciding on if you want to participate in the additional/unexpected capital call, an investor must ask themselves this question: 

Do you believe your additional capital will plug the holes or will you be bailing out water of a sinking ship with a spoon?

Again, sorry to hear that and hope that you're able to preserve some capital and embrace these lessons for future decisions.

All the best.

[Jennifer M.]

@Jon Zhou @Lisa Jones @John Sangl @Clark Stevenson I am also invested in Elliot Roswell and needing to make a decision on this capital call.  I have certainly not read anything on these forums or any other that makes me want to pony up any additional capital, but was curious if others are reaching the same conclusion.

[Carlos Ptriawan]

In case anyone interested to find out how to see this problem from the bridge-lender side intellegently, these information from one of the lender is very informative:

Loan Modifications 

We may amend or modify loans that involve other-than-insignificant payment delays and provide interest rate reductions and/or extend the maturity dates for borrowers experiencing financial difficulty based on specific facts and circumstances. All of the below modified loans were performing pursuant to their contractual terms at March 31, 2024.During the first quarter of 2024, we modified twenty-three multifamily bridge loans with a total UPB of $1.07 billion. These loans contained interest rates with pricing over SOFR ranging from 3.25% to 4.25% and maturities between April 2024 to August 2025. As part of the modification of these loans, borrowers invested additional capital to recapitalize their projects in exchange for temporary rate relief, which we provided through a pay and accrual feature. The capital invested by the borrowers was in the form of either, or a combination of: (1) additional deposits into interest and/or renovation reserves; (2) the purchase of a new rate cap; (3) a principal paydown of the loan and (4) bringing any delinquent loans current by paying past due interest owed. In each case, we reduced the pay rate and deferred the remaining portion of the foregoing interest until payoff. The pay rates were amended to either SOFR, a spread over SOFR or a fixed rate, with the balance of the interest due under the original loan terms being deferred. At March 31, 2024, these modified loans had a weighted average pay rate of 6.95% and a weighted average accrual rate of 1.86%. These modified loans included: (1) loans totaling $712.9 million that were less than 60 days past due at December 31, 2023; (2) two specifically impaired loans with a total loan loss reserve of $7.0 million and a total UPB of $49.6 million; and (3) fifteen loans with a total UPB of $671.0 million that were extended between twelve and thirty months.

During the first quarter of 2024, we also modified sixteen multifamily bridge loans with a total UPB of $692.8 million. The modification terms required the borrowers to invest additional capital in the form of either, or a combination of: (1) additional deposits into interest and/or renovation reserves; (2) the purchase of a new rate cap; (3) a principal paydown of the loan; and (4) bringing any delinquent loans current by paying past due interest owed. The modifications on eleven of these loans with a total UPB of $456.5 million included extensions between two and nineteen months.

>>>

Basically your (LP) decision to invest (on capital call) or not depends on how you calculate the syndication NOI and DSCR when rate reduces by 300bps from now to 2026.

If fund's/unit level DSCR can sustain DSCR 1.0 with 7% rate, then LP money can survive.

These problem is actually easy to avoid if everyone is adding more LPs and reduce the number of LTV and use longer term debt.

[Brian Bernstein]

How much do they need for a "successful" AVAF1 capital call?  92M?

[Brian Burke]

Quote from @Carlos Ptriawan:

In case anyone interested to find out how to see this problem from the bridge-lender side intellegently, these information from one of the lender is very informative:

Loan Modifications 

We may amend or modify loans that involve other-than-insignificant payment delays and provide interest rate reductions and/or extend the maturity dates for borrowers experiencing financial difficulty based on specific facts and circumstances. All of the below modified loans were performing pursuant to their contractual terms at March 31, 2024.During the first quarter of 2024, we modified twenty-three multifamily bridge loans with a total UPB of $1.07 billion. These loans contained interest rates with pricing over SOFR ranging from 3.25% to 4.25% and maturities between April 2024 to August 2025. As part of the modification of these loans, borrowers invested additional capital to recapitalize their projects in exchange for temporary rate relief, which we provided through a pay and accrual feature. The capital invested by the borrowers was in the form of either, or a combination of: (1) additional deposits into interest and/or renovation reserves; (2) the purchase of a new rate cap; (3) a principal paydown of the loan and (4) bringing any delinquent loans current by paying past due interest owed. In each case, we reduced the pay rate and deferred the remaining portion of the foregoing interest until payoff. The pay rates were amended to either SOFR, a spread over SOFR or a fixed rate, with the balance of the interest due under the original loan terms being deferred. At March 31, 2024, these modified loans had a weighted average pay rate of 6.95% and a weighted average accrual rate of 1.86%. These modified loans included: (1) loans totaling $712.9 million that were less than 60 days past due at December 31, 2023; (2) two specifically impaired loans with a total loan loss reserve of $7.0 million and a total UPB of $49.6 million; and (3) fifteen loans with a total UPB of $671.0 million that were extended between twelve and thirty months.

During the first quarter of 2024, we also modified sixteen multifamily bridge loans with a total UPB of $692.8 million. The modification terms required the borrowers to invest additional capital in the form of either, or a combination of: (1) additional deposits into interest and/or renovation reserves; (2) the purchase of a new rate cap; (3) a principal paydown of the loan; and (4) bringing any delinquent loans current by paying past due interest owed. The modifications on eleven of these loans with a total UPB of $456.5 million included extensions between two and nineteen months.

>>>

Basically your (LP) decision to invest (on capital call) or not depends on how you calculate the syndication NOI and DSCR when rate reduces by 300bps from now to 2026.

If fund's/unit level DSCR can sustain DSCR 1.0 with 7% rate, then LP money can survive.

These problem is actually easy to avoid if everyone is adding more LPs and reduce the number of LTV and use longer term debt.

Lenders aren’t dumb—they know that as long as the sponsor has any hope of keeping the property they (lender) can squeeze the borrower for money by granting a maturity extension in exchange for a principal paydown.

But the moment the lender thinks they can recover their principal, or that they can’t squeeze any more money from the borrower for additional principal reductions, the cooperative spirit will end and the lender will force a sale.  They won’t wait for the value to allow for equity recapture.

What some borrowers might not realize is that the principal reduction payments may expedite their own demise because the lower the balance gets, the sooner the lender can recover their principal through foreclosure or a forced sale.

 
Instead of paying down a little principal for a little time, pay down a lot of principal and refinance to a loan that allows a lot of time. Easier said than done, however.

[Carlos Ptriawan]

Quote from @Brian Burke:

Quote from @Carlos Ptriawan:

In case anyone interested to find out how to see this problem from the bridge-lender side intellegently, these information from one of the lender is very informative:

Loan Modifications 

We may amend or modify loans that involve other-than-insignificant payment delays and provide interest rate reductions and/or extend the maturity dates for borrowers experiencing financial difficulty based on specific facts and circumstances. All of the below modified loans were performing pursuant to their contractual terms at March 31, 2024.During the first quarter of 2024, we modified twenty-three multifamily bridge loans with a total UPB of $1.07 billion. These loans contained interest rates with pricing over SOFR ranging from 3.25% to 4.25% and maturities between April 2024 to August 2025. As part of the modification of these loans, borrowers invested additional capital to recapitalize their projects in exchange for temporary rate relief, which we provided through a pay and accrual feature. The capital invested by the borrowers was in the form of either, or a combination of: (1) additional deposits into interest and/or renovation reserves; (2) the purchase of a new rate cap; (3) a principal paydown of the loan and (4) bringing any delinquent loans current by paying past due interest owed. In each case, we reduced the pay rate and deferred the remaining portion of the foregoing interest until payoff. The pay rates were amended to either SOFR, a spread over SOFR or a fixed rate, with the balance of the interest due under the original loan terms being deferred. At March 31, 2024, these modified loans had a weighted average pay rate of 6.95% and a weighted average accrual rate of 1.86%. These modified loans included: (1) loans totaling $712.9 million that were less than 60 days past due at December 31, 2023; (2) two specifically impaired loans with a total loan loss reserve of $7.0 million and a total UPB of $49.6 million; and (3) fifteen loans with a total UPB of $671.0 million that were extended between twelve and thirty months.

During the first quarter of 2024, we also modified sixteen multifamily bridge loans with a total UPB of $692.8 million. The modification terms required the borrowers to invest additional capital in the form of either, or a combination of: (1) additional deposits into interest and/or renovation reserves; (2) the purchase of a new rate cap; (3) a principal paydown of the loan; and (4) bringing any delinquent loans current by paying past due interest owed. The modifications on eleven of these loans with a total UPB of $456.5 million included extensions between two and nineteen months.

>>>

Basically your (LP) decision to invest (on capital call) or not depends on how you calculate the syndication NOI and DSCR when rate reduces by 300bps from now to 2026.

If fund's/unit level DSCR can sustain DSCR 1.0 with 7% rate, then LP money can survive.

These problem is actually easy to avoid if everyone is adding more LPs and reduce the number of LTV and use longer term debt.

Lenders aren’t dumb—they know that as long as the sponsor has any hope of keeping the property they (lender) can squeeze the borrower for money by granting a maturity extension in exchange for a principal paydown.

But the moment the lender thinks they can recover their principal, or that they can’t squeeze any more money from the borrower for additional principal reductions, the cooperative spirit will end and the lender will force a sale.  They won’t wait for the value to allow for equity recapture.

What some borrowers might not realize is that the principal reduction payments may expedite their own demise because the lower the balance gets, the sooner the lender can recover their principal through foreclosure or a forced sale.

 
Instead of paying down a little principal for a little time, pay down a lot of principal and refinance to a loan that allows a lot of time. Easier said than done, however.

 Lenders (mREIT) are definitely the smartest in this game because they still make positive profit despite all these challenges. 

I do have question related to your comment "Instead of paying down a little principal for a little time, pay down a lot of principal and refinance to a loan that allows a lot of time".

1. Is it possible for these loan to be refinanced with CMBS loan ? But how it can be approved if their DSCR is 0.6-0.8 while agency loan is asking 1.25 DSCR/75%LTV ? It would also dilute all prevs. investors.

2. So all these capital call/13% prefs are basically paying 9% loan while their DSCR is 0.8, how is it possible ? this is more like debt paying debt over debt to 

3. So these bridge loan is acquired through CLO with aggregated rate of 7% ; their profit spread is 1.7%; leaving 8.5-9.0% total interest to be paid by the GP/LP syndicators. In other words,they now have to pay 400-500 bps for asset that's only having 0.6-0.8 DSCR. It all seems very bizarre to me.

4. What's more interesting is that that bridge lender is still able to generate profit and 10% dividend (whether there's accounting cookbook that I don't understand I don't know) but seems they are having a clever way to avoid losses. But beside that what intrigue me is that if I am just investor and I want to have sustainable income why don't I just purchase those CLO at 7% or their notes that's also at 6.5% ; compare to riskier LP position.

5. Also in theory, due to large reserves of the bank/lender, I think if I'm the lender, I would just choose to bankrupt all these GP. The lender can take over these apartments without causing problem in their book, create their own own GP and run/service the apartment with the reserve that they had. In fact, this lender is doing the similar thing when they "switch" the ownership of one apartment from one GP to another GP (of their friend perhaps).

[Brian Burke]

Quote from @Carlos Ptriawan:

1. Is it possible for these loan to be refinanced with CMBS loan ? But how it can be approved if their DSCR is 0.6-0.8 while agency loan is asking 1.25 DSCR/75%LTV ? It would also dilute all prevs. investors.

2. So all these capital call/13% prefs are basically paying 9% loan while their DSCR is 0.8, how is it possible ? this is more like debt paying debt over debt to 

3. So these bridge loan is acquired through CLO with aggregated rate of 7% ; their profit spread is 1.7%; leaving 8.5-9.0% total interest to be paid by the GP/LP syndicators. In other words,they now have to pay 400-500 bps for asset that's only having 0.6-0.8 DSCR. It all seems very bizarre to me.

4. What's more interesting is that that bridge lender is still able to generate profit and 10% dividend (whether there's accounting cookbook that I don't understand I don't know) but seems they are having a clever way to avoid losses. But beside that what intrigue me is that if I am just investor and I want to have sustainable income why don't I just purchase those CLO at 7% or their notes that's also at 6.5% ; compare to riskier LP position.

5. Also in theory, due to large reserves of the bank/lender, I think if I'm the lender, I would just choose to bankrupt all these GP. The lender can take over these apartments without causing problem in their book, create their own own GP and run/service the apartment with the reserve that they had. In fact, this lender is doing the similar thing when they "switch" the ownership of one apartment from one GP to another GP (of their friend perhaps).

 1.  Sure it’s possible, but “easier said than done”.  Some borrowers would likely have to pay down their principal 20% to 50% to refinance some of these loans into agency/bank/lifeco debt, which would require a mountain of new equity which would absolutely dilute investors.  But if existing equity is worth zero, dilution amounts to what?  The bigger problem is getting the new equity.  Unlikely.

2. I suspect deals with that structure will end up in foreclosure or other forced sale eventually, unless a quick market reversal bails them out.  Unlikely.

3.  Yeah…I don’t know how a deal works with rates like that unless they were bought at about 30% to 50% of the prices they were likely bought for if they were purchased in 2021-2023.  This is another seldom-discussed risk of bridge—the spreads are a lot wider than agency floaters.

4.  Some of these bridge lenders will be in their own world of trouble. Imagine if they have a warehouse line with a rate tied to SOFR at 70-80 percent leverage and the underlying loans stop paying.  There could be multiple layers of unraveling in the months and years ahead.

5.  They don’t even need to force a BK.  Some bridge lenders require equity pledges so they can just do a quick UCC sale and take over the SPE. I think nowadays you instead see can-kicking because as long as the GP has a hope of recovery the lender gets a “free” asset manager and maybe some interest and principal payments. But the moment the GP disengages, or the market supports an exit with the lender recovering their principal, the can-kicking will stop and the action will start. Some of these loans (or even the lenders themselves) have or will sell at a discount, and to the new buyer (maybe a loan to own buyer?) the road to recovery is shorter because they have a lower basis.

[Carlos Ptriawan]

Quick update, just after I am growing suspicious to this bridge-lender (point #5), there's an investigation publicly posted is showing that the LP group that re-purchase the foreclosure asset property was run by the ex-VP of the same bridge-lender, financed by the same bridge-lender. Off-balanced sheet deal. 

Wow.

Exactly following my theory on #5. This is corruption and conflict-of-interest in big scale nonetheless.

[Kelsey Bowman]

If one does not participate in the capital call and thus gets diluted by 16.5% - how does this affect your returns?

For example, Ashcroft is stating that at a 5.00% exit cap rate, the EM on Class B original equity would be 0.82x.  Would 16.5% dilution result in a 0.68x EM [i.e. 0.82 x (1-0.165)].  Or is this not the correct way to apply the 16.5% dilution?

Any help is much appreciated!

[Brian Bernstein]

Your math is correct, although as it stands we are quite possibly getting diluted to zero. The current statement "88% of investors, who have made a decision, have said they are participating." That statement is obv quite convoluted. What's important is knowing how much needs to be raised for a successful capital call and how much has been raised so far, which I do not know the answer to. 

[Lisa Jones]

Quote from @Kelsey Bowman:

If one does not participate in the capital call and thus gets diluted by 16.5% - how does this affect your returns?

For example, Ashcroft is stating that at a 5.00% exit cap rate, the EM on Class B original equity would be 0.82x.  Would 16.5% dilution result in a 0.68x EM [i.e. 0.82 x (1-0.165)].  Or is this not the correct way to apply the 16.5% dilution?

Any help is much appreciated!

I have the same question. In my call I was told the worst case scenario for Class A investors, if the Capital call fails and they don’t contribute to it is 70% of your original investment will be returned upon sale of assets (given it’s not ideal to sell now). I assume if the CC is successful the return will be slightly better than that?

[Guy Idan]

@Brian Burke - Dropping a question on you as you are well versed in this world - It seems that Ashcroft has an LTV of about 80% at the moment, or 78% if you take out the $14m loan ashcroft themselves gave. For my personal properties, I like to have 65-60% LTV, so 78-80% LTV during a time when the properties were purchased of record low interest rates, and with fluctuating interest rate, seems extremely irresponsible and almost foolish. 

Do most syndicators use these LTV's and is it common or did Ashcroft make a big mistake on that one?

Appreciate your feedback!


 

[Jay Hinrichs]

Quote from @Guy Idan:

@Brian Burke - Dropping a question on you as you are well versed in this world - It seems that Ashcroft has an LTV of about 80% at the moment, or 78% if you take out the $14m loan ashcroft themselves gave. For my personal properties, I like to have 65-60% LTV, so 78-80% LTV during a time when the properties were purchased of record low interest rates, and with fluctuating interest rate, seems extremely irresponsible and almost foolish. 

Do most syndicators use these LTV's and is it common or did Ashcroft make a big mistake on that one?

Appreciate your feedback!


 

I wont answer for  Brian the expert.. But in my mind I dont care what you bought from an SFR rental to a SFR personal resi etc. if you leveraged 80% in the last few years ( with very few exceptions) if your selling or forced to sell transaction costs and with income property in many areas the values have gone down if you have to sell now so to my way of thinking most folks that have 80% ltv have zero equity or net worth if you take a snap shot in time like today..
I dont know how LPs cant understand that 20% equity is basically no equity if market turns a tad or your forced to sell after a brief holding period ??  thats my thought.  same goes with those that bought homes to live in if you have to sell in a year or two your going to lose money.

[Bobby Larsen]

That's not a very good way to look at it. If the CC is successful, the final outcome for Class A is entirely unknown with the worse case scenario being 0% of your original investment returned. The issue for Class A in the event that the CC is successful is that there will be preferred equity from a third party and preferred equity from the capital raise that will all sit above Class A interest and will receive their investment back and 12.75% interest before Class A receives a distribution or initial capital back. Rough math, the properties will need to appreciate 7-9% per year for Class A to do better than the 70% if sold today. There is a very strong probability that does not happen.

@Kelsey Bowman Your question is actually very complicated. Normally, when the term dilution is used in a capital call scenario, it is your equity ownership that is being diluted. For example, you will go from 10% ownership to 8.35% ownership of the property because your $100,000 investment was initially 10% of the $1,000,000 equity required but with the capital call, there is now $1,197,604 of equity in the investment. In that basic example, all investors are the same share class and the capital call is pari passu, meaning no senior positioning of the additional capital.

From my understanding of the Ashcroft capital call, additional capital will be in a senior position to both of the original share classes and the capital call equity will receive a fixed 10% and 7% coupon that will be paid before the original equity is returned. Because of the structuring of fixed coupons and senior positioning, the original Class B equity returns will not necessary be reduced by just the 16.5% dilution. Time also plays a larger factor.