All Forum Posts by: Forest Wu

Keep running across these Bad GP posts. We don't do SFH or MFH or any combination of them or deal structures (syndications) related to them.

We are in the Self-Storage and Country Subdivision development or acquisition business.  When we fail, it is because of us.  

If a guy walked up to me with a gun and robbed me, it was my fault.

I take full accountability for any decision I make or any situation, I put us in.

With that said, how about making a List of Poor LP investors?

Even if you got a list of Good or Bad GP's you're putting your investment into the hands of other LP's and are lazy and not doing your due diligence.

I have asked this before on these bad GP posts.

What is your Due diligence list.  Should be very similar to Self Storage.

1. What are the financing terms? The amort period and the balloon period should be very close to the Funds cycle timing. If your payout is to be 5 years, then have fixed for 5 years. If you got greedy like all of the SFH who got foreclosed using ARMS years ago. Own up. If you're the LP investor and you are now relearning the downside of ARM debt, you're reliving and relearning a lesson that was taught years ago. You should lose your money. If you're a GP and wanted your returns to look a little better and went with variable at 3% versus locking in 4.5% for the term of your fund, take your spanking, along with the LPs. You both either got greedy or didn't do a proper deal analysis.

2. What is the Capital or Capex needs for the project and are they on target?

3.  Occupancy.  What is the Current occupancy?  How do they plan to get to their Occupancy target?  Are they on track?  What is the occupancy of surrounding MFH locations?

4.  Rental pricing.  What are the current prices?  What are the Syndication targets?  How do they plan to achieve?  What are the rates for the surrounding market?

5.  What is the Breakeven target?  Where you get your capital back?

6.  Read the contract/brochure.  If x or xx occur, what are the potential outcomes?

7.  You are the BANKER.  You should have done a sensitivity test on all of the points above.  Did you?  It's not Passive, you have to act as the Banker.  If you have never been a Banker reviewing a loan, then you are just gambling.  Take your losses.

Which is easier?  To complain and blame? Or build something? Go build a Due diligence work sheet based on the above. Post it on here.  Ask for other GP and LPs to improve it.  Then BP, make every LP or Syndication investor read it, before they start posting.

Start small and Make Your Big Mistakes Early.

It's your money, your Right, even if you're Wrong.    Always own your decisions. 

Quote from @Cheryl A.:

Quote from @Forest Wu:

Hi! One of my last posts was asking about syndications/PE opportunities. Unfortunately, I've come across quite a few people who are really upset with how their syndication experience has been. Quite a few people have lost a lot of money. I think it'll be very helpful to increase transparency on those operators who have betrayed their investors trust or simply are poor performers. So let's do the following:

1/ List the GP / syndication that you've had a terrible experience with

2/ At a high level (and as much as you're comfortable sharing), provide a reason for why the GP / Syndication should be avoided from your experience (or an acquaintance's experience)

3/ Any lesson learned to help future investors

Let's help each other avoid future mistakes and bring hold GPs/operators accountable. 

I appreciate the context, transparency & honesty shared here.

For the most part, I’m an inexperienced LP investor.

My first two investments with the Djuric Family Office / now Blake Capital Group, started in 2021 and my experience has been awful.

One deal collapsed in Dec 2023, which I found out 4 months after the property was sold back to the bank, by the operator. To date Blake Capital investors have not been formally notified and despite repeated requests I’m not able to get anything of legal value to support the collapse and narrative around it. All I’ve received is bad property managers and rising debt costs are to blame, GPs have lost a lot of money also, this is the first deal failure for the GPs …

The second deal has had two capital calls and is scheduled for foreclosure in August, unless additional funds are raised from the last capital call. My request for the root cause of the failure has yet to be answered.

My frustration comes from the lack of transparency into how the deal was structured with GPs/Operators. Seems like unless you invest directly with the operator, you’re going to be treated as a secondhand investor with lagging communications, investor reporting, tax docs, etc.

Extremely poor communication, most often I’ve had to repeatedly ask for a response.

Inconsistent investor reporting, sometimes monthly, sometimes quarterly, most of which has been received 2-4 months past the reporting period.

Investor portal that appears to be used for show only. I had to push for my investment to be registered and funds to be documented. The accounting has never been added and 8 months later and the portal still shows I’m actively invested in the failed deal.

K-1s received late Q3.

I was naïve and inexperienced, and I accept some degree of blame for this, however I feel I have been very misled and there appears to be no accountability for this.

Are LPs able to file a Suspected Securities Fraud or Wrongdoing report with the SEC? Any other recourse LPs can take?

Appreciate any advice on this.

Thanks, Cheryl

@Katrina Schmid so there are a number of resources. Here is a link to the Boulder Landlord Tenant Handbook It is written for Boulder which has some requirements above and beyond the state law. My thought would be that your situation is probably less of a legal issue than a people issue. Even if it's a legal issue, the best solution likely flows out of taking care of the people in the situation. Even if the tenant is 100% wrong and completely bonkers, telling them to pound sand because they are wrong won't likely make the problem go away. 

You can PM me with more details if you like. I'd be happy to lend you my thoughts but don't have legal advise. There are three local law firms that would likely be able to help you out in that arena.

Quote from @Brian Burke:

Quote from @Sook Kim:

Quote from @Scott Trench:

Quote from @Forest Wu:

Quote from @Allan C.:

@Brian Burke I think a great sponsor is someone who pulls out of the market when all signs point to a very frothy bubble, even while every other sponsor is forging ahead.

I applaud you and the Praxis group for having discipline and integrity. You gained credibility when you took personal risk to protect your LPs during the prior downturn, and you’ve secured my trust with your actions during this cycle.

Counter-cyclic investing is an aspiration that few achieve - kudos to you.

 My understanding is that Brian Burke sold his portfolio by 2021, and has by and large sat on the beach twiddling his thumbs and working on his tan for the last three years. Dabbled in some low risk first position debt and credit funds.

During this period he was also a vocal bear on the market, including here on BiggerPockets. His warnings were largely unheeded. 

I feel as if Praxis Capital is being held up as a model of a preeminent Sponsor with a pristine reputation that knew exactly how to time the market and knew how to time their exit. It is not true that they exited from MF offerings before the downturn and quickly pivoted to an equity/lending fund. I'm invested in their last multifamily fund and that fund has not paid out distributions for close to/over 2 years, my equity is less than the $100K I initially invested since the value of the properties have gone down AND in the last newsletter Brian Burke planted the seeds for a POTENTIAL capital call in the future (contrast to the 2023 newsletters about having a fixed rate for a few more years and a long runway). 

Again, I will emphasize I am NOT stating that Praxis Capital is a "bad" sponsor - they are not a fly by night Syndicator that is going to abscond w/your money by any means and I believe their accounting is likely very rigorous (and they do get generate their K-1s in a timely manner) but I have done better w/other Sponsors in terms of return for my money, investing in properties or assets that have held their value even during this high interest rate environment and perhaps even work more hands on w/direct management of their properties (w/their property mgr).  I receive some very thorough quarterly newsletters but that's it (I did ask if we could have quarterly online calls like some other Sponsors and I was informed this would be taken under consideration).

 @Sook Kim thank you for setting the record straight, I should have caught this when it was posted. While I wish that the statement about selling my portfolio by 2021 were true, it's only about 75% true.  Approaching what we now see (using 20/20 hindsight) was the peak of the market in 2022, I had a portfolio of around 4,000 units.  I began aggressively selling and by the middle of 2022, right as the market was peaking, I had just under 1,000 units left.  I had 200 units go into contract about a month before the market's light switch was flipped, but that deal failed to close because the market had collapsed in the subsequent weeks and the buyer was unable to cross the finish line, so I still have that one.

These last 1,000 units were all part of my last two multifamily funds, fund VI and VII.  Fund VI did get one sale with a large gain but still has properties left, as does fund VII which had no sales.  

Had I been able to sell all of these properties by 2Q2022, this would have been a great story to tell!  It's still a pretty good story, but investors who are in funds VI and VII rightfully couldn't care less about the great timing of sales they had no part of.

Sook, I appreciate your kind words about not being "fly by night", our rigorous accounting, K-1 delivery, and comprehensive reporting--your trust in us is not taken for granted.

You say that you've invested with other sponsors who's properties have held their value--if you are ever in the mood to share more specifics on that with us I'd love to see what they are doing differently and perhaps I can learn something.  The industry as a whole benefits when sponsors do a better job and I'm always seeking improvement.  I've seen values fall across the board in almost every market so I'm very curious to see how they avoided this.

As it relates to returns, we never sell ourselves as the leader in investment returns.  Our value proposition is over 100,000 units of experience across multiple decades and having survived multiple market cycles.  We try to achieve good returns at a lower risk than syndicators who use high leverage, short-term debt, invest in sketchy properties, or financially engineer their capital stack, so finding higher returns elsewhere is something I hear often.  I'm not willing to extend further out on the risk curve, so this is unlikely to change.

@Forest Wu thanks for asking what's going on.  Sook already knows because our last quarterly report was 16 pages long (mostly text) describing exactly what is happening, but certainly anyone not in the fund who is reading this thread doesn't have that information.  I'll spare you a 16 page description and summarize.  The markets today are like a 4-way intersection, approaching from each of the four directions were rent growth, interest rates, cap rates, and expenses.  They all collided in the intersection.  Rent growth turned negative, interest rates skyrocketed, cap rates rose (meaning values fell), and expenses increased (inflation hits everything, payroll goes up, insurance--you know that story) pretty much all at the same time (around 2Q2022).  

We did one smart thing--we financed with long-term debt and we used low leverage (60% +/-) so we have a wide margin of safety and no threat of a loan maturity until 2031, so we have plenty of time to ride this out until the next market cycle.  But we made one decision that history may one day show was the wrong choice--our rate is floating.  This has served us well for decades because floating rate debt allows us to escape yield maintenance risk, but the tradeoff is we must accept interest rate risk (I wrote an entire article on interest rate risk vs. yield maintenance risk so I won't rehash here).  Long story long, our interest rate skyrocketed and when you couple that with declining rents and increasing expenses, distributable cash flow erodes.  

We don't hide that by continuing distributions--so we cut those off early to preserve cash reserves.  That turned out to be a good move so far.  Investors hate it, but they hate losing their money even more.  Preserving cash is the other key to surviving to the next cycle.

Regarding capital call--there are threads here on BP where investors have posted that they were surprised by a capital call, or were issued a sudden capital call.  I wouldn't do that to my investors, so even though I am not sure that a capital call will be needed, and if it is, it would be small relative to capital invested and likely not even this year, I felt it was my responsibility to give investors a distant heads-up that this is a possibility so they can be prepared if and when we have to take this step (and I should note we've never issued a capital call in our multi-decade history so I don't take this lightly).  The only purpose of such a move is to provide the reserves to get to the next cycle should it turn out that we don't have enough already.

Sook astutely pointed out in his post that investing in syndications is complex.  So is managing them--we have never lost investor principal and don't plan to start now, and we will fight to the end of the earth to protect our investor's interests. Sometimes this requires making tough and unpopular decisions.  We have and will continue to make those tough decisions and clearly explain them, and the reasons for them, to our investors.  We are hands-on managers--we have our own management company and manage our assets internally, so we have complete control over what is controllable.  What we cannot control, we can only take every step we can to mitigate and communicate.

Happy to answer any other questions, too, and clarify if I've missed anything. 

These are the type of thoughtful, non-combative responses to LP questions and comments that all GPs would benefit from reading - and putting in to practice.  Proactive communication, addressing issues head-on with plain language, acknowledging mistakes and not just blaming "the market" or "interest rates".

I am invested with a few operators who have made capital calls - all of them came as a surprise and only one was messaged appropriately.  I am an investor with Praxis and if that call comes, I will understand completely why and I will have been adequately prepared.  

Syndication investments are long-term, illiquid investments completely out of the control of the LP investor - after we send our wire the only thing we have is communication.  GPs communicate through sending (or not) distributions and sending (or not) comprehensive reports.  This should include a future outlook for the asset - good or bad.  Too many operators are VERY poor at communicating and many more compound poor communication by thinking that if they don't share bad information, the bad stuff won't come.  This is why an LP should always ask for prior reports from an operator BEFORE they invest - it will tell you a lot about the operator and how they handle business and just as important, how they value LPs.

I don't see many other GPs on this Forum being this transparent and it's greatly appreciated!  I also don't need the GPs to share on public forums, but they should absolutely be this clear and transparent in their communication with LPs.  That is my number one takeaway from this difficult time in syndication investing - invest with operators who communicate transparently and often and those who will answer the hard questions.

Quote from @Brian Burke:

@Chris Seveney yeah you’re spot on.  We do have a debt fund but we don’t loan to our own properties—that was created because I just had an exit from a bridge lending company I started 7 years ago and I like that slice of the capital stack right now.

These groups touting all these other investments you mentioned aren’t just feeding their egos—some of them are struggling to keep the lights on so they are looking for revenue.  It isn’t about the investors.

This is why I think a lot of sponsors continue to make distributions despite poor operational performance, conceal the fact that their property values have fallen, and conduct investor update webinars to say “nothing to see here!  We’re doing great!”.  It’s all about raising money for their next fund, not about telling investors what’s really going on.

I stuck about 7 years of burn into my corporate account so that I have zero pressure to buy anything, including crypto, STR, self storage and ATMs. If my core competency is out of season, I'm perfectly happy managing the hell out of the properties I have left, and playing golf when the gift of spare time comes around.

Since I’m not worried about raising money for my next fund, I’m free to “tell it like it is” (which I’d do regardless), and make unpopular decisions that bolster our chances of success, knowing full well that after issuing difficult news our investors would be lighting up forums on LFI, 506 group, and BP.  And I don’t mind that at all—investors have every right to be concerned about their money.  I’ll be most accurately judged in 5-7 years after all this dust has settled and people see which sponsors are still here, which got foreclosed, and which liquidated at massive losses.  I’m patient enough to wait for that.

I think investors by and large somehow get the impression that the stock market is really risky but Real estate never fails.. And when you do go through a cycle and have to tighten your belt or some deals just dont/or did not work.. The investors are quick to throw stones having the thought process that if their deal is not working for some reason that the sponsors are solely at fault. We all mitigate risk in our investments and returns are very much risk related as we know so for MF deals to be paying what had been very high returns the investors need to understand your taking some risk compared to other investment vehicles.  And investors need to understand ( which I know they really dont) that sometimes return of Capital is a HUGE win.. We are seeing that play out now with some Syndicates losing props for 100% capital wipe out for their investors or locking up capital for looong time etc etc.. Capital Calls dilutions etc etc. .All of us in the industry will have a bummer my self included.. So boils down to Character  And with Brian you have that in spades.

Sorry I am late to this party....

@Gino Barbaro thanks for the shout out. @Scott Trench thank you as well for the shout out especially as you are building PassivePockets. It shows the type of person you are and I appreciate that

@Forest Wu thanks for checking out the site and we understand your position relating to the majority being 5-star reviews...85% of them to be exact. We are still really early in our growth (we officially launched in Feb) and haven't spent any money getting the word out as we have been hyper focused on development. The more people that find us organically the more <5-star experiences hit the site. I understand in order for us to be a trusted resource we need a balance of the good and the bad and am actively campaigning for reviews on "not-so-happy" experiences. I am not doing this to be the "GP reaper" but to make sure we represent both sides of the coin. I believe as we grow, get more eyes on it, the more balance will come to the site. It is happening, but we'd like it to happen faster

In the meantime, we do verify every investors participation, whether or not they choose to review them publicly or anonymously, with the GP they are reviewing so the reviews you are reading do come from a true experience....we simply need more of them, good and bad.

Quote from @Sook Kim:

Quote from @Scott Trench:

Quote from @Forest Wu:

Quote from @Allan C.:

@Brian Burke I think a great sponsor is someone who pulls out of the market when all signs point to a very frothy bubble, even while every other sponsor is forging ahead.

I applaud you and the Praxis group for having discipline and integrity. You gained credibility when you took personal risk to protect your LPs during the prior downturn, and you’ve secured my trust with your actions during this cycle.

Counter-cyclic investing is an aspiration that few achieve - kudos to you.

 That's a great story to hear. Did you invest with the Praxis group? If so, it would be helpful to hear some of the stories - both bad and good! If you can share some specifics of what Brian Burke did to protect LPs, that'd be great!

 My understanding is that Brian Burke sold his portfolio by 2021, and has by and large sat on the beach twiddling his thumbs and working on his tan for the last three years. Dabbled in some low risk first position debt and credit funds.

During this period he was also a vocal bear on the market, including here on BiggerPockets. His warnings were largely unheeded. 

Let me begin by stating I struggled with whether I wanted to share this info in this forum as I do think the issue of investing in syndications is complex.  I'm writing this because I heard about Praxis Capital through BP so from one LP to another here goes...

Just because a sponsor loses the investor's principal does not make them a poor sponsor but I do think it's imp't for me to share this info as I feel as if Praxis Capital is being held up as a model of a preeminent Sponsor with a pristine reputation that knew exactly how to time the market and knew how to time their exit. It is not true that they exited from MF offerings before the downturn and quickly pivoted to an equity/lending fund. I'm invested in their last multifamily fund and that fund has not paid out distributions for close to/over 2 years, my equity is less than the $100K I initially invested since the value of the properties have gone down AND in the last newsletter Brian Burke planted the seeds for a POTENTIAL capital call in the future (contrast to the 2023 newsletters about having a fixed rate for a few more years and a long runway). 

Again, I will emphasize I am NOT stating that Praxis Capital is a "bad" sponsor - they are not a fly by night Syndicator that is going to abscond w/your money by any means and I believe their accounting is likely very rigorous (and they do get generate their K-1s in a timely manner) but I have done better w/other Sponsors in terms of return for my money, investing in properties or assets that have held their value even during this high interest rate environment and perhaps even work more hands on w/direct management of their properties (w/their property mgr).  I receive some very thorough quarterly newsletters but that's it (I did ask if we could have quarterly online calls like some other Sponsors and I was informed this would be taken under consideration).

One unsolicited piece of advice to anyone considering parking their money with a capital company/sponsor.  Don't go it alone. There are many forums where LPs share their experience with Sponsors, can ask if anyone has heard about a Sponsor, rank them, network w/other LPs, benefit from the due diligence of others that are more experienced, etc. I HIGHLY recommend you join a few (the names have already been mentioned in previous posts).  

 Thanks for sharing your experience. I really appreciate your courage and decision to talk about the good and bad. Too often BP is just an echo chamber of success stories and a place for GPs to market. There isn't really any critical feedback or a way to assess what people's actual returns are.

Quote from @Scott Trench:

Quote from @Forest Wu:

Quote from @Allan C.:

@Brian Burke I think a great sponsor is someone who pulls out of the market when all signs point to a very frothy bubble, even while every other sponsor is forging ahead.

I applaud you and the Praxis group for having discipline and integrity. You gained credibility when you took personal risk to protect your LPs during the prior downturn, and you’ve secured my trust with your actions during this cycle.

Counter-cyclic investing is an aspiration that few achieve - kudos to you.

 That's a great story to hear. Did you invest with the Praxis group? If so, it would be helpful to hear some of the stories - both bad and good! If you can share some specifics of what Brian Burke did to protect LPs, that'd be great!

 My understanding is that Brian Burke sold his portfolio by 2021, and has by and large sat on the beach twiddling his thumbs and working on his tan for the last three years. Dabbled in some low risk first position debt and credit funds.

During this period he was also a vocal bear on the market, including here on BiggerPockets. His warnings were largely unheeded. 

Let me begin by stating I struggled with whether I wanted to share this info in this forum as I do think the issue of investing in syndications is complex.  I'm writing this because I heard about Praxis Capital through BP so from one LP to another here goes...

Just because a sponsor loses the investor's principal does not make them a poor sponsor but I do think it's imp't for me to share this info as I feel as if Praxis Capital is being held up as a model of a preeminent Sponsor with a pristine reputation that knew exactly how to time the market and knew how to time their exit. It is not true that they exited from MF offerings before the downturn and quickly pivoted to an equity/lending fund. I'm invested in their last multifamily fund and that fund has not paid out distributions for close to/over 2 years, my equity is less than the $100K I initially invested since the value of the properties have gone down AND in the last newsletter Brian Burke planted the seeds for a POTENTIAL capital call in the future (contrast to the 2023 newsletters about having a fixed rate for a few more years and a long runway). 

Again, I will emphasize I am NOT stating that Praxis Capital is a "bad" sponsor - they are not a fly by night Syndicator that is going to abscond w/your money by any means and I believe their accounting is likely very rigorous (and they do get generate their K-1s in a timely manner) but I have done better w/other Sponsors in terms of return for my money, investing in properties or assets that have held their value even during this high interest rate environment and perhaps even work more hands on w/direct management of their properties (w/their property mgr).  I receive some very thorough quarterly newsletters but that's it (I did ask if we could have quarterly online calls like some other Sponsors and I was informed this would be taken under consideration).

One unsolicited piece of advice to anyone considering parking their money with a capital company/sponsor.  Don't go it alone. There are many forums where LPs share their experience with Sponsors, can ask if anyone has heard about a Sponsor, rank them, network w/other LPs, benefit from the due diligence of others that are more experienced, etc. I HIGHLY recommend you join a few (the names have already been mentioned in previous posts).