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

[Brian Burke]

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 won’t opine on whether Ashcroft made a big mistake—their investors will ultimately be judge, jury, and executioner based on the final outcome.  Even if I did comment, my Monday morning quarterbacking should be dismissed as inadmissible because, for lack of a better definition, I’m a competitor of theirs.

But I can speak to my opinion as an operator, in a general sense, not specific to Ashcroft because I’m not familiar with the financing of these assets.

Borrowing with short maturities dramatically increases risk, always. Ten years into a bull run amplifies that risk. Doing so with a high LTV amplifies that risk even further.

Investing in a syndicate comes with risk and the idea is that investors should seek a risk adjusted return.  By that, I mean that the returns you expected should have been significantly higher than the returns from a similar investment with a more conservative financing structure. Was it?

The problem I see is passive investors frequently don’t invest on a risk-adjusted basis.  Instead, they invest in the deal that projects the highest return.  And how do you get there?  High leverage.  Multiple share classes.  Preferred equity.  Mezzanine debt.

This pushes groups to finance this way because “that’s what sells.”  It’s no accident that many of the groups you see today running into serious trouble are groups that acquired a lot of assets near the market peak using tools such as this that juiced projected investor return. 

And to somewhat answer your question, a LOT of buyers were financing this way. Before I stopped buying in 2021, after being outbid by millions of dollars on a regular basis, I started asking brokers "how many of the other buyers are using bridge debt?" Their answer: "All of them." (I was underwriting to 60-65% LTV with one share class and no subordinate mezz/pref.) So I started selling off my portfolio. Among the groups bidding on my properties, how many were using bridge debt? Most of them.

On the other hand, groups that used more conservative finance structures didn’t grow as fast because, in part, the investors weren’t fueling them to the same extent.  Also in part, because they couldn’t underwrite to as high a price as the higher-risk groups.  And in part because groups that finance conservatively tend to buy conservatively, which doesn’t result in much when a market is topping out.

And just a comment about your statement that the Ashcroft properties have an "LTV of 80% at the moment." Then you said "80% LTV…when the properties were purchased." Depending on when these properties were purchased, along with a handful of other factors, these two statements could be mutually exclusive. Multifamily values have fallen somewhere between 20 percent and 40 percent since 2022, meaning that the LTV today could be greater than 80%, and very easily could exceed 100%.

[Lindsey Buxton]

Quote from @Brian Burke:

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 won’t opine on whether Ashcroft made a big mistake—their investors will ultimately be judge, jury, and executioner based on the final outcome.  Even if I did comment, my Monday morning quarterbacking should be dismissed as inadmissible because, for lack of a better definition, I’m a competitor of theirs.

But I can speak to my opinion as an operator, in a general sense, not specific to Ashcroft because I’m not familiar with the financing of these assets.

Borrowing with short maturities dramatically increases risk, always. Ten years into a bull run amplifies that risk. Doing so with a high LTV amplifies that risk even further.

Investing in a syndicate comes with risk and the idea is that investors should seek a risk adjusted return.  By that, I mean that the returns you expected should have been significantly higher than the returns from a similar investment with a more conservative financing structure. Was it?

The problem I see is passive investors frequently don’t invest on a risk-adjusted basis.  Instead, they invest in the deal that projects the highest return.  And how do you get there?  High leverage.  Multiple share classes.  Preferred equity.  Mezzanine debt.

This pushes groups to finance this way because “that’s what sells.”  It’s no accident that many of the groups you see today running into serious trouble are groups that acquired a lot of assets near the market peak using tools such as this that juiced projected investor return. 

And to somewhat answer your question, a LOT of buyers were financing this way. Before I stopped buying in 2021, after being outbid by millions of dollars on a regular basis, I started asking brokers "how many of the other buyers are using bridge debt?" Their answer: "All of them." (I was underwriting to 60-65% LTV with one share class and no subordinate mezz/pref.) So I started selling off my portfolio. Among the groups bidding on my properties, how many were using bridge debt? Most of them.

On the other hand, groups that used more conservative finance structures didn’t grow as fast because, in part, the investors weren’t fueling them to the same extent.  Also in part, because they couldn’t underwrite to as high a price as the higher-risk groups.  And in part because groups that finance conservatively tend to buy conservatively, which doesn’t result in much when a market is topping out.

And just a comment about your statement that the Ashcroft properties have an "LTV of 80% at the moment." Then you said "80% LTV…when the properties were purchased." Depending on when these properties were purchased, along with a handful of other factors, these two statements could be mutually exclusive. Multifamily values have fallen somewhere between 20 percent and 40 percent since 2022, meaning that the LTV today could be greater than 80%, and very easily could exceed 100%.

@Brian Burke great insight. I'm finding so much value in your commentary on this whole forum thread, thanks for sharing your experience and perspective!

[Jay Hinrichs]

Quote from @Brian Burke:

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 won’t opine on whether Ashcroft made a big mistake—their investors will ultimately be judge, jury, and executioner based on the final outcome.  Even if I did comment, my Monday morning quarterbacking should be dismissed as inadmissible because, for lack of a better definition, I’m a competitor of theirs.

But I can speak to my opinion as an operator, in a general sense, not specific to Ashcroft because I’m not familiar with the financing of these assets.

Borrowing with short maturities dramatically increases risk, always. Ten years into a bull run amplifies that risk. Doing so with a high LTV amplifies that risk even further.

Investing in a syndicate comes with risk and the idea is that investors should seek a risk adjusted return.  By that, I mean that the returns you expected should have been significantly higher than the returns from a similar investment with a more conservative financing structure. Was it?

The problem I see is passive investors frequently don’t invest on a risk-adjusted basis.  Instead, they invest in the deal that projects the highest return.  And how do you get there?  High leverage.  Multiple share classes.  Preferred equity.  Mezzanine debt.

This pushes groups to finance this way because “that’s what sells.”  It’s no accident that many of the groups you see today running into serious trouble are groups that acquired a lot of assets near the market peak using tools such as this that juiced projected investor return. 

And to somewhat answer your question, a LOT of buyers were financing this way. Before I stopped buying in 2021, after being outbid by millions of dollars on a regular basis, I started asking brokers "how many of the other buyers are using bridge debt?" Their answer: "All of them." (I was underwriting to 60-65% LTV with one share class and no subordinate mezz/pref.) So I started selling off my portfolio. Among the groups bidding on my properties, how many were using bridge debt? Most of them.

On the other hand, groups that used more conservative finance structures didn’t grow as fast because, in part, the investors weren’t fueling them to the same extent.  Also in part, because they couldn’t underwrite to as high a price as the higher-risk groups.  And in part because groups that finance conservatively tend to buy conservatively, which doesn’t result in much when a market is topping out.

And just a comment about your statement that the Ashcroft properties have an "LTV of 80% at the moment." Then you said "80% LTV…when the properties were purchased." Depending on when these properties were purchased, along with a handful of other factors, these two statements could be mutually exclusive. Multifamily values have fallen somewhere between 20 percent and 40 percent since 2022, meaning that the LTV today could be greater than 80%, and very easily could exceed 100%.

Brian,  using your thought process that value from when these folks bought the buildings have retreated 20 to 40% and since we know they were bought with Max debt 80% as you mentioned they need to do this to show highest returns so they can compete with others showing those returns as well.  

Now given the situation of NO equity right now to negative equity it seems throwing in more cash would be digging a deeper hole and how is it realistic that these props will go up not only what they are under water today but the added capital JUST to get your capital back forget about any return.

Just curious seems like simple math based on your opinions of current values in the B C class MF in the areas I have to assume these are.. I know its all assumptions ..

Seems to me the play today is simply be a preferred equity investor.  Instead of a cap call maybe ask to join the preferred so at least you get to offset your loss's .. ???  these investments get complicated thats for sure..

I have a few clients of mine that were in MF in PHX area and they did the same thing you did when they were getting offers at 3 caps they sold out.. Now they have all this cash to go into new deals with ME so I like that personally :)

[Brian Burke]

Quote from @Jay Hinrichs:

Now given the situation of NO equity right now to negative equity it seems throwing in more cash would be digging a deeper hole and how is it realistic that these props will go up not only what they are under water today but the added capital JUST to get your capital back forget about any return.

Just curious seems like simple math based on your opinions of current values in the B C class MF in the areas I have to assume these are.. I know its all assumptions ..

 

My opinion of current values could be wrong--hopefully no one makes their decision related to this capital call based on my opinion.  If anything, hopefully my opinions here can be taken as food for thought, and lead to questions to ask of the sponsor, to obtain facts from which a decision can be reached. 

Questions like yours--will the value come back to the extent that everyone gets their capital back.  My opinion is the answer is yes--but when?  Will that be in one year?  Five years?  Ten years?  And does the amount of capital being called get you to that point? 

[Carlos Ptriawan]

Quote from @Jay Hinrichs:

Quote from @Brian Burke:

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 won’t opine on whether Ashcroft made a big mistake—their investors will ultimately be judge, jury, and executioner based on the final outcome.  Even if I did comment, my Monday morning quarterbacking should be dismissed as inadmissible because, for lack of a better definition, I’m a competitor of theirs.

But I can speak to my opinion as an operator, in a general sense, not specific to Ashcroft because I’m not familiar with the financing of these assets.

Borrowing with short maturities dramatically increases risk, always. Ten years into a bull run amplifies that risk. Doing so with a high LTV amplifies that risk even further.

Investing in a syndicate comes with risk and the idea is that investors should seek a risk adjusted return.  By that, I mean that the returns you expected should have been significantly higher than the returns from a similar investment with a more conservative financing structure. Was it?

The problem I see is passive investors frequently don’t invest on a risk-adjusted basis.  Instead, they invest in the deal that projects the highest return.  And how do you get there?  High leverage.  Multiple share classes.  Preferred equity.  Mezzanine debt.

This pushes groups to finance this way because “that’s what sells.”  It’s no accident that many of the groups you see today running into serious trouble are groups that acquired a lot of assets near the market peak using tools such as this that juiced projected investor return. 

And to somewhat answer your question, a LOT of buyers were financing this way. Before I stopped buying in 2021, after being outbid by millions of dollars on a regular basis, I started asking brokers "how many of the other buyers are using bridge debt?" Their answer: "All of them." (I was underwriting to 60-65% LTV with one share class and no subordinate mezz/pref.) So I started selling off my portfolio. Among the groups bidding on my properties, how many were using bridge debt? Most of them.

On the other hand, groups that used more conservative finance structures didn’t grow as fast because, in part, the investors weren’t fueling them to the same extent.  Also in part, because they couldn’t underwrite to as high a price as the higher-risk groups.  And in part because groups that finance conservatively tend to buy conservatively, which doesn’t result in much when a market is topping out.

And just a comment about your statement that the Ashcroft properties have an "LTV of 80% at the moment." Then you said "80% LTV…when the properties were purchased." Depending on when these properties were purchased, along with a handful of other factors, these two statements could be mutually exclusive. Multifamily values have fallen somewhere between 20 percent and 40 percent since 2022, meaning that the LTV today could be greater than 80%, and very easily could exceed 100%.

Brian,  using your thought process that value from when these folks bought the buildings have retreated 20 to 40% and since we know they were bought with Max debt 80% as you mentioned they need to do this to show highest returns so they can compete with others showing those returns as well.  

Now given the situation of NO equity right now to negative equity it seems throwing in more cash would be digging a deeper hole and how is it realistic that these props will go up not only what they are under water today but the added capital JUST to get your capital back forget about any return.

Just curious seems like simple math based on your opinions of current values in the B C class MF in the areas I have to assume these are.. I know its all assumptions ..

Seems to me the play today is simply be a preferred equity investor.  Instead of a cap call maybe ask to join the preferred so at least you get to offset your loss's .. ???  these investments get complicated thats for sure..

I have a few clients of mine that were in MF in PHX area and they did the same thing you did when they were getting offers at 3 caps they sold out.. Now they have all this cash to go into new deals with ME so I like that personally :)

Their fund level DSCR is 0.80 from someone who posted their portfolio.

If one is invested in one apartment with a 90% LTV 0.90 DSCR 4% initial rate, the original LP investor money is gone when the financing rate moves to 9%.

[Carlos Ptriawan]

Quote from @Brian Burke:

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 won’t opine on whether Ashcroft made a big mistake—their investors will ultimately be judge, jury, and executioner based on the final outcome.  Even if I did comment, my Monday morning quarterbacking should be dismissed as inadmissible because, for lack of a better definition, I’m a competitor of theirs.

But I can speak to my opinion as an operator, in a general sense, not specific to Ashcroft because I’m not familiar with the financing of these assets.

Borrowing with short maturities dramatically increases risk, always. Ten years into a bull run amplifies that risk. Doing so with a high LTV amplifies that risk even further.

Investing in a syndicate comes with risk and the idea is that investors should seek a risk adjusted return.  By that, I mean that the returns you expected should have been significantly higher than the returns from a similar investment with a more conservative financing structure. Was it?

The problem I see is passive investors frequently don’t invest on a risk-adjusted basis.  Instead, they invest in the deal that projects the highest return.  And how do you get there?  High leverage.  Multiple share classes.  Preferred equity.  Mezzanine debt.

This pushes groups to finance this way because “that’s what sells.”  It’s no accident that many of the groups you see today running into serious trouble are groups that acquired a lot of assets near the market peak using tools such as this that juiced projected investor return. 

And to somewhat answer your question, a LOT of buyers were financing this way. Before I stopped buying in 2021, after being outbid by millions of dollars on a regular basis, I started asking brokers "how many of the other buyers are using bridge debt?" Their answer: "All of them." (I was underwriting to 60-65% LTV with one share class and no subordinate mezz/pref.) So I started selling off my portfolio. Among the groups bidding on my properties, how many were using bridge debt? Most of them.

On the other hand, groups that used more conservative finance structures didn’t grow as fast because, in part, the investors weren’t fueling them to the same extent.  Also in part, because they couldn’t underwrite to as high a price as the higher-risk groups.  And in part because groups that finance conservatively tend to buy conservatively, which doesn’t result in much when a market is topping out.

And just a comment about your statement that the Ashcroft properties have an "LTV of 80% at the moment." Then you said "80% LTV…when the properties were purchased." Depending on when these properties were purchased, along with a handful of other factors, these two statements could be mutually exclusive. Multifamily values have fallen somewhere between 20 percent and 40 percent since 2022, meaning that the LTV today could be greater than 80%, and very easily could exceed 100%.

 This where this thing gets interesting. These kinds of questions arise a lot in LP only forum and GP/LP Education forum.

What LP doesn't get is they chase aggressive IRR (that's realistically very hard to happen), so some "good GP" in Aleksey education mentioned they don't want to mention IRR on the deck because if they mention that then someone is asking what's the cost what's the fee what's the timeline , as if these are guaranteed.

So (naive) LP investor keep asking and pushing as if their home in texas should appreciate and give return like in california.

This is why, separating GP and LP like in LP Forum , at many times, doesn't really give additional education to the LP.

LP needs education from the senior LP and also from the (good) GP so they can exchange knowledge. Like overhere if you are a potential buyer you can still get information from realtor or expert in that particular area. I think in the future, LP that need to invest to syndication they have to pass some sort of basic education level on investment and real estate.

[Guy Idan]

@Jay Hinrichs and @Brian Burke - Appreciate your response and insights. I'm an investor in this fund and am trying to figure out the right thing to do and your comments are very helpful to learn and navigate this unfortunate situation. 

[Alice Ye]

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

 Hi Jon,

My name is Alice Ye from Philadelphia.

I also invested in this Ashcroft Fund and received the email. Did you invest this project through Shirley Xu's Golden Bridge Investment Club? I did it through Shirley from her WeChat group. 

I would like to connect with you.

I think we (all the LP investors) should set up a group and come up with a solution on this.

Have you decided that you wanted to put more money in as capital call at this time?

Please message me privately.

Thank you,
Alice

[Alice Ye]

Quote from @Guy Idan:

@Jay Hinrichs and @Brian Burke - Appreciate your response and insights. I'm an investor in this fund and am trying to figure out the right thing to do and your comments are very helpful to learn and navigate this unfortunate situation. 

 Hi Guy, 

I would like to connect with you as well. 

I also invested this fund and got the same email. I think we (all the LP investors) should set up a group and come up with a solution.

You can message me privately. 

Thanks!

Alice

[Alice Ye]

Quote from @John Sangl:

Following as I received the same email today.  I have no experience with capital calls either. 

Hi John,

I would like to connect with you as well.

I also invested this fund and got the same email. I think we (all the LP investors) should set up a group and come up with a solution.

You can message me privately.

Thanks!

Alice

[Chris Seveney]

Quote from @Alice Ye:

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

 Hi Jon,

My name is Alice Ye from Philadelphia.

I also invested in this Ashcroft Fund and received the email. Did you invest this project through Shirley Xu's Golden Bridge Investment Club? I did it through Shirley from her WeChat group. 

I would like to connect with you.

I think we (all the LP investors) should set up a group and come up with a solution on this.

Have you decided that you wanted to put more money in as capital call at this time?

Please message me privately.

Thank you,
Alice

 things that I would question:

Resuming Renovations: I would ask more about this as labor costs are not getting cheaper they will continue to increase in the near future. How much of the capital call is going to renovations

$2.9M Loan - Will this loan be converted to a contribution by the sponsor or is the capital call going to pay back this loan? If this capital call was to pay back the loan to the sponsor (this is just my opinion) - looks like they are getting their $ but putting others at risk.

Personally I would NOT contribute to any capital call in the MF space (note easy for me to say, not invested in any MF deal because my ego will say I saw this coming), but there is no data provided to me that shows any of these offerings with a capital call have a satisfactory exit where you would be able to recoup your initial investment. 

I know Investors want to remain hopeful that things will pan out, but sometimes you just need to cut your losses and move on and stop the bleeding. If you invested $50k or $100k would that $10k or $20k be better investing it in a lower risk asset or continue to take the gamble of red vs black?

Just my 2 cents and am not giving any opinion on the deal or sponsor as I am not in this deal, just providing my opinion based on information provided. 

[Jay Hinrichs]

Quote from @Alice Ye:

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

 Hi Jon,

My name is Alice Ye from Philadelphia.

I also invested in this Ashcroft Fund and received the email. Did you invest this project through Shirley Xu's Golden Bridge Investment Club? I did it through Shirley from her WeChat group. 

I would like to connect with you.

I think we (all the LP investors) should set up a group and come up with a solution on this.

Have you decided that you wanted to put more money in as capital call at this time?

Please message me privately.

Thank you,
Alice

how do you invest through these other entities like you describe here do they have a series 7 license to raise funds ?  I am sure they dont do it out of the goodness of their heart.. I suspect when this goes to litigation and these usually do.. that is going to be a course of action taken by plantiffs attornies.. who violated the laws on compensation.. You know you sue everyone..

@Chris Seveney  Chris do you get approached by these types of groups to raise funds for your business ???.  I know I have referred quite a few investors who have invested in the two Sponsors I like and who are not in this situation and for that I get a thank you  they cant pay me a fee as I am not licensed to do so.. I suspect there is a ton of this going on in the industry and when the litigation flies that is a something that will be pursued who was the procuring causes and did they get comp and could they legally take comp.  ???

[Chris Seveney]

Quote from @Jay Hinrichs:

Quote from @Alice Ye:

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

 Hi Jon,

My name is Alice Ye from Philadelphia.

I also invested in this Ashcroft Fund and received the email. Did you invest this project through Shirley Xu's Golden Bridge Investment Club? I did it through Shirley from her WeChat group. 

I would like to connect with you.

I think we (all the LP investors) should set up a group and come up with a solution on this.

Have you decided that you wanted to put more money in as capital call at this time?

Please message me privately.

Thank you,
Alice

how do you invest through these other entities like you describe here do they have a series 7 license to raise funds ?  I am sure they dont do it out of the goodness of their heart.. I suspect when this goes to litigation and these usually do.. that is going to be a course of action taken by plantiffs attornies.. who violated the laws on compensation.. You know you sue everyone..

@Chris Seveney  Chris do you get approached by these types of groups to raise funds for your business ???.  I know I have referred quite a few investors who have invested in the two Sponsors I like and who are not in this situation and for that I get a thank you  they cant pay me a fee as I am not licensed to do so.. I suspect there is a ton of this going on in the industry and when the litigation flies that is a something that will be pursued who was the procuring causes and did they get comp and could they legally take comp.  ???

 Jay,

We have been approached by several (not any mentioned above), as either providing mezzanine or debt or be asked if we would consider raising funds for them. In every instance we have said no. 

I agree, I think there is going to be a "you know what" storm brewing with Fund of Funds, and people raising money when they should not be in this community type crowdfunding which is not done in accordance with FINRA or the SEC. 

Quick story, I was at a conference last fall, and a woman ran up to me as she knew I had a debt fund and she was approached by another GP who said they would pay her 10% on every penny she raised. She ran a large community (several thousand) of female investors and was asking me for tips on how to pitch this to the group. My first question was "Is the GP X", and she said yes how did you know. I went on to say they are running an illegal offering, they never filed any exemption from the SEC and have you ran this by your attorney? Were you aware you get paid to raise funds and the whole thing goes bad you can end up in prison? 

There was another person sitting next to me who had been in the mortgage space for 30 years and he looked at her and said "you should listen to this guy, he is not BS'ing you". 

[Carlos Ptriawan]

Quote from @Jay Hinrichs:

Quote from @Alice Ye:

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

 Hi Jon,

My name is Alice Ye from Philadelphia.

I also invested in this Ashcroft Fund and received the email. Did you invest this project through Shirley Xu's Golden Bridge Investment Club? I did it through Shirley from her WeChat group. 

I would like to connect with you.

I think we (all the LP investors) should set up a group and come up with a solution on this.

Have you decided that you wanted to put more money in as capital call at this time?

Please message me privately.

Thank you,
Alice

how do you invest through these other entities like you describe here do they have a series 7 license to raise funds ?  I am sure they dont do it out of the goodness of their heart.. I suspect when this goes to litigation and these usually do.. that is going to be a course of action taken by plantiffs attornies.. who violated the laws on compensation.. You know you sue everyone..

@Chris Seveney  Chris do you get approached by these types of groups to raise funds for your business ???.  I know I have referred quite a few investors who have invested in the two Sponsors I like and who are not in this situation and for that I get a thank you  they cant pay me a fee as I am not licensed to do so.. I suspect there is a ton of this going on in the industry and when the litigation flies that is a something that will be pursued who was the procuring causes and did they get comp and could they legally take comp.  ???

If they're not registered broker they can't market securities. In 2019 I've invested to one SF fund/REIT/OZ that's later investigated by SEC. The "broker/marketer" has to return all the commision (from the fund) or face a jail time.

Three years later however, we all got 92% of our money back (reason we got our money back is because underlying asset was/is single family and not CRE,single family keeps appreciating nicely). The assets are now managed by SEC receivership.

Funny thing is this marketer still approaching his "deals" from CRE, life settlement, oil and gas,etc,etc.

[Carlos Ptriawan]

Quote from @Chris Seveney:

Quote from @Alice Ye:

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

 Hi Jon,

My name is Alice Ye from Philadelphia.

I also invested in this Ashcroft Fund and received the email. Did you invest this project through Shirley Xu's Golden Bridge Investment Club? I did it through Shirley from her WeChat group. 

I would like to connect with you.

I think we (all the LP investors) should set up a group and come up with a solution on this.

Have you decided that you wanted to put more money in as capital call at this time?

Please message me privately.

Thank you,
Alice

 things that I would question:

Resuming Renovations: I would ask more about this as labor costs are not getting cheaper they will continue to increase in the near future. How much of the capital call is going to renovations

$2.9M Loan - Will this loan be converted to a contribution by the sponsor or is the capital call going to pay back this loan? If this capital call was to pay back the loan to the sponsor (this is just my opinion) - looks like they are getting their $ but putting others at risk.

Personally I would NOT contribute to any capital call in the MF space (note easy for me to say, not invested in any MF deal because my ego will say I saw this coming), but there is no data provided to me that shows any of these offerings with a capital call have a satisfactory exit where you would be able to recoup your initial investment. 

big problem in this industry is asyncronous information because the nature of the business investment is this is PRIVATE business. In private business it's market where there's less reporting, less auditing and less public information. In syndication it's expected for the LP investor to be on the same level of knowledge and expertise with the GP. It was like that before. But what really happen is that unsophisticated GP is chasing unsophisticated LP (thru social media of course). 

If people want to do bit of searching, they can find low risk multifamily fund that has DSCR fund level of 1.90 but instead they are chasing to invest to a fund that all assets are using floating with as-is DSCR of 0.80x.

These are asyncronous information. First, the LP does not know how to DD but they have lot of money (and ego) and second, they don't know how to categorize risk. Investing at S&P500 and crypto for example, has vastly different risk profile.

Now if syndication already mentioned that in January 2022 that they are going to use bridge-debt 3% rate 80% LTV with less than 1 DSCR ; LP needs to know and understand what that means. The GP does not hide information. If they're later fail in the business because of the financing scheme. It's really not a surprise.

[Alice Ye]

Quote from @Jay Hinrichs:

Quote from @Alice Ye:

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

 Hi Jon,

My name is Alice Ye from Philadelphia.

I also invested in this Ashcroft Fund and received the email. Did you invest this project through Shirley Xu's Golden Bridge Investment Club? I did it through Shirley from her WeChat group. 

I would like to connect with you.

I think we (all the LP investors) should set up a group and come up with a solution on this.

Have you decided that you wanted to put more money in as capital call at this time?

Please message me privately.

Thank you,
Alice

how do you invest through these other entities like you describe here do they have a series 7 license to raise funds ?  I am sure they dont do it out of the goodness of their heart.. I suspect when this goes to litigation and these usually do.. that is going to be a course of action taken by plantiffs attornies.. who violated the laws on compensation.. You know you sue everyone..

@Chris Seveney  Chris do you get approached by these types of groups to raise funds for your business ???.  I know I have referred quite a few investors who have invested in the two Sponsors I like and who are not in this situation and for that I get a thank you  they cant pay me a fee as I am not licensed to do so.. I suspect there is a ton of this going on in the industry and when the litigation flies that is a something that will be pursued who was the procuring causes and did they get comp and could they legally take comp.  ???

[Alice Ye]

Hi Jay, "do they have a series 7 license to raise funds" How do I find out this? Does the government have a website where we can search? Thanks

[Chris Seveney]

Quote from @Alice Ye:

Hi Jay, "do they have a series 7 license to raise funds" How do I find out this? Does the government have a website where we can search? Thanks

 Check if someone is licensed:

BrokerCheck - Find a broker, investment or financial advisor (finra.org)

[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!

[Jay Hinrichs]

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!

Scott,  you make an excellent point.. I suspect many who got in on the syndication investments put far more than 3% of their NW into these deals and I will also bet dollars to donuts many fibbed about being accredited.. Many of the syndicators just had you fill out a simple form saying you were accredited without any form of verification.. Others were much more diligent in this aspect and required Letters from your CPA ( which is how my few syndicated investments went).

So as litigation flies that will be another one that gets added to plaintiffs list who fibbed on accredited status and how diligent were the sponsors..

[Carlos Ptriawan]

Leyla wrote very good analysis about capital call, especially in this paragraph:

https://www.accreditedinsight.com/p/houston-we-have-a-proble...



3. Do the math on property valuation: deduct 20-25% from purchase price if bought post-2020, less remaining debt, less amount of preferred equity (if any), less any member loans. Spoiler alert: most deals will show a negative equity value at this step.


This is the key here, so assuming valuation went down 20-30% from peak to 2024, LP can just assume if DSCR during purchase is 1.3x ; then there may be a chance. With these assumption, 2024 DSCR most likely is in the range of 0.9-1.1

Also advice #4 is good :

Consider if the new capital injection is truly beneficial or just delaying the inevitable. At this point, ask yourself if the amount of called capital will solve the problem or put a temporary bandaid on the issue. Example 1. A GP is dealing with a one-time issue (e.g. boiler unexpectedly died) and the funds are sufficient to solve that problem (i.e. replace the boiler). Example 2. A GP needs to purchase a new rate cap for their floating interest rate loan: the funds will cover the cost of a rate cap for 1 year, at which point you are back to this decision point.

Here in example #2, is precisely the report from the lender that I forwarded to this group. If the rate cap extension is just one year and DSCR is 0.8 ; your equity is gone pretty much.

Actual loan extension for bridge-lender is, from rate of 4% in 2020/2021 to 9%, but only for 12 to 36 months. I guess that's reason many of them (GP) prefer to issue prefs.

[Joel Owens]

I think if you look at cycles and history the syndicators could not have predicted a doubling of interest rates so fast in their models when they did their raises and purchases.

So for many it is probably a learning process of navigating waters they have likely never been in before,

I personally do not believe in massaging debt to make a pref look good to investors to entice investment. On one hand it is scaling fast, raising less capital, feeding the machine, and placing more cards on the table hoping their aren't more busts than winners.

I am talking about in generalities and not Ashcroft. I have heard on the street from others that syndicate multifamily there is a blood bath coming and in process. Think about if a seasoned syndicator of multifamily is having challenges than what about all the newly trained up syndicators at these workshops that bought marginal properties massaging debt to get investment so they can make money?

They are going to get hammered with little experience or capital to turn around the ship and help the LP's try to be made whole.

LP's should focus on the GP first, the strength of the deal second ( finance, location, all cash, etc.), then look at the initial pref almost last. In that way you are training your mind to set up a solid foundation for investment.

I syndicate NNN but do not have to. If I like 1 deal a year we buy one. If I see 10 I like I try for 10. It's not about scaling for me. It's about quality of investment. As a GP I do not want a lot of headaches either. I want consistent income I can depend on from a strong tenant and location. Nothing is absolute or fool proof and there is risk in any investment but the GP should take their time to try and analyze the risk as best as possible so it is minimized. You can never know all variables it's just not possible. Even billionaires do not win all the time but they put odds in their favor heavily by the way they go about making investments. If you win more than you lose and when you lose you lose small and then when you win you win big generally you come out really well on top. I really do not like using a lot of debt to purchase a deal. I would rather take down all cash and have the most options when to sell or refi if ever. Some assets could hold for decades. Look at your syndicate companies. Do they have to scale a lot and go fast to make payroll? Is the GP okay not doing a deal for 1 year IF they do not love a deal? You really need to understand what the GP stands for and their ideal way of making investments and why. Then you can decide if they are a possible fit for any of your capital as an accredited investor.

Do you think syndicators  maybe take money from non-accredited investors because they are easier to manipulate into investing in anything? Not all of them are but likely a higher percentage than accredited investors who are already multi-millionaires. You do not want a syndicator building models on having to take in a bunch of non-accredited investors to make deals work. That should be a major read flag that other LP accredited investors are passing and the syndicator is having to work hard with non-accredited investors to complete the raise.   

[Paul Azad]

Many experienced GPs and investors did see in late 2020 and throughout 2021 that massive inflation was on the way, which then began in mid 2021 and ramped up to 9% by mid 2022. All from the 27% increase in global US Dollar M2 money supply in 2020, the largest ever in US history. So many GP's did avoid variable rate debt and short term maturity loans requiring RE-FIs at predictably much higher rates. But there are many GPs that would buy at any inflated price as they had no skin in the game and even fewer neurons under the scalp :)

The US has now shrunk the M2 money supply by 4% in last 18 months, which has brought inflation rate down, This decrease in M2 has only happened 4 x in US history and every time caused a recession. Let's hope this time is different. 

[Joel Owens]

On the broker side for NNN as an example I had clients use 7 to 10 year fixed debt low in the 3's to 4's and sometimes assumable even when possible to build in with the lender.

I like longer fixed debt to give extra time to refi or sell the asset when best in cycle. You use 3 year to 5 year debt you can be asking for trouble. Over history if real estate is good it almost always goes up in value long term. Where the problem happens often is using short term or floating debt and paying a premium and when upcycle stops and the dip starts the property owners are toast. It's playing a game of musical chairs speculating you can exit and cash out big on the upcycle before things change. Long term fixed debt generally the net worth and liquid of the investor who owns the property and the property itself tends to outlast economic cycle shifts. Those who often chase the quick money often lose it as fast as they make it.

Cycles are like a mountain. You go to one peak and look down at the next valley which is lower then the peak but still higher than where you started from. Your money and your assets just have to survive the cycle shift in years before the next upturn. Going through cycles gives experience for long term planning and positioning of velocity buying with portfolios grown over time. You can always buy just less available for deals at the peak. I am not a stock person but know people with 8 to 9 figures worth of stock. They always buy a minimum amount no matter what is happening. When there is fear sell off or dips in value they buy a bunch more. Lot of stock owners have net worth of 100k and when stock dips they freak out and take 70k back and pay penalty. It's irrational but why people stay poor a lot. Real estate is same in your asset specialty you are buying with cycles and increasing velocity based on cycle timing and deal flow opportunity. There are some that jump to the asset class of the moment which is different from their core competency because various real estate can cycle at different times within a macro economic national cycle.

I personally believe in you do one thing, do it world class level, and forget the rest.   

[JD Martin]

It may be that the rapid rise in interest rates was unexpected but it was not unprecedented, and that is the crux of the problem. Too many of these REITs are run by individuals & consortiums that don't have enough collective memory to understand and plan for the possibility of pitfalls. We can call say that it's an unusual event, but all of investing is filled with unusual events.

On a side note, Ashcroft is far from alone in their troubles. From the WSJ yesterday:

A $10 Billion Real-Estate Fund Is Bleeding Cash and Running Out of Options

A giant commercial real-estate fund is scrambling to escape a looming cash crunch caused by the long line of investors who want their money back.

The $10 billion fund from Starwood Capital Group has been trying to preserve its available cash and credit by limiting investor redemptions. In the first quarter, the fund was hit with $1.3 billion in withdrawal requests but satisfied less than $500 million of them, according to regulatory filings.

Even with these limitations, the fund’s liquidity, consisting of cash, marketable securities and a bank line of credit, has been drying up. It totaled $752 million at the end of April, down from $1.1 billion at the end of last year. It was $2.2 billion at the end of 2022, according to filings.

“They don’t have a lot of liquidity left,” said Kevin Gannon, chief executive of Robert A. Stanger, an investment bank that specializes in real-estate funds.

These developments have left the Starwood Real Estate Income Trust, known as Sreit, with three options—none of them appealing. It could take on more debt. It could sell properties into a tough market. Or it could halt completely or limit further redemptions, a move that would greatly impair the fund’s ability to raise new money. Unless it takes one of these three steps, Sreit looks poised to run out of cash and credit before year-end if the current pace of redemptions continues.

Other real-estate funds are handling the pressure from the long queue of redemptions in varying degrees. The largest of the funds, Blackstone Real Estate Income Trust, or Breit, has $7.5 billion in liquidity and earlier this year was able to fulfill all redemption requests. But withdrawals continue to exceed new fundraising.

Sreit was one of the most prominent real-estate funds launched between 2017 and 2022, second in size only to Breit. These funds, known as nontraded real-estate investment trusts, invest in commercial property similar to publicly traded REITs. In all, these vehicles raised about $95 billion, mostly from individual investors, according to Stanger.

The funds also were very popular when interest rates were low because they paid dividends in the 5% range. Sold through financial advisers, they also gave small investors the opportunity to participate in what was then a hot commercial-property market.

But investors started to bolt as interest rates jumped and commercial real-estate values fell. In late 2022, Sreit and others began limiting redemptions to as much as 2% of their net asset values a month and up to 5% a quarter.

New fundraising also has dropped sharply as some analysts have criticized the structure of the funds and financial advisers have raised warnings. Sreit’s new fundraising has dwindled to about $15 million a month, down from more than $600 million a month in the first half of 2022.

Sreit’s ability to make redemptions will help determine whether the funds will be a long-term feature of the real-estate market or fade away. Some analysts believe that the funds are proving themselves through a tough commercial-property market. Others say the funds are showing major problems.

Because it can’t raise enough new funds to make up for even its limited redemptions, Starwood has been considering a number of difficult options, say people familiar with the firm’s thinking.

The fund could borrow more, but that would be costly at today’s high interest rates. Sreit’s current debt is already equal to 57% of its assets, which is more than many comparable real-estate funds. Sreit’s target leverage is 50% to 65%.

The fund could sell assets. Sreit owns hundreds of properties throughout the country, mostly warehouses and rental apartment buildings in the Sunbelt. But the value of most commercial real estate has been hammered by high interest rates, which drive up costs in the high-leverage business. Rental apartments have also been hurt by overbuilding in many markets.

Most rental-apartment owners who bought in the years just before the interest-rate spike “would prefer not to sell in this market,” said Matthew Werner, managing director with asset manager Chilton Capital Management.

Finally, Sreit could halt or limit further investor redemptions. But analysts believe that would be a last resort because it would make it even harder to raise new money. One of the main selling points of Sreit has been that investors would be able to redeem their shares, subject to the 2% and 5% restrictions.

A redemption halt “would be fatal,” Stanger’s Gannon said. “You wouldn’t be able to raise another dime.”

Sreit was launched in 2018 by Starwood Capital, a private-equity firm headed by Barry Sternlicht, the storied real-estate investor and founder of the Starwood Hotels chain. Sreit raised more than $13.5 billion in equity, which it used to buy more than $25 billion in real-estate assets.

The fund attempted to sell properties last year as the redemption queues began to lengthen. Sreit sold a portfolio of single-family rental homes to Dallas-based Invitation Homes for $650 million, including debt.

But more recently, the fund has slowed sales because of depressed prices. Like other owners, Sreit is hoping prices will rebound later this year, especially if the Federal Reserve begins to cut interest rates.

Instead, Sreit has relied on its line of credit. But that won’t last much longer at the rate the fund is drawing it down. The line has $275 million of capacity, down from its original size of $1.55 billion.

Write to Peter Grant at [email protected]