Western Wealth Capital: What do you know about them?

[Josh Cochran]

They have a new offering as of 2/27/2019

What do you know about them?

Have you invested with them in the past?   What was your experience?

Thanks in advance.

[Kevin Hoover]

Western Wealth's Heather Ridge just sold. Returns where  -98.3% .
I got a check for  $1751.. The entire results for a  100K investment.
I guess that should teach me on the wisdom of not checking debt structure well before hand.

[David S.]

Quote from @Kevin Hoover:

Western Wealth's Heather Ridge just sold. Returns where  -98.3% .
I got a check for  $1751.. The entire results for a  100K investment.
I guess that should teach me on the wisdom of not checking debt structure well before hand.

 Sorry for your loss. 

According to press release found on the web, it was a 2021 purchase...so that's a huge loss over just 2 years.

https://www.westernwealthcapital.com/western-wealth-capital-...

For those looking to learn, can you share why they were forced to sell so soon? Expiring rate cap? Didn't get the rents they were projecting? High than expected operating expenses? Did they attempt a capital call to save the deal? Did GP sell to avoid being called by lender on personal guarantees under the mortgage debt? Can share a recent report?

[Kevin Hoover]

They bought on a really small cap rate, then taxes and interest went up. I think in a bad neighborhood as well.  So they where no longer cash-flowing. Actually very negative cash flow rates.

WWC didn't have the appetite to fund the short flow themselves, as NOI dropped so much. They have done capitol calls on other projects but investors are seemingly pretty slow to give them more.
WWC seems to be trying. However their management  fees are pretty high. Fundamentally their business model was so unprotected and with the skinny margins  it was waiting to happen. 
I will find  the actual report and post it here..

[Kevin Hoover]

The concept of absolving themselves of personal guarantees , most likely is the biggest reason to sell. They seemingly getting pretty quick to sell at LP's expense if needing  cash flow is negative .

The captiol calls they are doing are coming in pretty low. So its sounding like they will sell more simply because the cash isn't coming in.

I guess this is what happens when a outfit overextends themselves and sun doesn't shine for a year or three.

[Adam Baugh]

I invested as an LP in several deals with WWC, Buck Joffrey, Dante Andrade, etc.  My flaw was failing to appreciate the rate cap lock and short timing.  Like Kevin Hoover above, I lost all equity in 4 of the deals they sold (or which are pending for sale).  Despite them performing inline with rent projections and occupancy, their flaw was in a short-term rate cap without any ability to refinance. I am a high-wealth earner with years of employment ahead for me, so I will not feel the weight of this loss other than shame on me for not appreciating this risk better before committing. I own that mistake, but I haven't been impressed with WWC efforts in how they try to pitch LPs to re-invest more money in sinking ships.

[King-yi Chan]

Quote from @Kevin Hoover:

They bought on a really small cap rate, then taxes and interest went up. I think in a bad neighborhood as well.  So they where no longer cash-flowing. Actually very negative cash flow rates.

WWC didn't have the appetite to fund the short flow themselves, as NOI dropped so much. They have done capitol calls on other projects but investors are seemingly pretty slow to give them more.
WWC seems to be trying. However their management  fees are pretty high. Fundamentally their business model was so unprotected and with the skinny margins  it was waiting to happen. 
I will find  the actual report and post it here..

 Hi Kevin, do you have the report that you referenced? Thanks!

[John Cho]

These old comments didnt age well. 

[Kevin Hoover]

Quote from @King-yi Chan:

Quote from @Kevin Hoover:

They bought on a really small cap rate, then taxes and interest went up. I think in a bad neighborhood as well.  So they where no longer cash-flowing. Actually very negative cash flow rates.

WWC didn't have the appetite to fund the short flow themselves, as NOI dropped so much. They have done capitol calls on other projects but investors are seemingly pretty slow to give them more.
WWC seems to be trying. However their management  fees are pretty high. Fundamentally their business model was so unprotected and with the skinny margins  it was waiting to happen. 
I will find  the actual report and post it here..

 Hi Kevin, do you have the report that you referenced? Thanks!

 WWC  threatened litigation. I had it removed.

[Kevin Hoover]

Quote from @King-yi Chan:

Quote from @Kevin Hoover:

They bought on a really small cap rate, then taxes and interest went up. I think in a bad neighborhood as well.  So they where no longer cash-flowing. Actually very negative cash flow rates.

WWC didn't have the appetite to fund the short flow themselves, as NOI dropped so much. They have done capitol calls on other projects but investors are seemingly pretty slow to give them more.
WWC seems to be trying. However their management  fees are pretty high. Fundamentally their business model was so unprotected and with the skinny margins  it was waiting to happen. 
I will find  the actual report and post it here..

 Hi Kevin, do you have the report that you referenced? Thanks!

As of October 2024 , what I think I learned from the WWC:
a. It's a house-flipping business, not a real estate play.
b. Never been through a downturn, operators ( myself included) often can't see what's right in front of them before the tide is obvious. 
c. If you average a 3-year old and you accidentally get 75% or worse losses of funds for18 months of purchases, it wipes out any prior gains.
d. Unless the business model changes, the risk of repeating the losses will be the same. 
e. My opinion/observation is they are running their company correctly to keep their business around. And trying to salvage investor capitol the best they can. Loosing  75% instead of 100%  your capitol is better than nothing. 
f. I think they are well run except issue. I have a complete loss of confidence in their prior ability to see the interest rate sensitivity.
g. If the business model continues,  with floating rate debt to finance 4% cap rate apartment flips. Its a complete loss of capitol if interest rate jumps. 

The interest rate sensitivity makes the model a gamble, not an investment.
My gamble of properties from September of 2020 to the end of 2021  lost spectacularly. 

What you can learn from my loss of a year's worth of work:
Use your own judgment on the interest rate sensitivity.

Figure out how much NOI drops per 1% interest rate increase.
Add 1 to the cap rate  per 1% interest rate increase.
Then its pretty simple math to see how it goes upside down.

My house is warm. I weigh too much from having too much food.   I don't have much to grumble about. Learn from my mistake and we both will be wiser.

[Evan Polaski]

@Kevin Hoover, these are good lessons and the one that I want to highlight is: "interest rate sensitivity makes the model a gamble, not an investment".  

There are some syndicators that have learned this and are buying on fixed rate loans.  There are others that continue to gamble with floating rate debt.  I am not saying one is right or wrong as an investment (that is up to each investor to decide), but I do have a big issue with some of the floating rate people pretending they aren't gambling because they have an in-the-money interest rate cap for a few years.  That DOES NOT make your debt fixed rate debt...  It is simply a high-stakes gamble that you have to exit in 3 yrs or the bet won't pay off.

[King-yi Chan]

Quote from @Kevin Hoover:

Quote from @King-yi Chan:

Quote from @Kevin Hoover:

They bought on a really small cap rate, then taxes and interest went up. I think in a bad neighborhood as well.  So they where no longer cash-flowing. Actually very negative cash flow rates.

WWC didn't have the appetite to fund the short flow themselves, as NOI dropped so much. They have done capitol calls on other projects but investors are seemingly pretty slow to give them more.
WWC seems to be trying. However their management  fees are pretty high. Fundamentally their business model was so unprotected and with the skinny margins  it was waiting to happen. 
I will find  the actual report and post it here..

 Hi Kevin, do you have the report that you referenced? Thanks!

As of October 2024 , what I think I learned from the WWC:
a. It's a house-flipping business, not a real estate play.
b. Never been through a downturn, operators ( myself included) often can't see what's right in front of them before the tide is obvious. 
c. If you average a 3-year old and you accidentally get 75% or worse losses of funds for18 months of purchases, it wipes out any prior gains.
d. Unless the business model changes, the risk of repeating the losses will be the same. 
e. My opinion/observation is they are running their company correctly to keep their business around. And trying to salvage investor capitol the best they can. Loosing  75% instead of 100%  your capitol is better than nothing. 
f. I think they are well run except issue. I have a complete loss of confidence in their prior ability to see the interest rate sensitivity.
g. If the business model continues,  with floating rate debt to finance 4% cap rate apartment flips. Its a complete loss of capitol if interest rate jumps. 

The interest rate sensitivity makes the model a gamble, not an investment.
My gamble of properties from September of 2020 to the end of 2021  lost spectacularly. 

What you can learn from my loss of a year's worth of work:
Use your own judgment on the interest rate sensitivity.

Figure out how much NOI drops per 1% interest rate increase.
Add 1 to the cap rate  per 1% interest rate increase.
Then its pretty simple math to see how it goes upside down.

My house is warm. I weigh too much from having too much food.   I don't have much to grumble about. Learn from my mistake and we both will be wiser.

Thank you very much for sharing your learnings. I invested in their Canadian mutual fund trust and failed to fully understand the risks and business model, especially if interest rate rises. All I saw was their past successes. I am hoping they will preserve as much capital as possible and I'll be able to exit without a major loss.