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 @Justin R.:

And this is the root cause of the problem.

@Joel Owens and Mr. Burke (the ex syndicator) is saying "you as GP do not force to make a deal if the deal does not pencil out at the very beginning. You (as GP) don't do all those funny loan if you can't make it."


The problem started when market is entering default cap 3 environment, in this situation , even with no interest rate, making profit is very very difficult, so most GP switched from using fixed debt to floating. Why they wanna do this because it's the way for them to offer you IRR 15% just like before (although chance is way slimmer). Basically more leverage to generate interest. Therealdeal article talked about this a lot, I identified these problem long time ago.

However the problem with using bridge-floating is the maturity is very short and one need to have perfect execution and perfect market condition.

Which did not happen. And some folks are surrendering (GVA ? Tides ?) and some are making asset as hostage by issuing pref/capital call. (This is the same tactic when non-real estate company failed to sell their product and keep continue the operation by selling more riskier and riskier bonds to the public). 

The root cause of all of these is those cap rate spread. And some of us has been marketed continuously that CRE is passive investment, that's not true, there's time where market risk is high enough that keep continuing do investment no longer make sense).

At the end of the day ............... it's not GP responsibility.

it's LP responsibility because it is our own money and none force you to do that.

The GP would just continuously doing that because that's the way they make money (by keep buying/selling and do the operation and get their fee and so on).

I'm curious to hear your thoughts on 2008 and who's fault you think the 2008 Financial Crisis is. Do you mind sharing your thoughts?

 2008 is simply reckless lending, someone with 25k salary get 500k loan LoL

Now that reckless lending was a collusion between lender and GP

[Wesley Leung]

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Justin R.:

And this is the root cause of the problem.

@Joel Owens and Mr. Burke (the ex syndicator) is saying "you as GP do not force to make a deal if the deal does not pencil out at the very beginning. You (as GP) don't do all those funny loan if you can't make it."


The problem started when market is entering default cap 3 environment, in this situation , even with no interest rate, making profit is very very difficult, so most GP switched from using fixed debt to floating. Why they wanna do this because it's the way for them to offer you IRR 15% just like before (although chance is way slimmer). Basically more leverage to generate interest. Therealdeal article talked about this a lot, I identified these problem long time ago.

However the problem with using bridge-floating is the maturity is very short and one need to have perfect execution and perfect market condition.

Which did not happen. And some folks are surrendering (GVA ? Tides ?) and some are making asset as hostage by issuing pref/capital call. (This is the same tactic when non-real estate company failed to sell their product and keep continue the operation by selling more riskier and riskier bonds to the public). 

The root cause of all of these is those cap rate spread. And some of us has been marketed continuously that CRE is passive investment, that's not true, there's time where market risk is high enough that keep continuing do investment no longer make sense).

At the end of the day ............... it's not GP responsibility.

it's LP responsibility because it is our own money and none force you to do that.

The GP would just continuously doing that because that's the way they make money (by keep buying/selling and do the operation and get their fee and so on).

I'm curious to hear your thoughts on 2008 and who's fault you think the 2008 Financial Crisis is. Do you mind sharing your thoughts?

 2008 is simply reckless lending, someone with 25k salary get 500k loan LoL

Now that reckless lending was a collusion between lender and GP

So in 2008 you agree that the cause of the financial crisis was lenders/GP's lending recklessly and providing NINJA loans? But if I apply the same logic that you apply to the syndicators/LP's today, shouldn't 2008 be the borrowers'/homeowners' fault since they should have known the risks of mortgages and homeownership? Why the change? What's different?

[Carlos Ptriawan]

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Justin R.:

And this is the root cause of the problem.

@Joel Owens and Mr. Burke (the ex syndicator) is saying "you as GP do not force to make a deal if the deal does not pencil out at the very beginning. You (as GP) don't do all those funny loan if you can't make it."


The problem started when market is entering default cap 3 environment, in this situation , even with no interest rate, making profit is very very difficult, so most GP switched from using fixed debt to floating. Why they wanna do this because it's the way for them to offer you IRR 15% just like before (although chance is way slimmer). Basically more leverage to generate interest. Therealdeal article talked about this a lot, I identified these problem long time ago.

However the problem with using bridge-floating is the maturity is very short and one need to have perfect execution and perfect market condition.

Which did not happen. And some folks are surrendering (GVA ? Tides ?) and some are making asset as hostage by issuing pref/capital call. (This is the same tactic when non-real estate company failed to sell their product and keep continue the operation by selling more riskier and riskier bonds to the public). 

The root cause of all of these is those cap rate spread. And some of us has been marketed continuously that CRE is passive investment, that's not true, there's time where market risk is high enough that keep continuing do investment no longer make sense).

At the end of the day ............... it's not GP responsibility.

it's LP responsibility because it is our own money and none force you to do that.

The GP would just continuously doing that because that's the way they make money (by keep buying/selling and do the operation and get their fee and so on).

I'm curious to hear your thoughts on 2008 and who's fault you think the 2008 Financial Crisis is. Do you mind sharing your thoughts?

 2008 is simply reckless lending, someone with 25k salary get 500k loan LoL

Now that reckless lending was a collusion between lender and GP

So in 2008 you agree that the cause of the financial crisis was lenders/GP's lending recklessly and providing NINJA loans? But if I apply the same logic that you apply to the syndicators/LP's today, shouldn't 2008 be the borrowers'/homeowners' fault since they should have known the risks of mortgages and homeownership? Why the change? What's different?

 Difference is the borrower in 2008 is unsophisticated home owner ……. Someone in McDonald’s could get sub prime loan

In today’s syndication , the LP is accredited investors where they / we should be sophisticated enough to understand the risk …..

we can’t really blame the GP because someone else would just continuously operating those apartment….   how you believe those promises re the question.

[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.

[Wesley Leung]

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Wesley Leung:

Quote from @Carlos Ptriawan:

Quote from @Justin R.:

And this is the root cause of the problem.

@Joel Owens and Mr. Burke (the ex syndicator) is saying "you as GP do not force to make a deal if the deal does not pencil out at the very beginning. You (as GP) don't do all those funny loan if you can't make it."


The problem started when market is entering default cap 3 environment, in this situation , even with no interest rate, making profit is very very difficult, so most GP switched from using fixed debt to floating. Why they wanna do this because it's the way for them to offer you IRR 15% just like before (although chance is way slimmer). Basically more leverage to generate interest. Therealdeal article talked about this a lot, I identified these problem long time ago.

However the problem with using bridge-floating is the maturity is very short and one need to have perfect execution and perfect market condition.

Which did not happen. And some folks are surrendering (GVA ? Tides ?) and some are making asset as hostage by issuing pref/capital call. (This is the same tactic when non-real estate company failed to sell their product and keep continue the operation by selling more riskier and riskier bonds to the public). 

The root cause of all of these is those cap rate spread. And some of us has been marketed continuously that CRE is passive investment, that's not true, there's time where market risk is high enough that keep continuing do investment no longer make sense).

At the end of the day ............... it's not GP responsibility.

it's LP responsibility because it is our own money and none force you to do that.

The GP would just continuously doing that because that's the way they make money (by keep buying/selling and do the operation and get their fee and so on).

I'm curious to hear your thoughts on 2008 and who's fault you think the 2008 Financial Crisis is. Do you mind sharing your thoughts?

 2008 is simply reckless lending, someone with 25k salary get 500k loan LoL

Now that reckless lending was a collusion between lender and GP

So in 2008 you agree that the cause of the financial crisis was lenders/GP's lending recklessly and providing NINJA loans? But if I apply the same logic that you apply to the syndicators/LP's today, shouldn't 2008 be the borrowers'/homeowners' fault since they should have known the risks of mortgages and homeownership? Why the change? What's different?

 Difference is the borrower in 2008 is unsophisticated home owner ……. Someone in McDonald’s could get sub prime loan

In today’s syndication , the LP is accredited investors where they / we should be sophisticated enough to understand the risk …..

we can’t really blame the GP because someone else would just continuously operating those apartment….   how you believe those promises re the question.

Your argument and reasoning is quite poor, mainly because it relies on splitting hairs and it is up to you, Carlos Ptriawan, which hair to split. My argument as to why the syndicators/GP's are at fault is because they knowingly take advantage of those less sophisticated than them. Period. I don't play judge and jury and decide who "should be sophisticated enough" and who shouldn't be. I don't care if the LP or homeowner is a Mcdonald's worker making minimum wage or a software engineer making $200k. Knowledge and income are not the same. You can be a doctor or software engineer making 6 figures and not understand financial risk. You can be a Mcdonald's worker and a day trader on the side and be very well versed in financial risk. Who's to say that none of Ashcroft's or Tides Equities' LP's are Mcdonald's workers? They are all unaccredited investors, which is why these syndicators prey on them instead of raising money from. accredited investors. Similar to how lenders/mortgage brokers took advantage of unsophisticated borrowers in 2008, Juul took advantage of teenages, and scammers take advantage of the elderly, the syndicators (the bad actors at least), take advantage of unsophisticated, retail investors, which is why they are primarily to blame.

[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”

[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 @Justin R.:

And this is the root cause of the problem.

@Joel Owens and Mr. Burke (the ex syndicator) is saying "you as GP do not force to make a deal if the deal does not pencil out at the very beginning. You (as GP) don't do all those funny loan if you can't make it."


The problem started when market is entering default cap 3 environment, in this situation , even with no interest rate, making profit is very very difficult, so most GP switched from using fixed debt to floating. Why they wanna do this because it's the way for them to offer you IRR 15% just like before (although chance is way slimmer). Basically more leverage to generate interest. Therealdeal article talked about this a lot, I identified these problem long time ago.

However the problem with using bridge-floating is the maturity is very short and one need to have perfect execution and perfect market condition.

Which did not happen. And some folks are surrendering (GVA ? Tides ?) and some are making asset as hostage by issuing pref/capital call. (This is the same tactic when non-real estate company failed to sell their product and keep continue the operation by selling more riskier and riskier bonds to the public). 

The root cause of all of these is those cap rate spread. And some of us has been marketed continuously that CRE is passive investment, that's not true, there's time where market risk is high enough that keep continuing do investment no longer make sense).

At the end of the day ............... it's not GP responsibility.

it's LP responsibility because it is our own money and none force you to do that.

The GP would just continuously doing that because that's the way they make money (by keep buying/selling and do the operation and get their fee and so on).

I'm curious to hear your thoughts on 2008 and who's fault you think the 2008 Financial Crisis is. Do you mind sharing your thoughts?

 2008 is simply reckless lending, someone with 25k salary get 500k loan LoL

Now that reckless lending was a collusion between lender and GP

So in 2008 you agree that the cause of the financial crisis was lenders/GP's lending recklessly and providing NINJA loans? But if I apply the same logic that you apply to the syndicators/LP's today, shouldn't 2008 be the borrowers'/homeowners' fault since they should have known the risks of mortgages and homeownership? Why the change? What's different?

 Difference is the borrower in 2008 is unsophisticated home owner ……. Someone in McDonald’s could get sub prime loan

In today’s syndication , the LP is accredited investors where they / we should be sophisticated enough to understand the risk …..

we can’t really blame the GP because someone else would just continuously operating those apartment….   how you believe those promises re the question.

Your argument and reasoning is quite poor, mainly because it relies on splitting hairs and it is up to you, Carlos Ptriawan, which hair to split. My argument as to why the syndicators/GP's are at fault is because they knowingly take advantage of those less sophisticated than them. Period. I don't play judge and jury and decide who "should be sophisticated enough" and who shouldn't be. I don't care if the LP or homeowner is a Mcdonald's worker making minimum wage or a software engineer making $200k. Knowledge and income are not the same. You can be a doctor or software engineer making 6 figures and not understand financial risk. You can be a Mcdonald's worker and a day trader on the side and be very well versed in financial risk. Who's to say that none of Ashcroft's or Tides Equities' LP's are Mcdonald's workers? They are all unaccredited investors, which is why these syndicators prey on them instead of raising money from. accredited investors. Similar to how lenders/mortgage brokers took advantage of unsophisticated borrowers in 2008, Juul took advantage of teenages, and scammers take advantage of the elderly, the syndicators (the bad actors at least), take advantage of unsophisticated, retail investors, which is why they are primarily to blame.

 It is not fault of GP because they can’t control interest rate …

in any CrE business market risk is like 80 percent of the outcome….

[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

[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.

[Chris John]

@Wesley Leung

In my opinion (and I know what that's worth), your tone isn't really normal for biggerpockets.  I'd save this for twitter, reddit, or whatever.  @Carlos Ptriawan is a gem on these boards and deserves more respect, even if you don't like his answers or agree with him. 

I've never participated in a syndication (and probably never will), but are the syndicators that follow through and produce for their investors also scammers?  Or just those that come up short?  I mean, I guess I'm asking if you can imagine a world in which they thought the investment would come good or do you think they were cynical from the get?

[JD Martin]

I think it's pretty obvious what has really happened with these funds.

Low interest rates for as long as they were low, coupled with a low linear increase in housing (both SFH and MFH) made everyone look like a genius. In the about 10 years from 2010-11 through 2021, just about anyone could make money at real estate. It took a long time for a lot of these houses and apartments to recover to 2005 levels, so all you really needed to do was not buy a total dog and wait. So a lot of people thought they were a lot smarter than they really were and they all decided they could start & run big RE funds because they were so smart. 

Now all of a sudden COVID and 2021-2023 hits. Rapidly rising interest rates, slowdown on large commercial buyers coinciding with expiring or resetting variable debt. All these guys thought they would just milk a continually rising environment forever and found out that sometimes the tide turns the other way. 

I don't invest in any of these funds - I like to control things myself - but if I was going to, one of my first questions would be "When do you expect to liquidate these assets?". Generally the answer should be 1 of 3 things:

1. When the level of maintenance, repair, and tenancy exceeds that which is necessary for the fund to thrive;

2. When the funds from liquidating can be put to more productive use.

3. Never, we plan to hold these assets forever.

I like #3 because it's the surest bet that the fund sees the acquisition of this asset has having enough quality and income (now and in the future). If the fund wants to focus on when they're getting rid of buildings they just bought, it's probably not a good choice. 

[Eric Bilderback]

Quote from @JD Martin:

I think it's pretty obvious what has really happened with these funds.

People betting that the Fed would do the responsible thing got crushed.  People who saved money lost out for so long and people who took massive risk got paid. After the last 12 years who the would have dreamed that real estate ever goes down?

[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.

[Jay Hinrichs]

Quote from @Chris John:

@Wesley Leung

In my opinion (and I know what that's worth), your tone isn't really normal for biggerpockets.  I'd save this for twitter, reddit, or whatever.  @Carlos Ptriawan is a gem on these boards and deserves more respect, even if you don't like his answers or agree with him. 

I've never participated in a syndication (and probably never will), but are the syndicators that follow through and produce for their investors also scammers?  Or just those that come up short?  I mean, I guess I'm asking if you can imagine a world in which they thought the investment would come good or do you think they were cynical from the get?

To call syndicators that made a bad bet or a business model that is wobbly to failing Scammers is just simply the voice of someone with not a lot of experience in the business.. Scammers are premeditated thieves.. Our syndicators that are having issues are hardly that.

All Real estate has its inherent risks full stop.

What will define these folks is how they work through the tough times.  @Brian Burke Brian has some very deep experience in the space in good times and bad. I think what we are seeing is with most of these folks having these issues and now with the internet these issues are broadcast wide far.  I would venture to guess most of these companies we are talking about on BP right now are all led by GPs that started in syndication Post GFC and to compete they took the same play book as others starting out.. And now that playbook is showing some significant weakness's or failures.

But to paint these syndicators as Scammers and Crooks I think is simply an ignorant statement.

[Henry Lazerow]

After googling Ashcroft Captial I keep getting advertisements to invest with them. Interesting they keep spending money on marketing for new funds, all while sending out capital calls on their current projects. 

[Jay Hinrichs]

Quote from @Henry Lazerow:

After googling Ashcroft Captial I keep getting advertisements to invest with them. Interesting they keep spending money on marketing for new funds, all while sending out capital calls on their current projects. 

just because a business has a few bummers does not mean they shut down ..  Just like individual investors they make a bad buy sell for a loss and then go try to find something better.. No one with a long history or time in RE has created  perfection myself included. It happens.

[Joel Owens]

Looking at someone today I would ask for recent exits in last 12 months if the strategy is value add growth.

Taking a summation of every full cycle exit over hot and cold points in an investment cycle doesn't give you really what is happening TODAY and in the recent PAST.

It's good see to see long historicals but that should not be given too much weight for investing now.

[Bhekizwe M.]

Liquidation fees...lol.

Market cycles are a reality.i hope all turns out well for investors

[John McKee]

So take a loss now if you don't pay up or maybe take a smaller loss later? Hmm. Decisions Decisions!  

[Scott Rye]

Quote from @Paul Azad:

Quote from @Chris John:

Quote from @Wesley Leung:

What is your assessment of what happened in 2008? I am not saying that mortgage brokers and banks alonecaused the 2008 financial crisis, but they were certainly a contributing factor. There are many factors that resulted in the financial crisis.

I realize you didn't ask me, but here's my answer.  I think it started with the government wanting more minority home ownership and applying pressure to make it happen.  Hilarity ensued.  Lots of people disagree though.  In the end, it's however your personal bias will allow you to view and characterize the events of the past.

 I'm from TEXAS, and trust me George "Dubya" Bush (President from 2000-2009) was not motivated by helping minorities to get their first homes. GFC was due to naive/lazy nurses/teachers/cops/fire-fighters and anyone else with a pension, not deploying any Due Diligence and just letting their greedy pension managers get billions in fees to invest in crap MBS and synthetic CDOs, all else by banking and ratings agencies and real estate investors just followed like trigger/hammer/powder/bullet down the pipe. The person who pulled the trigger is solely responsible and that was the American people with pension funds that placed the investments and MADE the Market and not anyone else. 

Today idiots like at Ashcrack pay ridiculously high prices with cap rates of 3to4 then cry, "what happened" when their ENron or Pets.com share price starts to pull back 20-30%. "Inconceivable!" 

I listened to the call above, from 2 days ago and the GP when asked what he would have done differently, said "would have bought longer term Rate Caps".  Really, that's all your frontal cortex with all the reflection over the past 2 years could come up with? Really? Never occurred to you to maybe not buy at all-time highs, near lowest 10yr in recorded US history {0.31% in March of 2020}, Maybe don't use variable rate debt with short term maturity? Maybe just sit on your hands and do nothing? If I go to a car lot and the 20year old Subaru with 200,000 miles and frame damage is selling for 300K, maybe I take the frickin' BUS! 

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 Ashcrock crew may not have known what they were doing, may have been as moronic as they sound on the webinar, and perhaps that is even more dangerous though less nefarious.  They also throw up a table with a "range" of exit Cap Rates from only 4-5%, R U Kiddin me. 10 yr is at 5% now and heading, by most bond experts, much higher. We have 42 years of leverage to de-risk as an economy.  So they are being wildly optimistic, and also two faced as they say many times that the multi-family market has improved in last 6 months, but that they can't sell any assets to raise capital in this horrible market so they must do the Capital call and ADD pref equity (to pay them back the 12 mil they stupidly sunk in over last 1 year, good money after bad). 

They are Un-Good at investing, swipe Left :) 

[Scott Rye]

Quote from @Paul Azad:

i suspect your position will be diluted by about 20% if you don't contribute to the capital call, You don't lose your investment though, unless the property gets sold below debt basis or gets foreclosed on and then sold by lender at below debt basis, but if only a few investors contribute then that may happen

The question for the limited partners remains, is this a good investment today?, not yesterday which is a Sunk Cost

Given macro-environment, rising unemployment, rising 10yr interest rate which equals Cap rates, prolonged 23month inverted yield curve (longest since 1978), increasing supply of Multi-family in Atlanta area over next 2 years, falling post pandemic stimulus in people's bank accounts, now below 1 trillion from 5 Trillion 3 yrs ago, etc.

Would that extra 19.7% capital be better invested somewhere else?

Sorry for the difficult situation, but many Multi-family syndicates dangerously used bridge-loans with very short term Maturity walls which are forcing the capital infusions to re-finance, as opposed to variable 10yr Agency debt or even safer but less lucrative, 10 yr Fixed agency or CMBS

only the limited partners know the details and the performance of the property and the managers to make this decision - good luck

 I just cannot get my head around Ashcroft getting their 11-12M back into their pockets while everybody else basically sinks.....Why the "F" do they get made whole! The video was worthless, the numbers are more inflated and egregious than their original plan. Who is selling in the SE or Texas at a 4-5 cap? If anyone know someone who knows someone where this actually happening on B to B- props, I am all ears! These guys want their 12M back and the rest of the LP's might as well pick RED or BLACK....For us, we are in numerous Synd's and generally doing well except this one. Will likely pass, expect the loss and if we get something 3-4 yrs from now, well then that's just plain luck!

[Brian Bernstein]

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[Clark Stevenson]

Quote from @Scott Rye:

Quote from @Paul Azad:

i suspect your position will be diluted by about 20% if you don't contribute to the capital call, You don't lose your investment though, unless the property gets sold below debt basis or gets foreclosed on and then sold by lender at below debt basis, but if only a few investors contribute then that may happen

The question for the limited partners remains, is this a good investment today?, not yesterday which is a Sunk Cost

Given macro-environment, rising unemployment, rising 10yr interest rate which equals Cap rates, prolonged 23month inverted yield curve (longest since 1978), increasing supply of Multi-family in Atlanta area over next 2 years, falling post pandemic stimulus in people's bank accounts, now below 1 trillion from 5 Trillion 3 yrs ago, etc.

Would that extra 19.7% capital be better invested somewhere else?

Sorry for the difficult situation, but many Multi-family syndicates dangerously used bridge-loans with very short term Maturity walls which are forcing the capital infusions to re-finance, as opposed to variable 10yr Agency debt or even safer but less lucrative, 10 yr Fixed agency or CMBS

only the limited partners know the details and the performance of the property and the managers to make this decision - good luck

 I just cannot get my head around Ashcroft getting their 11-12M back into their pockets while everybody else basically sinks.....Why the "F" do they get made whole! The video was worthless, the numbers are more inflated and egregious than their original plan. Who is selling in the SE or Texas at a 4-5 cap? If anyone know someone who knows someone where this actually happening on B to B- props, I am all ears! These guys want their 12M back and the rest of the LP's might as well pick RED or BLACK....For us, we are in numerous Synd's and generally doing well except this one. Will likely pass, expect the loss and if we get something 3-4 yrs from now, well then that's just plain luck!

 I am an investor in this fund AVAF1 and I too was amazed that they made the claim that their 11m loan would be repaid because the banks said it was needed to meet lender covenants. I have never heard of a bank requiring someone to withdraw capital to meet covenants unless they made it a senior loan with all others subordinate to this GP loan. They did make the concession that the AM fees are waived but the waterfall change is really no change because it will take a literal miracle for there to be a need for the waterfall. I did note that they didn't waive the 1% disposition fee which, if they meet their targets, will be over $6m. Dilution is going to be north of 16% but I am accepting that rather than putting good money after bad. I expect the Class B shareholders are going to be wiped out so I'm looking at it like I have already been diluted 100% because that is the reality today.

[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...

[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.