All Forum Posts by: Bobby Larsen

Quote from @Evan Polaski:

@Cheryl Abram, this isn't a direct response as to next steps.  I think Melanie's suggestion is a good one to start with.  

The thing that is very concerning to me is you signed documents with one name, you wired to a bank account with that same name, but then you K-1 is coming from a slightly different entity, which does not match the legal name of the documents you signed.

I.e. if I sign docs as an investor with ABC Apartments LP, the K-1 received should be from ABC Apartments LP, not DFO ABC Apartments LP, or XYZ ABC Apartments LP or anything else.  

Also, here is the current listing for the asset:
https://buildout.com/connect/sharing/3125-crestdale-drive-ho...

Based on this property, sounds like maybe the property didn't go into foreclosure, per se, but that the Key Principle stepped in and removed the operating partners due to mismanagement.  It does not list in the broker package who the "current owner" is versus the removed "operating partners".

Looks like you've received good feedback for at least where to start. I'd also add that don't necessarily let a foreclosure or possibility of one dissuade you. If you did in fact sign and send in funds directly to the direct ownership entity and they then placed you in a feeder fund structure, it would likely trigger GP liability. However, you should factor in the legal cost of pursuing versus the size of your investment because this can be an expensive endeavor alone. Although, it may likely turn out you're not alone. First step that I would take is to have a lawyer send a demand letter requesting the list of LPs and contact information. In every jurisdiction that I've seen, GPs are required to provide this information.

Snippet from the investment brochure that @Evan Polaski linked to:

 "The Current Owner purchased the property in 2021 as a Co-GP and
provided GP equity and balance sheet support to the Operating GP.
The Property underwent a renovation and unit conversion plan that
increased the number of units to 584 and experienced strong leaseup
post completion. In early 2023, the Owner/Seller discovered Issues
with the existing property management company resulting in tenants
without proper background checks and poor credit which led to higherthan-
expected delinquency. The Current Owner stepped in and took
control of the Property from the Operating GP, replaced the property
management company, cleaned-up the rent roll, and returned the
Property on its path to stabilization."

Quote from @Cheryl Abram:

I am really sorry that you're having to go through this mess. Perhaps someone in the BP forum can help refer or is a real estate securities attorney, particularly one that helps LPs. Or, for starters, google real estate securities attorney in Houston. I'd recommend counsel in the area that the property is located.

It's still difficult for me to tell if you invested in a fund of fund or directly in the investing entity. The entity which you are receiving K1s from looks like a fund of funds entity; however, the Waterford Grove Houston LLC entity looks like possibly a direct ownership entity. Ian Djuric of DFO, Timothy Bratz of Legacy Wealth, Shane Carter of Hampshire Capital are all directors of Waterford Grove Houston LLC and if you did indeed wire funds to this entity, all three should be responding to your inquiries. Source:

https://www.sec.gov/Archives/edgar/data/1853174/000185317421...

Quote from @Evan Polaski:

There is a lot of moving parts in this space, which is ever evolving.

Co-sponsors deals seem to have generally all but left.  In this relationship, a (typically) unlicensed party raised money for the "main GP", and was given a share of the GP.  In exchange they brought the capital and managed the Investor Relations for the investors this person brought to deal.  In this scenario, typically, the actual LP (you, Cheryl) are invested in the actual offering led by the "main GP".  There is one set of legal documents that you signed into the main offering, you funded the main bank account, you get a K-1 from the same entity as every other investor.  A reason the "main GP" may be saying they don't want to deal with you is because per the SEC rules, GPs must have active involvement in the day to day of the actual offering, so if "main GP" starts doing the communication with you, it can be viewed as the co-sponsor no longer having active involvement, and create SEC scrutiny for all parties of the deal.

That SEC scrutiny did happen many years ago across the industry.  It resulted in many "co-sponsors" getting their broker dealer license and raising capital for outside investments in a more black and white way.  But there are a lot of "main GPs" that either don't know there was scrutiny or figure since there seemed to be no major action, the SEC blessed the relationship (but didn't change the rules, so who knows when it will rear its head again).

Enter the "Fund of Fund" model, which is more commonly truly a feeder Fund. A true fund of funds would mean the FoF raises capital into a single offering, and then that offering is invested across multiple other investments.  A feeder fund is a single offering that is all funneled into another single offering. These were launched because all those "co-sponsors" that didn't want to get licensed needed a cleaner way to be in deals.  High level, relationships remain the same.  The Feeder Fund sponsor goes out and matches their network to a "main GP's" deal.  The difference:  the feeder fund is the LP in the "Main GPs" deal, and you are an LP in the feeder Fund.  As such, you would sign docs for the feeder fund, you would send your investment to a bank account controlled by feeder fund, and the K-1 you are getting is from the feeder fund.  Effectively, it just adds another layer.  The Feeder Fund GP (FF GP) is the person that used to be the cosponsor.  That person has negotiated a cut of fees and carry with the main GP that actually operates the deal.  The FF GP does not need to have a FINRA license, because they are now a GP of their own offering.  In this arrangement, similar to the co-sponsor arrangement, if you reach out to the "main GP", you are NOT an investor with them.  You are an investor in the Feeder Fund, and the Feeder Fund is the LP in the main GPs deal.  

At the end of the day, the legal arrangement has changed, but the functional arrangement is basically the same.  

The pro of a feeder fund is if you trust your FF GP and they are well connected, they can be performing due diligence on multiple operators.  The downside is it is another layer of costs (legal, accounting, possibly more splits and fees), a second layer of communication, and effectively needing to vet two groups, the main GP and the FF GP.

The other GP not having an active involvement because they stopped communicating with the investor is nowhere near as bad as the lead GP refusing to communicate with one of their LPs and she would be considered their LP in this structure. In the co-GP structure you're mentioning, each GP is equally responsible and liable for the actions, or in this case the lack of action, of the other GPs. Refusing to speak to an LP, whether the GP sourced the LP or not, is an SEC violation.

Quote from @Jay Hinrichs:

Quote from @Bobby Larsen:

 Hi Cheryl - I would highly recommend that you speak with an securities attorney. It is well worth the small investment it would take for a consultation to understand what your rights and path forward are. To me, it sounds like you invested in a "fund of funds" which isn't a new structure but rather it's been newly weaponized amass large amounts of retail investments. Most of the time, these groups that are referring to themselves as the general partner, are not actually the general partner in the direct investment. They've simply created a legal entity in which they are the general partner to raise capital and then place that capital in the investments of other operators.

What the operator is likely saying is that you did not invest in the direct real estate investment offering, you invested in a llc/partnership that invested in the operator's direct real estate investment llc/partnership to acquire the property. This is purely an assumption though and one that can be confirmed if reviewing the operating/partnership agreements. Three questions: 1) Is the operating agreement you signed for the direct entity that owns the property or an entity which invested in another entity which owns the property? This can also be confusing because there is often what's called a "pass through" or "disregarded" entity in the structure. 2) Did the operator sign any of your subscription paperwork? 3) Did you wire funds directly into the operator's bank account or the co-GP/fund of funds bank account?

Either way, I would highly recommend seeking counsel if you aren't receiving clear communication. What might end of having to happen is that you seek a judgement/control of the fund of funds that you invested in which then has limited partner interest in the direct offering. 

Bobby,, this is probably a rookie question.. But I was curious as to why these fund of funds deals happen this way.. Is it so these funds can legally take comp as they are not licensed broker dealers ?  So they take and equity stake in exchange of raising investor capital ?
Just curious why this had popped up so often now.

Yes, that's my assumption. The "co-GP" world quickly transitioned to fund of funds when questions started getting raised about unlicensed capital raising. 

I don't know if this is the case but I also think operators use the fund of funds model to bypass the 506c accredited investor requirements. They market to the general public while accepting investments from entities that are considered accredited, although the underlying investors in those entities are not.

 Hi Cheryl - I would highly recommend that you speak with an securities attorney. It is well worth the small investment it would take for a consultation to understand what your rights and path forward are. To me, it sounds like you invested in a "fund of funds" which isn't a new structure but rather it's been newly weaponized amass large amounts of retail investments. Most of the time, these groups that are referring to themselves as the general partner, are not actually the general partner in the direct investment. They've simply created a legal entity in which they are the general partner to raise capital and then place that capital in the investments of other operators.

What the operator is likely saying is that you did not invest in the direct real estate investment offering, you invested in a llc/partnership that invested in the operator's direct real estate investment llc/partnership to acquire the property. This is purely an assumption though and one that can be confirmed if reviewing the operating/partnership agreements. Three questions: 1) Is the operating agreement you signed for the direct entity that owns the property or an entity which invested in another entity which owns the property? This can also be confusing because there is often what's called a "pass through" or "disregarded" entity in the structure. 2) Did the operator sign any of your subscription paperwork? 3) Did you wire funds directly into the operator's bank account or the co-GP/fund of funds bank account?

Either way, I would highly recommend seeking counsel if you aren't receiving clear communication. What might end of having to happen is that you seek a judgement/control of the fund of funds that you invested in which then has limited partner interest in the direct offering. 

DMing you a group or two that is probably worth speaking with. Depends on the size of your 1031 though, since most will have very high minimums for accommodating a 1031 TIC structure.

Quote from @Andrew Syrios:

Quote from @Aman S.:

What happens if someone does not participate in a capital call? I have invested in Ashcroft, but haven't received any capital call yet. 

Usually (I don't know about Ashcroft Capital in this particular case) if you don't invest further capital your shares are diluted. So say you investing $100,000 in a $10 million syndication. You would own 1%. If they required an additional million and you didn't put anything in, your share would go down to 0.9% (or thereabout). The PPM should contain the methodology for how such capital calls will work. So I would look at that. 

Certainly read the PPM to understand the methodology of how a capital call would work for your particular investment. @Andrew Syrios's example of a pari passu capital call is the most straightforward and typical approach but with it, there is an inherit issue and that issue is valuations. In that capital call scenario, the additional equity is being invested based on the original value of the property which, like today, values are down 25-35% so it's an immediate loss of value of 25-35% on the capital called equity if investing alongside the original equity. 

Most capital calls solve this issue by structuring new capital as a type of preferred equity which I believe is how Ashcroft is handling but again, please read the PPM and/or consult an attorney to provide specific guidance. Either the preferred equity structure or providing an updated valuation for the capital call to invest at, makes the most sense. Scenarios are complicated further if the original equity included a share class that was already preferred equity.

@Spencer Cuello

Vanamor Investments - We provide mostly 506b offerings which allows accredited and non-accredited investors but non-accredited investors need to be what's considered sophisticated so we'll typically look to build a relationship first through phone calls and meetings so that we can assess the suitability. Feel free to contact me if you have any questions.

I've been investing in the industry since 2007 and spend the better part of the last 3 years patiently waiting for market fundamentals to improve which we believe they have and should have some opportunities in the near future.

Quote from @Carlos Ptriawan:

now I can understand few things:
- how the losses in the office is started to hit the bank and AAA tranche as LTV is over 100%
- while in multifamily almost every GP is very active in purchasing that distressed asset. The bridge-lender has really in good position here in the game of chess as their aggregated LTV is still below 100% , they received capital injection from government while at the same time they receive interest from the capital call. Even if they lost money a bit they can resell the asset to another GP. They still don't lost money if LTV is below 100.
- having said that the best strategy for the new GP that purchase the MFF, is just to simply buy 5-7% fixed CMBS rate with 60%LTV , while previous GP/LP is wiped out the new GP and/or lender)is really in good position. Almost like riding a riskless investment vehicle.

Is this a sense of optimism in new MF investments that I sense @Carlos Ptriawan? I never thought I would see this day.

Quote from @Jay Hinrichs:

That was one of those periods where every investment was sold, no matter good or bad. PDX market has been good to me since and really the only MF market where we're close on pricing today.