Norada Capital Management suspending payments

[Paula Impala]

I invested in Norada Capital Management and was coming here to connect with others who have invested. Did not receive my payment from Norada this month (June) and just received the following notification in my email.

Any thoughts or recommendations from fellow investors.  Thank you in advance for any advice or insight.

Dear Valued Investor,

I hope you are well. As a lender (aka “Maker”) to Norada, you are a valued member of the Norada family.
The purpose of this correspondence is to provide you with an update on the repayment under the terms of the promissory note (“Note”) as an obligation of Norada Capital Management, LLC (“Norada”).
As with all businesses, Norada is subject to market factors that could impact its ability to make payments. Due to current market conditions and unforeseen financial challenges, we have decided to temporarily suspend distribution payments. This decision was not made lightly and comes after thorough deliberation and analysis of our current financial position.
This requires us to exercise our right to convert your Note and issue equity (aka membership interests) in Norada. You will recall that your Note allows Norada to convert the outstanding balance owed into equity and that it can redeem that equity in the future by repayment of the Note principal in full. There is nothing required by you related to your Note being converted. It happens automatically upon notice being sent.
As such, this email will provide you notice that Norada has chosen to exercise its right under the Note §6 to issue equity to you in Norada. Your equity is valued at the unpaid face value of the Note plus any accrued but unpaid interest. We expect to be in a position to redeem your interests in short order, and we will keep you posted, as always, on any developments in this regard.

We understand the importance of distributions to our investors and recognize the impact this decision may have on your financial planning. Please be assured that this suspension is temporary. We are committed to resuming regular distributions as soon as our financial situation stabilizes and improves.

Our primary goal is to ensure the long-term stability and sustainability of our business. By temporarily halting distributions, we can preserve capital, manage our resources more effectively, and invest in key areas that will drive future growth and profitability.

In the interim, we are taking strategic steps to strengthen our financial health, including cost-reduction measures, revenue-generating initiatives, and debt restructuring options. Our management team is dedicated to navigating through these challenges and emerging stronger.
We greatly appreciate your understanding and patience during this time. We remain committed to transparency and will keep you informed of any significant developments. If you have any questions or need further clarification, please feel free to contact me directly. (I will do my best to reply to your email in a timely manner.)
Thank you for your continued trust and support.
Sincerely,

Marco SantarelliFounder & CEONorada Capital Management

[Chris Seveney]

@Paula Impala

No clue what your contract / agreement states - so tough to provide any recommendations except have the attorney who reviewed the initial documents to review your options and if you have the ability to ask / find out if it’s just you or all investors, will the sponsor share financials of the company etc.

[Jamie Brasseal]

@Paula Impala

I recieved the same notice. Trying to speak with Marco for further explaination. The notice references note 6 which is a default clause. Please let me know if you find out more info. 

[Kenneth Soles]

[Jay Hinrichs]

Norada is one of the largest and successful turn key Brokers in the US.. so equity in the company is probably a very good thing while they shore up whatever it is they need to shore up.

[V.G Jason]

This was so obvious with their note offerings at such yields. People just keep getting tricked by the high number, go for a realistic one and be happy. 

Hope the best for the investors. 

[Judy Foster]

Quote from @Jay Hinrichs:

Norada is one of the largest and successful turn key Brokers in the US.. so equity in the company is probably a very good thing while they shore up whatever it is they need to shore up.

Not valuable unless/until they pay a dividend or are publically traded!  they may become valuable, but right now they are not.  And just to be clear, we did a small investment in their notes...they were paying well through this month...12% as promised.  Paying every month.  Hopefully this is just a hick up!

[Scott Sowarby]

In the letter to lenders, there was mention of full transparency in addressing the temporary situation. I would especially like to see this commitment from Norada Capital and Marco. Hopefully, they will clearly outline their plan with specific actions and milestones. I am optimistic that a detailed plan will emerge and that communication regarding it will be forthcoming.

[Marcelo Rosini]

This is what point 6 in the contract says:

If a Default exists, Maker agrees to provide Holder with shares and/or warrants equal to
the principal amount of this Promissory Note should there be a default lasting more than
three (3) months from the month of the default. Maker reserves the right to buy back
said shares and/or warrants by paying off (satisfying) the Promissory Note's outstanding
principal in full during the term of the Note.

I've received the letter too, it just says it will exercise this option, but I'm not sure what it means and for how long wll the money be stuck there.

If somebody can add any light I will appreciate it 

[Anand K Singh]

I have sent an email asking any time frame for suspension they can provide? for example- a suspension of six months at least so we can plan accordingly. Also  if this extends commitment timeline if they decide to resume payment.

It was called out so many times in their call to investors that - " no missed payments "

[Jay Hinrichs]

Quote from @Anand K Singh:

I have sent an email asking any time frame for suspension they can provide? for example- a suspension of six months at least so we can plan accordingly. Also  if this extends commitment timeline if they decide to resume payment.

It was called out so many times in their call to investors that - " no missed payments "

out of sheer curiosity do any of you know what your investment was actually invested in??  what is the collateral that Norada has secured for these funds if any.. Any of you know ?  Again Just curious

[Dwaine Beck]

I just received a response from Marco. I asked for more information on what happened and how long he expects the suspension to last. He doesn't provide much more information than what was provided in the notice all investors received yesterday evening.

I want to acknowledge your concerns regarding the recent changes. Your feedback is incredibly valuable to us, and we understand that such adjustments can be unsettling.

The reason for our decision was this: Due to economic conditions our investments suspended and/or delayed distributions, and out of an abundance of caution we chose to act expeditiously and with conviction to convert everyone so that the temporary storm can be weathered and everyone comes out the other side.

I understand that this might not be immediately apparent, but we decided to implement these changes after careful consideration and analysis to ensure the long-term stability and sustainability of our business, which we believe will ultimately benefit all our investors.

We fully recognize that you might have additional questions, and we are more than willing to address them in the coming weeks.

Thank you for your understanding and continued support. We value your trust and are committed to ensuring our partnership remains strong and beneficial for both parties.

Please rest assured I'll provide further updates as additional information becomes available.

Sincerely,

Marco Santarelli

[Chris Seveney]

@Dwaine Beck

Follow up on jays comments and questions for investors I would have:

1. They do notes and turnkey rentals - are these tied together (meaning it’s one entity or the notes function the rentals?)

2. Email notes economic conditions? Curious what economic conditions? Are they having cash flow issues? Increase in delinquent number of loans?

3. If you are given equity in the company - are you allowed to review the company financials since you now have an equity stake?

[Dwaine Beck]

@Chris Seveney

Their notes and turnkey real estate business are separate entities. I did view their financials in January of this year they looked good to me. I'm not sure what the economic conditions are.

[Jay Hinrichs]

Quote from @Dwaine Beck:

@Chris Seveney

Their notes and turnkey real estate business are separate entities. I did view their financials in January of this year they looked good to me. I'm not sure what the economic conditions are.

thats interesting not much in RE.. although the mastermind and RE training space can be HUGELY profitable.

[Mike Dymski]

Quote from @Jay Hinrichs:

Quote from @Anand K Singh:

I have sent an email asking any time frame for suspension they can provide? for example- a suspension of six months at least so we can plan accordingly. Also  if this extends commitment timeline if they decide to resume payment.

It was called out so many times in their call to investors that - " no missed payments "

out of sheer curiosity do any of you know what your investment was actually invested in??  what is the collateral that Norada has secured for these funds if any.. Any of you know ?  Again Just curious

It appears to be a private equity fund that invests in companies such as Radio Shack, Solana, Dress Barn, Stein Mart, Modell's Sporting Goods, Bodybuilding.com, The Franklin Mint, Bitcoin, Farmers Cart, Ethereum, etc...with intended dividends of 12 or 15% depending on investment level.

[Michael P.]

Quote from @V.G Jason:

This was so obvious with their note offerings at such yields. People just keep getting tricked by the high number, go for a realistic one and be happy. 

Hope the best for the investors. 

 ^^ this ^^

[Dan H.]

If it is not a publicly traded company, how are the shares valued.  

I used to work for a large employee owned company.  The value of the company was established by an independent accounting firm.  The value of each share was the value of company divided by number of shares.  

Without an independent value being established, how many shares is your equity?  How do you know shares * price per share matches your investment?

Was the promissory note reviewed by your lawyer?   That clause seems full of issues.  Especially considering that they are not a public company with established share prices.  

Good luck

[Paul Azad]

Quote from @V.G Jason:

This was so obvious with their note offerings at such yields. People just keep getting tricked by the high number, go for a realistic one and be happy. 

Hope the best for the investors. 

I don't know that their yields are that high, per se. They offer 12/15/16.7% on 3,4,5,6 or 7 year term promissory notes backed by no collateral, for investments of 50/100/200k levels, which at first sounds good but they appear to be making the loans possibly to a single non investment grade company "Retail Ecommerce Ventures was founded by Alex Mehr and Tai Lopez last year."
from www.pennlive.com article , Published: Dec. 07, 2020, 9:52 p.m.

"The company that owns the intellectual property of Radio Shack, DressBarn, Linens ‘N Things, Modell’s Sporting Goods and Pier 1 Imports has purchased the intellectual property of Stein Mart Inc.

Retail Ecommerce Ventures’ subsidiary, Stein Mart Online Inc. submitted the winning bid of $6.02 million at the November 18 court auction. The winning bid was approved on November 23 by the U.S. Bankruptcy Court for the Middle District of Florida, Jacksonville Division. The subsidiary acquired the Stein Mart nameplate as well as its private label brands, domain names, social media assets, and customer data."

Most of their loan companies went bankrupt years ago, have zero physical assets, other than the trademarks which were bought and now are trying to have an online store presence, no physical real estate. As such this company, Retail Ecommerce Ventures, can't likely get an 8.5% prime rate loan from a bank or even the usual 17-22% loans from the BDCs that loan to this small/middle market space (read BDC 10qs financial reports for their prevailing loan rates), so they go to Norada, which gets cash from promissory notes, loans out at likely higher than the BDC rates then pays the difference 12-15% to note investors etc. who if smart is also leveraging up their loan book to REVentures to juice their profits even more. All the BDCs - business development companies do leverage as well, but they hold first lien positions over the assets of the businesses they loan to as well as equity positions for more safety.  Why would Norada hold distributions? Non-performing loans, probably. 
Marco explains their business in these BP Posts below: where he seems to contradict himself, saying In the post that the notes "ARE backed by hard assets and collateral." but on website says they are not. Also says in post that the notes are not higher risk just because yield is higher. That is prima facie Absurd, as the definition of risk is the interest rate that merits a certain Risk, ie directly proportional. 



Marco Santarelli

• Specialist
• Orange County, CA

Replied 3 years ago

@Chris Yeung @Julian Buick @Steve Morris

Good morning gentleman.

Just to provide clarity in this post, there are three (3) separate companies:

1) Norada Real Estate Investments

2) Norada Real Estate Funding

3) Norada Capital Management

The Promissory Notes you're referring to belong to Norada Capital Management. These are not specifically real estate related. They are business notes backed by our portfolio of 10+ businesses which does include some real estate.

The note returns range based on investment but is double-digit. There are also bonus rates for larger investments. Interest payments are paid monthly, and Note lengths are currently 2- or 3-year terms.

Note that you must be an accredited investor as defined by the SEC.

Please let me know if you have any questions.

Continued success!

• Norada Real Estate Investments
• https://www.NoradaRealEstate.com

Marco Santarelli

• Specialist
• Orange County, CA

Replied a year ago

Quote from @Michael Fish:

I, too, am interested in investing with their promissory note option. However, it seems extremely high risk as, to my knowledge, it is unsecured and only backed by a 'promise' to repay not any hard assets or relevant collateral.

Hi Michael,

Just to quickly address your comment here... The Norada Capital promissory notes do offer a high rate of return (interest), but I would not classify them as "high risk" because of the higher interest rates.

To correct your comment, they ARE backed by hard assets and collateral. Our fund includes a portfolio of over 15 companies that form the foundation behind the Notes. You can find more information on the website at or you can contact one of the Investment Counselors for more detailed information.

Continued success,

Marco Santarelli
Norada Capital Management
Norada Real Estate Investments
(800) 611-3060
NoradaCapital.com
NoradaRealEstate.com
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• Norada Real Estate Investments
• https://www.NoradaRealEstate.com

from their website:

WHAT FEES DO YOU CHARGE?

Norada Capital Management does not charge management or servicing fees of any kind. It earns a profit from the business loans it originates to approved businesses and real estate opportunities.

WHAT IS AN “UNSECURED” NOTE?

“Unsecured” means that, for making a loan to Norada Capital Management as set forth in the Promissory Note, the Investor does not receive any collateral in any of the company’s properties or other assets. The Investor simply receives the company’s written, legally enforceable promise to repay the Investor, and pay the Investor interest 

Hopefully, there are not too many Norada loans in non-accrual state, but yields of 12-16.7% have to generate much more than that in order to account for the defaults and thus Risk level seems quite high. 

[James Hamling]

Quote from @Jay Hinrichs:

Quote from @Dwaine Beck:

@Chris Seveney

Their notes and turnkey real estate business are separate entities. I did view their financials in January of this year they looked good to me. I'm not sure what the economic conditions are.

thats interesting not much in RE.. although the mastermind and RE training space can be HUGELY profitable.

 And that's the whole thing, why such massive distributions? At that top tie it's 15% + 5%......

That screams risk to me, very high risk. 

It has to be to justify such returns.... 

I have some positions around 40% annual, but here is the thing, I know EXACTLY what there doing, where the $'s going, what the risks are. I get a sense here that people don't really know what there actually investing into here. 

I am by no means saying anything of any wrong doing what so ever but yeah, it all feels a bit odd, right, or am I the only one?    And there is the back of mind gremlin who creeps up and whispers "Bernie" lol. That guy is gonna haunt investors for a long time.... 

[Don Konipol]

@James Hamling
‘I have some positions around 40% annual, but here is the thing, I know EXACTLY what there doing, where the $'s going, what the risks are. I get a sense here that people don't really know what there actually investing into here’

NAIL ON HEAD

If you are an ACTIVE participant in an investment, you can SOMETIMES obtain high yield without high risk, that is, take advantage of a mismatch between risk and return

As a passive participant, there is NEVER a mismatch, unless it’s higher risk than the return warrants. Why? Because the sponsor of the investment is going to offer the deal most profitable for them. 

So, it APPEARS to me that what we have here is this

1. Investors who have absolutely NO CLUE as to what they invested in, no clue as to the STRUCTURE of the deal, and no clue as to the safety or risk of their investment. In other words “large company - big return” being the extent of their due diligence.  
2. A sponsor that took advantage of investors propensity to be mesmerized by high yield and look no further by issuing a note that allows them to UNILATERALLY convert the interest paying note to “equity”, which MAY pay out nothing EVER. I don’t know the sponsors intention, nor do I know the terms of the note. But, it would appear that conversion to a minority position in a private company is the same result as obtaining capital, never having to pay interest, dividends, or even pay it back.  

Here’s some suggestions for investors investing in non publicly traded securities

1. Read the PPM thoroughly. If you can’t, or don’t want to, hire an attorney to do so and inform you of the pertinent parts

2. NEVER invest more than 10% of your investment portfolio in any one deal; never invest more than 20% with any one sponsor. 

3. Understand that high returns mean high risk in any PASSIVE investment.  

4. Differentiate between different risks , economic risk, structure risk, incentive risk, etc.

5. Assume that anything detrimental to your interests that appears in the PPM will one day be used

[Anand K Singh]

This investment was mentioned by Equity Trust (https://www.trustetc.com/) Roth IRA custodian. The fact that it's converted into equity raises (alternate could have been a flat suspension for x months) the concern of future payment resumption and it only elevates the uncertainty of business to resume repayment! Hope it clears up soon with more clarity.

[Michael P.]

Buying into cryptocurrencies, “theatrical performances” and Radio Shack. Sounds like the punchline of a joke of what not to invest in. 

[Chris Seveney]

Quote from @Don Konipol:

@James Hamling
‘I have some positions around 40% annual, but here is the thing, I know EXACTLY what there doing, where the $'s going, what the risks are. I get a sense here that people don't really know what there actually investing into here’

NAIL ON HEAD

If you are an ACTIVE participant in an investment, you can SOMETIMES obtain high yield without high risk, that is, take advantage of a mismatch between risk and return

As a passive participant, there is NEVER a mismatch, unless it’s higher risk than the return warrants. Why? Because the sponsor of the investment is going to offer the deal most profitable for them. 

So, it APPEARS to me that what we have here is this

1. Investors who have absolutely NO CLUE as to what they invested in, no clue as to the STRUCTURE of the deal, and no clue as to the safety or risk of their investment. In other words “large company - big return” being the extent of their due diligence.  
2. A sponsor that took advantage of investors propensity to be mesmerized by high yield and look no further by issuing a note that allows them to UNILATERALLY convert the interest paying note to “equity”, which MAY pay out nothing EVER. I don’t know the sponsors intention, nor do I know the terms of the note. But, it would appear that conversion to a minority position in a private company is the same result as obtaining capital, never having to pay interest, dividends, or even pay it back.  

Here’s some suggestions for investors investing in non publicly traded securities

1. Read the PPM thoroughly. If you can’t, or don’t want to, hire an attorney to do so and inform you of the pertinent parts

2. NEVER invest more than 10% of your investment portfolio in any one deal; never invest more than 20% with any one sponsor. 

3. Understand that high returns mean high risk in any PASSIVE investment.  

4. Differentiate between different risks , economic risk, structure risk, incentive risk, etc.

5. Assume that anything detrimental to your interests that appears in the PPM will one day be used

 Don

These are GREAT as always. One recommendation I would add is:

 If the sponsor is offering returns 30%+ more than the industry standard, that should open the door for a lot more questions. Put a spread sheet together to understand the differences. For example here are some categories:

Open or closed end fund:

Primary asset type: (what are they investing in?)

Min. Investment Amt:

Total Offering Size

Total Amt Raised To Date

Lockup Period

Management Fees

Upside

Preferred Returns

Distribution Schedule (monthly, quarterly, annually)

Default Provisions (what happens)

Where are you on capital stack?

[Marcelo Rosini]

guys...
the goal of this thread is to learn more on what is happening with Norada and what to do now.
It's not the place or time to come with Monday's newspaper to say "you shouldn't be there".
Go create another thread for that.
The questions remain ( who else is affected, does somebody know anything else, what are the next steps to expect)  and I hope other people can provide some useful information here.

Thanks

[Joshua VanName]

Quote from @Don Konipol:

@James Hamling
‘I have some positions around 40% annual, but here is the thing, I know EXACTLY what there doing, where the $'s going, what the risks are. I get a sense here that people don't really know what there actually investing into here’

NAIL ON HEAD

If you are an ACTIVE participant in an investment, you can SOMETIMES obtain high yield without high risk, that is, take advantage of a mismatch between risk and return

As a passive participant, there is NEVER a mismatch, unless it’s higher risk than the return warrants. Why? Because the sponsor of the investment is going to offer the deal most profitable for them. 

So, it APPEARS to me that what we have here is this

1. Investors who have absolutely NO CLUE as to what they invested in, no clue as to the STRUCTURE of the deal, and no clue as to the safety or risk of their investment. In other words “large company - big return” being the extent of their due diligence.  
2. A sponsor that took advantage of investors propensity to be mesmerized by high yield and look no further by issuing a note that allows them to UNILATERALLY convert the interest paying note to “equity”, which MAY pay out nothing EVER. I don’t know the sponsors intention, nor do I know the terms of the note. But, it would appear that conversion to a minority position in a private company is the same result as obtaining capital, never having to pay interest, dividends, or even pay it back.  

Here’s some suggestions for investors investing in non publicly traded securities

1. Read the PPM thoroughly. If you can’t, or don’t want to, hire an attorney to do so and inform you of the pertinent parts

2. NEVER invest more than 10% of your investment portfolio in any one deal; never invest more than 20% with any one sponsor. 

3. Understand that high returns mean high risk in any PASSIVE investment.  

4. Differentiate between different risks , economic risk, structure risk, incentive risk, etc.

5. Assume that anything detrimental to your interests that appears in the PPM will one day be used

But, it would appear that conversion to a minority position in a private company is the same result as obtaining capital, never having to pay interest, dividends, or even pay it back

I am amazed something like this is even legal, especially if this was the intent from the beginning.  So, the op basically now owns shares of a privately held company.  A company that, as you point out, is not required to pay interest, dividends, or buy back the shares.