Did Brandon Turner really lose $14M of investor money while pocketing $4.4M???

Question

I've been starting to hear rumors that Brandon Turner's company Open Door Capital has been losing a lot of investor money. I haven't really followed what he's been up to since he left BiggerPockets, but since I started hearing all of these rumors about mismanaged money and poorly performing investments, I started to look a bit into it.

Below is what Google/AI had to say about the "Heights on Katy" deal in Houston, Texas. Apparently the GP's pocketed $4.4 million while losing $14 million investor dollars on the deal.

Anyone have any more insight into this deal / or others Brandon Turner's got going on? I don't know how reliable what Google/AI says below is, so I'd like to hear from folks that have more 1st hand info.

Is there fire behind all of this smoke?

Shiloh Lundahl · Answer

@James Wise I don't think Brandon's story isn't too unique right now. in 2020, 2021, and 2022 a lot of people were getting into multifamily investing. The evaluations were based on cap rate. Lots of people purchased multifamily and other larger projects during that time with the planned exit to refinance at 4%, 5% or 6%. The problem that I'm seeing right now is that the market has pulled back and is more hesitant to invest in real estate, making values go down. Additionally, with higher interest rates, it's keeping a lot of refinances from happening.

I'm not involved in this syndication so I don't know all of the moving parts or the expenses. But what I do know is that when people's expectations aren't met, they get pretty upset and then their mind goes to how they were swindled, or scammed, or how the person in charge didn't do their job.

I've met Branden and his family several times. There's a big difference between him and someone like Clayton Morris. I think Brandon is genuinely honest and has a lot of experience and connections in several areas of real estate. However, I don't think that he's at the level of someone like Ken McElroy, who lives in breathes multifamily real estate investing. But I also know that Branden is well connected with a lot of people like Ken and therefore has a lot of help and support when it comes to breaking into the multifamily market.

So I think that there may be some people trying to attribute nefarious reasons to a situation that may just be attributable to market conditions.

James Wise · Answer

Regardless of what did, or did not, actually happen with Turner's company. Regardless of the accuracy of the accusations of that article. If an investor sees that any sponsor is getting paid $4.4M up front, they've got to assume the absolute minimum amount of scrutiny went into the underwriting on the deal. That's just common sense.

Don Konipol · Answer

Like almost all social media innovations, BP was (is) heavy on tech - but the real estate personnel are mostly “lightweights”.

This was obvious 15 years ago, but BP was still made into a valuable resource.  Especially for the newer investor hoping to learn the basics of investing in SFR. The fact that some people had a personal side agenda shouldn’t be surprising.  Contrary to Barry Minkow ( whom I believe is a career criminal) most deals gone bad are not fraud; they’re usually the result of a “surprise” in the market/economy, undercapitalization / over leverage, or less than competent management/organizers.  The ones that are fraud from the beginning, like Minkow’s ZZZZ Best, are a rarer occurrence.

Here’s what I want to know when investing as a passive investor - is the head person a techie, a “salesperson” or a specialist in the particular type of investment being offered.  If the first or second, I’m out no matter how good the numbers look.

This is of course no guarantee of successful investment.  But I want to eliminate the obvious highest risks.

Russell Brazil · Answer

One of the big red flags I looked for over the last half decade was any offering that wasnt pricing in substantial interest rate hikes.  All of the ones I looked at did not have this, thus why I did not invest in any syndications over the last half decade.  Some of the ones I looked at turned out fine....usually because they sold the asset earlier than the anticipated hold period.  But many of the ones I looked at are in dire financial straights right now.

Additionally one of the things you mentioned in that they be in real estate for 10+ years. I didnt look at that metric per se, but what I saw over the last half decade was a number of flippers, small residential landlords, brrrr people who were getting into the syndication space.  Now as someone who sells both residential and commercial real estate, I understand the fundamental differences.  We sold numerous commercial properties to people who just didnt understand the risk of what they were buying. My sellers who sold at 2020-2022 knew they were selling at the top of the cycle. The buyers, didnt really have an idea that that was the case.

The inexperience of those doing these deals, and coming from more of a residential real estate background didnt understand the impact of interest rates.  While rising interest rates do not largely affect residential real estate, they do in fact affect commercial real estate.  The lack of understanding of interest rate risk, I believe is one of the fundamental causes of the current crisis.

Chris Seveney · Answer

@James Wise that's what I am curious about - how many single family deals did he do in his career?

curious if he was riding coat tails of podcast like many do. if I was an investor and lost $ on a deal nothing infuriates me more than seeing Facebook ads promoting training courses - shouldn't focus be on trying to pay back your investors (of course if you already milked the deal upfront and get paid then many will let investors lose their money.)

Joel Owens · Answer

I know nothing about Turners investments. In general I am seeing everyone under the sun last 10 years saying they are a large multifamily syndicator. Really it is rampant. The story goes take 300 tenants in one place versus 1 house to pay the rent and the mortgage note and what could go wrong? TONS OF STUFF. You just get more amplified problems.

Some syndicators build machines and have to feed very, very large staffs and do deals that really aren't deals to begin with and hope for the best.

Many multifamily syndicators PORK up debt because they want to have to raise as little as possible and try to massage bloated returns to LP to entice motivated investors to place money. Basically they are bullsh&tting them with marketing hype to create a frenzy of investment. I have see also lately the latest thing is FUNDS instead of individual syndications. They push (multifamily, crypto, business loans) and all kinds of stuff trying to BLEND the returns for the fund. That should scare people as the risk profile is very different with 3 times of streams to create the one revenue piece. One goes out that 8 pref they might be talking about goes to 4 or 5 or even worse frozen distributions.

Long term debt for large multifamily is critical to proper timing with market exit. You rarely see people buying for cash a 60 million apartment building unless it's a billionaire family local to the asset for legacy and estate planning.

Some syndicators can lose tons of money and be like well you signed it so oh well. I do not know how they sleep at night losing that kind of money. You are talking about devastating tons of families lives that spent a long time earning that money. I have seen other syndicators lose tens of millions and then open up in other companies names like it was nothing. I think the practice is disgusting.

What gets lost on syndicators is the bills are CONSTANT but the deals are IRREGULAR with timing to be found. So they often carry too much expenses with recurring costs and bleed cash waiting for the next deal to restore them.

4 million if true on 66 million is wild for the GP. Sometimes what LP's need to watch out for on these large deals is syndicators will BUY DOWN the rate for millions and add that into the raise cost just to make the numbers work.

I just do smaller deals with NNN properties and raise all cash. I just do not care for debt at all.

Henry Clark · Answer

These investors will never do the due diligence or check a diligence provider.  I might be wrong with my description of a typical syndicate investor.Say $50,000 investment, technical background, high paying, busy with their careers, understand process, but think it only applies to their field, can see W2 income getting highly taxed, reached 35 or 40 and realized they are actually hourly employees( engineer, doctor, lawyer, dentist, etc if they don’t work they don’t get paid).  Hesitant about the stock market and job security.          They are used to paying for services.  They need to realize there is a service for deal analysis.

Dinner arrived.  Let me finish my Octopus and Roman Gnocchi.  My wife had the Burrata salad.   I like BP but not enough to let my meal go cold.

Henry Clark · Answer

One of the reasons I don’t have any compassion for deals falling to increased interest rates.

Our largest loan we locked in 20 years with SBA and 10 years for balloon with the participating bank.  Around 5%.  We could have gotten lower but Inwanted to pay to take interest rates off the table.

Our next largest loan we consolidated several.  Balloon period 3/5/7. Our banker suggested 7 years even though it was 1/2 point higher.  We refi’d 1 year to 1 1/2 early on our 5 year balloon periods.  We paid to take risk off the table.  Others went cheaper and got stung.  That’s part of doing business.

The concept of Passive income is being oversold.  Even Syndications are Active investments up front.

If an investor doesn’t understand it’s active, then they don’t get to eat mussels in wine sauce in Europe.

Henry Clark · Answer

BP sounds like you need to sign these firms up to do due diligence advertising.

Recommend you have them do a report on one of the syndications that have been posted on.  Not the one that was investing in Broadway plays and defunct brand names, those people were giving their money away.

On the post analyze the cost versus benefit of these analysis.

For their $50,000 loss they could have done 10 vacations in Croatia.   Or they could have spent money on a review.

Henry Clark · Answer

OP there can be no Bad without Good.  From what I have read on BP most of these investors did not know how or did not perform due diligence.

Money will always flow from people who have it, to those that want it.

I always see opportunity in Nasty situations.  Someone should market Due diligence reviews of deals.  We already have BP members who do this for Large Deals.   Just need someone to streamline and commoditize for $50,000 to $100,000 investments.

Realize there is a Syndication section to BP but have not looked at it.  Even if it had every thing in it.   People are lazy.  They should just pay $1,000 to $3,000 for a deal review.

BP monetize.  You already have deal calculators.  Offer a due diligence generator tool.  Regarding the original post.   Those deals would probably have been kicked out based on years in that specialty or number of deals that have gone full cycle.  Or interest loan terms not covering cycle period.

No one in the last 2 decades should have failed due to not factoring loan interest terms into play.  If your deal spin is 5 years their loan terms should have been 5 to 7 years.  Anyone who says they were caught off guard by interest rate increase did not address risk adjusted returns or were being a Pig and got slaughtered along with their investors.

100 more pounds and we slaughter our hogs.

One more pound and we are eating our chickens.  Investors who don’t do proper due diligence go to market.

Did Brandon Turner really lose $14M of investor money while pocketing $4.4M???

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