All Forum Posts by: Frank Sichelle

@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.

For me, the issue is not that sponsors are raising a new fund or offering but they're not being honest about their past offerings. They are raising new investor capital without being transparent on past performance which may not be a legal violation yet because the outcomes of the past funds/properties have not yet been finalized, but the writing is on the wall so raising a new fund without disclosing what's happening with their existing fund/properties is ethnically wrong.

Quote from @Evan Polaski:

@Frank Sichelle, I hope to clarify one item you mention:

If you, as an LP, are looking into a company, you should be asking for Original Underwriting vs Actuals.  I don't know the inner workings of your hypothetical sponsor, nor really almost any other sponsor, so I can't speak to how things are done in any specific way.  But, it is typical corporate practice for any company to build a budget for each fiscal year, and then as they are working through that budget, there will likely be some reforecasting done based on actuals and any major events that will likely impact the original budget.

But more importantly, you need to make sure you are asking for the correct comparison.  Whether it is intentional or just a lack of understanding in what is desired versus what is asked, if you ask an operator of the budget vs actuals, the operator may very well be delivering what was asked.  But internally, budget is what they are running day to day from.  Proforma, or original underwriting, or original projections, or "how are your actuals vs what you originally presented to investors".  Each company could have a different term they use for those proformas, so asking in several ways may be the only way to get what you are looking for.

I ask all of my sponsors to provide actuals versus original budget. Providing actuals versus a budget that was drafted a few months earlier and possibly even reforecasted mid-year is entirely worthless. With this approach, a sponsor will never miss their budgets because they will simply adjust the budget to make the actuals look positive.

For example, in one of Rise48's updates, the reforecasted budget called for negative 5% cashflow over the past 12 months and actual 12 months resulted in negative 6%. Still a miss and terrible atrocious operations but what would be significantly more valuable for LPs would be to see that their original budget was for a positive 7.2% distributable cashflow. You're response may be that markets fluctuate and budgeting is difficult and that is true but that is literally the job of sponsors so they should be better forecasters than that if they're accepting equity from investors.