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:
- Allow the multifamily market time to stabilize.
- Meet liquidity needs for the rate cap, capital expenditures and unexpectedly high debt payments.
- 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
Jon, I have received a few capital calls this year from the dozens of syndications I've invested in. None have been mandatory, unlike yours from Ashcroft. Thus, I was able to evaluate whether to put more of my capital in or not. I only did so on one investment. I know another of my investments, the first to put out a capital call, only raised 11% of the call, and they are now in a forced sale situation. They will almost certainly lose all LP capital, including mine. That is painful enough. But at least I didn't add to the loss by participating in the capital call.
Your mandatory call may turn out to be the saving grace of the investment, as they should raise 100% of the call. As long as the market improves enough over the added time of the rate cap extension, etc. you could be fine. Only time will tell.
