All Forum Posts by: Frank Sichelle

Quote from @Davel Patel:

Hi Frank thank you for continuing to post about these Rise48 updates. 

You're welcome! There is not enough information online about most groups and investors need better transparency when investing in private offerings. Investors probably need to do more research like you did but the tactics that I'm seeing today from unethical sponsors are disappointing and perhaps crossing a line beyond just unethical. 

For example, Rise48 has made the statement on one of their capital calls that if you contribute additional funds, the new funds will not only be in a priority position in the capital stack (which is normal) but they will also move the initial capital of those who contribute additional funds to also be in a priority position above the initial capital of those who do not contribute. To me that's financial extortion saying "contribute additional funds or else...". I won't claim to know if that is legal or not but if there are any attorneys on the bigger pockets platform, I would be very curious to hear their opinion on whether a sponsor has the ability to unilaterally erase an investors capital. 

Out with more capital calls this month... If I'm counting correctly, that makes 10? but I may have missed one or two though. If you look at their own portfolio timeline, those 10 properties are first 10 on their list of 21 chronologically ordered so seems to reason another 9 more capital / "preferred equity" calls are coming. Possibly some of the 23 investments included as "cash flow positive" will also make this list as they are only cashflow positive because the over raised investor equity upfront to buy very low rate caps and are essentially just distributing initial equity back to investors. 

I'm proud that they finally stopped the marketing campaign of "we have never done a capital call and don't plan on doing a capital call in 2024". Key word 2024 because as soon as 2025 hit, they've done 10 capital / "preferred equity" calls. I wonder what this means for their new slogan... "we DO NOT plan to lose capital on any properties in 2025." As long as they're not planning on it, I suppose.

Old Marketing

New Marketing - Look familiar?

Last but not least, let's see how likely their projections are for their preferred equity fund (Credit m.stanfield on X). Red highlights are their projections, blue highlights are recent comparable sales. For their projections to come true, they just need the Phoenix market to double in the next 2 years and for 1960 - 1980s properties to sell on average for over $400 per square foot. 

@Jeremy Dyer - I see that capital calls went out on two more properties (Rise North Ridge and Rise Trailside). How many of capital calls have gone out this year and how many do you expect to issue the remainder of the year?

I also see that Rise48 acquired a new property last week. Do you and the Rise48 team plan on disclosing the distress throughout your portfolio? It seems like an important risk factor that investors should be aware of.

Quote from @Jeremy Dyer:

We want to ensure we understand your concerns fully and address them appropriately.  

Um, no thank you, I’ve seen how “concerns” from other investors have been addressed.
Also, thank you for the recent updates on the individual properties that a capital call is likely required. I’m glad Rise48 is finally admitting the need of capital calls and hope that the “we have never and don’t ever expect to issue a capital call” marketing is removed going forward.

Other areas that should be called out:
1) Disclose the distress in your current portfolio to existing investors as well as when marketing new investment opportunities. Even the preferred equity fund makes no reference to current values of the properties from brokers which I know opinions of value have been received.
2) Call out what “pay back working capital loans” for what is really is, putting cash back in Rise48’s pockets.
3) Stop lying about lenders requiring the above referenced GP loans to be paid back. That is just a flat out lie, no lender would have any issue with a GP contributing more capital to a property.
4) Stop highlighting positive financial leverage on your new investment opportunities when all you’re doing is paying massive fees upfront to buy down the rate. That is NOT positive financial leverage, it’s closer to a Ponzi scheme in which you’re raising additional investor capital in order to distribute it right back to them and claim it as operating cashflow.

We’re in a new era, it’s time to start protecting limited partners from deceptive investments.

Thank you both

Why are my posts moved from Syndications to Classifieds? Seems very shady.

https://www.biggerpockets.com/forums/517/topics/1232334-rise...

Looks like another bad operator is at it again with an attempt to keep their poor investments alive, this time from Rise48. I received an email last week about the "opportunity" and watched Tyson Cobb's webinar. I've invested in two of the properties going into the fund and two others. I can't even understand how any of this is legal. Rise48 is raising preferred equity at a valuation that is not market, with income growth projections that are unreasonable, and putting $7,000,000 of new investor cash back in their pockets... $7,000,000!! and they're claiming that they are putting the first million into this fund. Math can sometimes be fuzzy for me but when you pay yourself $7 million and send back $1 million, you're not contributing. You're cashing out a net $6 million directly from investors that trust you with their savings.

https://41098383.hs-sites.com/share/hubspotvideo/18605256691...

https://www.wallstreetoasis.com/forum/real-estate/rise48-pos...

I believe this is the second attempt to raise preferred equity as well. First time was from investment companies but no one was interested, so now they're offering a 18% preferred return in hopes of getting more unsuspecting retail capital. I wanted them to sell these properties years ago but I guess I can officially say goodbye to my money. Is this not another form of a capital call? Needless to say, I won't be investing. Based on what I saw of the projections, this preferred equity investment will likely be instantly wiped out as well.

I know that there are a lot of ambitious capital raisers on this platform who have raised for Rise48 and I encourage you to please think about your investors before promoting bad investments again. I worked very hard for my money and I thought I was making sound investments with a trustworthy operator and it turns out to be the opposite, all the while being left in the dark until the last minute. These are a few of their oldest investments, so I'm assuming I'll be seeing similar "opportunities" on my other two investments in the future.

Looks like another bad operator is at it again with an attempt to keep their poor investments alive, this time from Rise48. I received an email last week about the "opportunity" and watched Tyson Cobb's webinar. I've invested in two of the properties going into the fund and two others. I can't even understand how any of this is legal. Rise48 is raising preferred equity at a valuation that is not market, with income growth projections that are unreasonable, and putting $7,000,000 of new investor cash back in their pockets... $7,000,000!! and they're claiming that they are putting the first million into this fund. Math can sometimes be fuzzy for me but when you pay yourself $7 million and send back $1 million, you're not contributing. You're cashing out a net $6 million directly from investors that trust you with their savings.

https://41098383.hs-sites.com/share/hubspotvideo/18605256691...

https://www.wallstreetoasis.com/forum/real-estate/rise48-pos...

I believe this is the second attempt to raise preferred equity as well. First time was from investment companies but no one was interested, so now they're offering a 18% preferred return in hopes of getting more unsuspecting retail capital. I wanted them to sell these properties years ago but I guess I can officially say goodbye to my money. Is this not another form of a capital call? Needless to say, I won't be investing. Based on what I saw of the projections, this preferred equity investment will likely be instantly wiped out as well.

I know that there are a lot of ambitious capital raisers on this platform who have raised for Rise48 and I encourage you to please think about your investors before promoting bad investments again. I worked very hard for my money and I thought I was making sound investments with a trustworthy operator and it turns out to be the opposite, all the while being left in the dark until the last minute. These are a few of their oldest investments, so I'm assuming I'll be seeing similar "opportunities" on my other two investments in the future.

I'm not talking about the SEC or regulators, I'm talking about LP litigation which is very common when deals go bad. There are less protections than you think and a good securities attorney can find something wrong with 99% of offerings. Not disclosing past deals that have resulted in loss of equity and/or foreclosures is an easy case. The only difference between unethical and illegal in that example is whether an attorney can prove it was known or even should have been known at the time of a new offering. We'll see with 506c's but I happen to think they'll come down harder.

Quote from @Chris Seveney:

@Frank Sichelle

They all have the past performance is not indicative of future success and for anyone who shows a history of prior returns without having it third party verified is like saying I went fishing alone and caught 20 fish including the largest bass ever.

This is what investors need to realize is you never believe what a sponsor says if it cannot be verified. I have seen returns be done by gross, exclusive of management fees, and calculated many different ways. Ask a sponsor what gips is and 99% will look at you like you have six heads.

A securities attorney would strongly disagree with you here. Even without disclosing past successes, a sponsor would need to be disclosing present issues.

What you're referencing is when trying to predict future performance is meant to mitigate the risk that a sponsors track record is considered marketing material. What's being ignored is that when a sponsor has a property or properties that are foreclosed on, it can have an impact on their remaining portfolio even if those properties remain solvent. @Jay Hinrichs is correct in that a securities attorney would require the disclosure of past issues but the gray area comes to disclosing highly likely future issues that have not been realized yet. The gray areas are typically hashed out in court. For example, touting that you've never done a capital call or given back keys on a property when in the background, you're having to negotiate with current lenders on loan modifications so that you can delay capital calls and/or giving back keys. 

I don't think most sponsors understand the legal implications and unfortunately it's been 15 years since a cycle has caused the tides to go out, so very few do but once these issues go to court, judges will hold sponsors to a much higher standard.