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

[Jason Piccolo]

I participated in the capital call on the AVAF 1 fund and I am looking at the Braxton at Waterleigh offering that Ashcroft is putting forth with 100% GP promote going to the LP’s.  Is anyone else looking at this?  https://9409243.fs1.hubspotusercontent-na1.net/hubfs/9409243...

[John Teachout]

I've just been deleting the additional offerings from Ashcroft. Sounds appealing but so did fund II. I'm not likely to invest with someone that has already proved they weren't prepared for the eventualities. We did a classic "buy high and sell low" move with all our syndicated investments it seems. We are still investing in multi-family but only with highly experienced operators. ie, they were doing it before 2008.

[Guy Idan]

Quote from @John Teachout:

I've just been deleting the additional offerings from Ashcroft. Sounds appealing but so did fund II. I'm not likely to invest with someone that has already proved they weren't prepared for the eventualities. We did a classic "buy high and sell low" move with all our syndicated investments it seems. We are still investing in multi-family but only with highly experienced operators. ie, they were doing it before 2008.

Couldn't agree more. I think it's funny that they send new offerings to people who invested in funds that have capital call. What makes them think I will invest more with them when they are  potentially going to lose hundreds of thousands of $ I invested with them in fund 1/2

[Lisa Jones]

Quote from @Scott Rye:

I want the fund to survive, thrive and payback LP's.... But I have lost confidence in the decisions of this group for a variety of reasons. The Ashcroft Fund 1 capital call pays back the GP nearly $10-11M for purported 'loans" they made to support the fund last year....Even though LP's were not advised/notified last year that the GP's had to make such "investment". I gave them the opportunity to do right with our funds during the initial investment (and they might make it workout), but now there are just too many red flags with the Capital Call and the new deal....Do not let the friendliness for Joe, Frank and there podcast sway you...do your continued DD and ask the questions...I will not add funds to this capital call. I will take the haircut/dilution risk, go smoke a bunch of "hope-ium" that they can squeeze blood from this turnip in 3,4,5 yrs from now...If not, such is life. By way of example, the sum of all of our Syndication investments are about 3% of our NW. Be careful how you size your investments and adjust for your level of risk and ability to withstand to loose on occasion...Good luck to all...Cheers!

There’s are al great points. I’m curious: is this an all or nothing raise meaning they must raise the total amount to execute the entire plan or are they able to keep partial funds to pay themselves back? For example, as of today, the claim to have raised $

[Lisa Jones]

My thought process has been: Sure, I’m happy to invest in all these new deals you are aggressively marketing as soon as you return my invested capital from fund 1 of course.

[Joel Owens]

I am talking in generalities. Lots of MF syndicators are getting hammered by massaged debt and rosy pro-forma's to be able to exit or refi in the future from planned improvements and rent growth.

Instead pay all cash and you can decide when time to refi or sell and not your lender telling you what to do. It's what we do on our NNN syndications stabilized and value add. We raise all cash deal to deal.

WHY do people use debt then for syndications? It allows them to pursue bigger deals for less of a raise and stack lots of properties hoping some will be winners and not losers.

[Larry Fried]

Quote from @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

Jon, I have received a few capital calls this year from the dozens of syndications I've invested in.  None have been mandatory, unlike yours from Ashcroft. Thus, I was able to evaluate whether to put more of my capital in or not.  I only did so on one investment. I know another of my investments, the first to put out a capital call, only raised 11% of the call, and they are now in a forced sale situation.  They will almost certainly lose all LP capital, including mine.  That is painful enough. But at least I didn't add to the loss by participating in the capital call.
Your mandatory call may turn out to be the saving grace of the investment, as they should raise 100% of the call.  As long as the market improves enough over the added time of the rate cap extension, etc. you could be fine.  Only time will tell.  

[John Teachout]

Today we got a report on AVAF II. Although we haven't received a capital call for this fund, it's probably coming as they discussed the likely need for additional capital. Unless they have some really convincing data, we're not likely to participate. I would hate to lose the funds we have invested with them but at this point I have no confidence they can pull it out of the dive and I would really feel stupid if I added more money to what is likely to turn into a total loss of our position. And I also think it would be fair to include the status of their current funds in the PPMs or advertising of future offerings.

[Daniel O'Hare]

I just received that email from Ashcroft as well.  Here is where my inexperience (this was only my 3rd syndication) nailed me.  I asked about the floating rate debt, and Ashcroft (I don't remember who specifically) told me that there was a rate cap in place, in my noob-ness I assumed that meant for the life of the project, based on the surety of the answer it never occurred to me to ask if the rate cap was for the life of the project, or would expire every year or two.  If I knew it would expire, then I would have treated it like a totally floating rate loan in my mind and not invested.  I'm losing a ton of dough in AVAF2- I wasn't crazy about it when Ashcroft went to funds instead of individual deals, and the fact that they concentrated AVAF2 in one area (Atlanta) after I invested is exactly why, I was always looking for geographical diversification.  0% interest rates drove me to do something dumb, rather than just sitting on the proceeds from selling an apartment building I'd owned for 10 years.  Now that's probably 12+ years down the drain....

[Jay Hinrichs]

Quote from @Daniel O'Hare:

I just received that email from Ashcroft as well.  Here is where my inexperience (this was only my 3rd syndication) nailed me.  I asked about the floating rate debt, and Ashcroft (I don't remember who specifically) told me that there was a rate cap in place, in my noob-ness I assumed that meant for the life of the project, based on the surety of the answer it never occurred to me to ask if the rate cap was for the life of the project, or would expire every year or two.  If I knew it would expire, then I would have treated it like a totally floating rate loan in my mind and not invested.  I'm losing a ton of dough in AVAF2- I wasn't crazy about it when Ashcroft went to funds instead of individual deals, and the fact that they concentrated AVAF2 in one area (Atlanta) after I invested is exactly why, I was always looking for geographical diversification.  0% interest rates drove me to do something dumb, rather than just sitting on the proceeds from selling an apartment building I'd owned for 10 years.  Now that's probably 12+ years down the drain....

did you 1031 into this deal ?  just curious if that was one of the considerations at the time ?

[Daniel O'Hare]

No, I didn't do a 1031 exchange for this deal, it was just the idea of letting my money decline in value by the rate of inflation.  I could have put it into the stock market (and now wish I had!), but the whole idea of my real estate portfolio is to diversify away from the stock market.

[Eric Bilderback]

@Daniel O'Hare Damn dude that really sucks.  I really don't believe you should feel dumb lots of smart people have lost money.  I certainly wish you the best and hope financially this is not to devastating.  

[Henry Clark]

Man was this a long read.  I’ll add to it.  

Hope you have a great Labor Day weekend.  

1.  I don’t believe in victimhood.  Even if someone stole my money with a gun in their hand it is my fault.  This is a Mental state I use when doing investments. You as the person who lost value should be asking how you failed. Best case take this as a Learning investment.  

2.  Our market is great.  It takes money from one source and moves it to another where it can be managed better or get a better risk adjusted return.

3.  Anyone can get you lost in the woods.  Why would you trust that same person to lead you out?  Intelligent - learn from other people’s mistakes; Smart- learn from your own mistakes, Dumb- keep making the same mistake.  Get value from this mistake, treat it as a learning moment.  What did you do wrong?

Learn:  Several times above people have said no one could have forecasted the interest rates would have changed as much and as fast as possible.  They are wrong.  These syndications are relatively short term investments. 3/5/7 years.  Their underlying finance terms should have covered those time periods.  Even a balloon term coming due would be a short term issue and would have had a cap built in. They should have taken that risk off the table.  If they didn’t you should have required 3 or 4 % points more return in your deal analysis.

4.  Should you answer the capital call?  Two approaches.

A. Ask everyone.   Hey, what are you going to do?  Follow the cow herd again and don’t do your due diligence. 

B.  We do self storage. Almost the exact due diligence approach.

a.  What are financing terms? Does it match the investment or equity growth window?

b.  Market-  in an x mile area what is the occupancy?

c.  Market- what are the rental rates?

d.  Market-  what is the current demand or competition?

e.  Market- if this is a 3 year flip, how many new builds are coming online or is land availability restricted?  If this is a new build add more to the risk adjusted return.  See @Joel Owens type of project risk breakdown above.  
f.  Occupancy what is Point A, what is point B?   How do you plan to get there?  Has to be different than your prior plan or execution.

g. Capex- where are we at, point A? How fast to get to point B? How will you manage differently than before?

Syndication Investing is not Passive.

If you plan to do A above.   Or don’t plan to do B above.  Please send your money to Scout Troop 243 Glenwood Iowa.  You will get a donation deduction and fill really good. Guaranteed.  

If your one of these LO investors and truly care.  Take my notes above.   Add @ Joel Owen’s, @Carlos Ptriawan notes above to a due diligence list.  Ask other LPs to add and improve.  Then take your list against the Syndications your invested in and post your DD analysis.  Ask others for review and input.  Chasing money that is GONE is a wasted effort.  I have lost 25% of my wealth in one month due to my greed and the stupidity of that CEO.  I have no empathy for myself even.  

Then ask BP to have this list automatically sent to anyone joining BP or that looks up Syndication's.  


Also ask BP to ask @Carlos for the AI search tool he demonstrated on the BP forum.  Issue this to all new members.  And make it available as an option next to the magnifying glass.  The first AI search you should do is for Due Diligence on Syndications.  

[Eric Bilderback]

Quote from @Henry Clark:

 I'm sure the he appreciates the lecture.

FYI if some dude beats my *** for my wallet I'm not going to look myself in the mirror and say, "jeeze this is my fault for not being able to take a beat down or not learning jujitsu."  I'm going to say okay dude beat me down what can I do serve him justice, that is fair and the right thing to do.  If you want to blame yourself for not training hard enough or being born tough enough to handle the mugger or a dipSh** syndicator be my guest but I am not going to hold me, you or anyone else to that standard.

[Lisa Jones]

Does this mean that AVAF2 has a capital call as well? Is that the latest? Does anyone have the email announcement?

[Henry Clark]

Quote from @Eric Bilderback:

Quote from @Henry Clark:

 I'm sure the he appreciates the lecture.

FYI if some dude beats my *** for my wallet I'm not going to look myself in the mirror and say, "jeeze this is my fault for not being able to take a beat down or not learning jujitsu."  I'm going to say okay dude beat me down what can I do serve him justice, that is fair and the right thing to do.  If you want to blame yourself for not training hard enough or being born tough enough to handle the mugger or a dipSh** syndicator be my guest but I am not going to hold me, you or anyone else to that standard.
  

 @LP investors and @Eric lets go thru the thought process.

1.  Empathy-  I already noted I have lost 25% of my wealth before due to my greed and the arrogance of the CEO of the company I invested in.  If you want to share your loss situation great, otherwise how about 60 seconds of silence.

2.  My CFO background says how did you or the syndication get into this position?  No answer!  Then you ask, should you do the capital call.  Same CFO questions. Are the same people in charge?  What in the process or execution plans has changed to expect a different result?  

3.  Pissed off?  Someone on this forum give them a good Contract attorney in the State the lawsuit will occur.  Tell the LPs they need to pull together $100,000 to follow thru on the lawsuit.
 
4.  Learn from your mistakes, take ownership, get over it.  On this and other Syndication posts I have made a suggestion for the LPs to develop their due diligence list.  Share it in this forum and make it better.     Passive isn’t Passive.  You have to put in the work.  When someone offers you 14 to 20% returns, you better understand risk management.  Otherwise they would be offering you 7%.  

5.  Risk management-  sometimes people need to visualize a subject.  Go down to the horse track races.  Every race I want you to make two bets.  A.  Place bet on any horse with 2 or 3 to 1 odds to Place., B. Trifecta bet say 80 to 1.  Come back and tell us the results.  

6.  Risk Management- no one knew the interest rate would change so quickly or so much.  Sorry but I did.  We still had 1 1/2 years left before our 5 year balloon.  Refinanced 1% point higher.  Got a 7 year balloon period.  Rest of our debt is in a 20 year fixed SBA loan.    Your Syndicators and you knew the interest rate and balloon term exposure.  These deals are 3/5/7 year Harvest periods.  Your debt periods should have matched your Harvest period.  If it didn’t you should have asked for a higher risk adjusted return or passing the deal.  We just went thru 2008 and everyone with ARMs got burned.  You don’t keep making the same mistakes over again. 

7.  Positive note-  forgot to add in the suggested due diligence list above, syndicator history.  LP investors, which of you are going to share in a separate post your due diligence list?  Or which of you will take the suggestions above and add to them and share with other LPs?  

It’s your money, you’re right, even if you’re wrong.

   Take ownership of your decisions.  If you fail, make it your failure and learn from it.  Don't follow the cow herd.

[John Teachout]

Quote from @Lisa Jones:

Does this mean that AVAF2 has a capital call as well? Is that the latest? Does anyone have the email announcement?

No, AVAF2 does NOT have a capital call "yet". However wording in their recent report indicated one is likely coming.

[John Teachout]

Quote from @John Teachout:

Quote from @Lisa Jones:

Does this mean that AVAF2 has a capital call as well? Is that the latest? Does anyone have the email announcement?

No, AVAF2 does NOT have a capital call "yet". However wording in their recent report indicated one is likely coming.

We are unlikely to participate in the capital call when it comes because the fund's assets are performing well below the pro-forma. It's not generating adequate profit even with a cap rate currently in place. The performance of one of the properties is poor with a concerning low occupancy rate. And finally, we have no confidence they can "operate" themselves to a profitable position in the future which will likely result in a loss of investor capital.

[Lisa Jones]

Those are all good points. 
i’m in fund 1 and was very, very close to investing in Fund II but decided against it at the last minute based on some gaps in communication that made me a bit uncomfortable. I am so glad I decided against it.

[John Teachout]

Quote from @Lisa Jones:

Those are all good points. 
i’m in fund 1 and was very, very close to investing in Fund II but decided against it at the last minute based on some gaps in communication that made me a bit uncomfortable. I am so glad I decided against it.

So where is fund 1 at now? Did they raise enough capital to kick the can down the road?

[Lisa Jones]

As of now, AVAF1 has a funding gap of approximately $10M. They said they will share what the plans are to close the gap once all the funds are in but they are still moving out with the execution plan as scheduled so we shall see.

[Chris Seveney]

Quote from @John Teachout:

Quote from @John Teachout:

Quote from @Lisa Jones:

Does this mean that AVAF2 has a capital call as well? Is that the latest? Does anyone have the email announcement?

No, AVAF2 does NOT have a capital call "yet". However wording in their recent report indicated one is likely coming.

We are unlikely to participate in the capital call when it comes because the fund's assets are performing well below the pro-forma. It's not generating adequate profit even with a cap rate currently in place. The performance of one of the properties is poor with a concerning low occupancy rate. And finally, we have no confidence they can "operate" themselves to a profitable position in the future which will likely result in a loss of investor capital.

I am not in these funds, but personally I would not be investing in a capital call at this time for any fund unless there was a very clear exit strategy where they could show me why I should invest and the risk vs. what is their exit... I like to think I am a simple person and would rather know today I lost the investment and can move on than be curious what I can scrape from it and invest more money that could be lost. 

[JD Martin]

Quote from @Chris Seveney:

Quote from @John Teachout:

Quote from @John Teachout:

Quote from @Lisa Jones:

Does this mean that AVAF2 has a capital call as well? Is that the latest? Does anyone have the email announcement?

No, AVAF2 does NOT have a capital call "yet". However wording in their recent report indicated one is likely coming.

We are unlikely to participate in the capital call when it comes because the fund's assets are performing well below the pro-forma. It's not generating adequate profit even with a cap rate currently in place. The performance of one of the properties is poor with a concerning low occupancy rate. And finally, we have no confidence they can "operate" themselves to a profitable position in the future which will likely result in a loss of investor capital.

I am not in these funds, but personally I would not be investing in a capital call at this time for any fund unless there was a very clear exit strategy where they could show me why I should invest and the risk vs. what is their exit... I like to think I am a simple person and would rather know today I lost the investment and can move on than be curious what I can scrape from it and invest more money that could be lost. 

 I would bet money the only real 'strategy' right now is hope like hell that they can hang on and that the Fed will cut rates enough that commercial rates will fall in lockstep. I'm no Nostradamus but if I had to place a bet I'd bet on rates holding flat until/unless it was obvious there was significant thawing in the residential housing market, and I don't think that's coming any time soon until wages come closer to catching up with prices. Somewhere up there 4 or 5 months ago I predicted the LPs are all completely/nearly completely wiped out in the first fund just looking at the numbers and I would double down on that. 

I agree with you - it's better to just take your lumps and move on than keep on tossing money into a black hole.

[Stephen Keighery]

I am sorry that you experienced this. I have had distributions paused in a syndication deal that I am ab LP in but not a capital call. I am interested in what other people say about this. 

[John Teachout]

Quote from @JD Martin:

 I would bet money the only real 'strategy' right now is hope like hell that they can hang on and that the Fed will cut rates enough that commercial rates will fall in lockstep. I'm no Nostradamus but if I had to place a bet I'd bet on rates holding flat until/unless it was obvious there was significant thawing in the residential housing market, and I don't think that's coming any time soon until wages come closer to catching up with prices. Somewhere up there 4 or 5 months ago I predicted the LPs are all completely/nearly completely wiped out in the first fund just looking at the numbers and I would double down on that. 

I agree with you - it's better to just take your lumps and move on than keep on tossing money into a black hole.

 I also think that interest rates, while likely getting a token reduction, are not going to decrease very much. Certainly not enough to bail out all the syndications that have short term debt requiring a rate cap or refinancing. ALL of the syndications/funds we invested in before the rising rates stopped distributions and only one has started them up again. (solid operations, 100% occupancy). The other ones will likely scrape by until things improve. Besides Ashcroft, it's possible that one more of them is at risk. It's a tough time to have recently invested in this asset class. The crystal ball is showing ominous days ahead.