Hi, I'm Scott Carpenter, a reporter at Bloomberg. I'm working with some colleagues to tell the story of how real estate and multifamily syndications didn't work out as advertised for many investments made during 2021 and the first half of 2022, before interest rates took off. I'm especially interested in firms like GVA or Tides Equities (also Ashcroft). If you've invested with them or someone else, and things didn't work out or they'll still kind of rocky, let me know! DM me please!
I've never invested with Ashcroft, but I think they had a good product/concept for certain investors. Hopefully ones that were still working and not depending on cash flow. I've studied 100s of offerings, probably 300 or more. I think they are probably as good of an operator in the space that they play as any. My guess is most operators are suspending monthly/quarterly payments right now, either because they have to, or it is the prudent thing to do to keep the deal moving forward. Very tough to tell today what the next rate cap might be, what the refinance interest rate will be, where cap rates will end up, and so many other financial decisions. You probably don't want them to pay distributions today and then get caught upside down in a year and either be forced to do a capital call in a potential recession, or not be able to raise needed capital call, pref equity, or refinance because they don't have the right stack. No one predicted the huge jump in interest rates and rate caps, so great operators want to be conservative moving forward.
This I disagree.
If one is reading any simple macro economic book, when CPE is jumping 40% on June 2021 we know the party is over and the Fed would raise the interest rate but may be late because they use laggard indicator (because they're lazy and dumb).
Sorry but the Fed is dumb , and the GP is even dumber, there's this GP school that's asking their student to raise capital using floating debt with bridge financing (in my opinion, it's suicidal). But the LP is the dumbest after all. At very least, the GP would eat your money through acquisition fee and annual fee LOL, but it's the LP that lost everything.
Sorry for you guys, as everyone is too dumb to even read basic economic principle. Sometimes not too invest is best thing to do. In July 2021, I sold some of my properties at highest price. GTFO.
Can you reccomend a book on economics for non grad school types?
The Wealth of Nations, Adam Smith
One of the most essential economics texts, The Wealth of Nations forms the underpinning of much of modern economic theory.
Capitalism and Freedom, Milton Friedman
Milton Friedman's iconic work argues that economic freedom is essential to a free and liberal society. Published in 1962, many of Friedman's theories presented in Capitalism and Freedom have since been adopted worldwide.
Freakonomics, Steven D. Levitt and Stephen J. Dubner
Freakonomics is a crash course in the populist application of economics.
The Armchair Economist: Economics and Everyday Life, Steven E. Landsburg
Steven argues economics can be boiled down to four words: people respond to incentives. The book gives a good introduction to the so-called “Chicago school” of economics.
Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail, Ray Dalio
Legendary investor examines history’s most turbulent economic and political periods to reveal why the times ahead will likely be radically different from those we’ve experienced in our lifetimes.
These above are a good basic starting point to gain fair foundational comprehension.
when there's broad changes in interest rate (not just because of central bank rate changes, but also currency depreciation, overnight changes of currency rate, tightening standard of lending, or due to inflation), the first hit is always in banking sector and real estate commercial space, this happened in latin america in 1980 and asia too in late 90 ; in reality, commercial space could only develop during the first wave or major economic expansion (like in China during 2000).
Even before covid, during 2020 we see commercial cap rate at 3 to 4, lucky if you see 5 ; there's almost no way investor could make money as upside is very little as wage growth is minimum. Combine this with long term boom bust cycle, plus inflation, what happen today is not unexpected. Now most GP try to do refi and buying time so to speak, in speculation that Fed would reduce rate to 75 bps. Still saying they're bit optimistic. It's literally naive investor money is being thrown away. GP would still recover from all of these, they can raise new fund, create new company or even create new hype (like Adam's Neuman wework dotcom).
Ok.... Let me interject a different line of thinking here. I'm going to try and take this conversation from black 7 white, into "Technicolor" and see if vision in this full spectrum doesn't help reframe some mindsets.
Q: What year did the 401(k) come into existence?
A: Nov 1978. So, for argument sake, let's say 1979 because that's really the first year of it.
So knowing the obvious, that such a thing takes an industry some time to adopt into it's actions.
Q: What did the stock market do for the previous 15 years, before 401(k) "gimmick" started?
A: Down. Down BIG time. No, not just big, Mt Everest BIG time. DOW from 9k in '66' all the way too 3k's when 401(k) was introduced.
Q: And then what?
A: Things kept going down, until..... By mid '82' thing's changed direction. Oh how they changed direction. From '82' too 2000 (yes you read that right) was a bull-run unlike ANYTHING EVER seen before, touching on 20k.
What changed?
Yes, post WWII there was a very similar bull-run, because of the obvious down from WORLD WAR, and the obvious rally from NO WORLD WAR and the bizonkers commerce explosion that rebuilding from WORLD WAR made. But this, '80's, '90's, there was nothing remotely close to that..... so what changed?
And for nearly a decade things held in the range.
Even '08' was not able to bring things below 10k....... Total global financial system meltdown, and result was nearly 4x market $ of early 80's..... How?
And post '08', which duration of '08' on chart's now looks more like a sneeze in it's duration, but what after? Another bull-run tapping on 40k. FOURTY THOUSAND! Think on that, 16X early 80's! Did 2021 feel like 16X the commerce from '82'? Did incomes feel 16X? Did all of life seem 16X MORE, bigger, richer????
What changed?
Q: Who is Wall Street???? Who is "The Stock market"????
A: TRADERS!
It's honestly that simple, all boils back to this simple fundamental. Wall Street is TRADERS.
Q: Why are they called TRADERS?
A: Because they TRADE!
The greatest delusion ever pulled off in human history thus far is the notion that $ goes to Wall Street to INVEST, to GROW, to RETURN, to PROFIT......
NO! $ goes to Wall Street to TRADE.
Traders trade. That is there singular purpose in existence, everything else is ONLY to facilitate or in part and parcel to that purpose.
When 401(k) happened, it was a GIANT fire-hose of not just NEW-$ to Trade, it was DUMB-$ to boot! $ that was ignorant of the system, because it was from the average John/Jane Doe who were knowledgeable and informed on everything involved in there sphere of life, in REAL life, groceries, fixing a mower, there job's, raising kid's, LIFE, not trading.
And Middle America was sold a dream. The dream of secure a financial future by trusting traders. They called it the American Economics machine, they called it this that and the other but NEVER once did they call it exactly what it is, TRADING.
And Generations were brainwashed into this blind trust, as traders honed there craft on how to maximize what they do, TRADING, to profit as maximally as possible, on this ignorant-$.
And an entire universe was built in the financial industry. A universe of gaining gargantuan wealth, via ignorant-$. The Wolf of Wall Street was born of this paradigm shift, Bernie "the bastard" Madoff was it's love child given unto the world.
Previous to all this, Wall Street, "Trading" was a boring, slow, slodge of those who as saying said wore ties so it would be more expedient when choose to hang themselves. it was nothing, NOTHING like the verse it became.
Today, we see the exact same expression in syndications. Since pandemic "ignorant-$" went throwing itself around, it is any surprise some Traders went and got into real estate?
Lazy $ get's abused, always has, always will.
This is the REALITY of the world. A market open for ignorant $, will abuse and neglect the vast majority of it. Don't believe me, just visit a Walmart and ask the Senior greeting people at the door how there 401(k) worked out for em.
I know how it worked out for Klaus.
U think interest rates going down from 1980 to now had anything to do with the frothy stock market? Interest rates down, risk assets up. Btw - nothing was fixed after 2008. If it was fixed, stocks would have went much lower. All we did was print more money / driver interest rates even lower
Anyone else getting notified this morning of paused Ashcroft distributions due to refinancing issues?
We have been working on refinancing the asset in order to access the equity and create liquidity to earnestly restart the renovations. The new lender we initially signed up with for the refinance notified us that they would not be able to provide the new loan at the agreed upon terms due to current market volatility.
We continue to pursue alternative refinancing options and anticipate having a new loan closed within the next six months. To remain conservative with liquidity and continue increasing NOI through unit renovations, we are pausing distributions beginning this month. Your preferred return will continue to accrue and will be paid at the next capital event, or when cash flow allows.
While distributions are on pause, we are not collecting its asset management fee and Birchstone Residential is collecting a reduced property management fee.
70/80% of syndications are in trouble in 2024. Especially if they have multiple portfolio in asset structure.
You would lose money 100% for sure. What we don't know whether you lose 50% or lose 100%.
actually you can lose MORE THAN 100% if they took accelerated depreciation, you may end up owing more than your investment. That happened I believe on those houston deals.
Another way they are doing it is by creating next series of fund , like ponzi, the next fund investor is subsidizing the asset of previous fund.
or the most brutal way is basically bankrupt the current LP, and buy again the same asset from the lender with new cap with the new lp
Considering the current real estate environment and the frothy stock market, I’m considering taking a fairly large position in a diversified debt fund (notes) like offerings by PPR Capital (10% dividend, 1 year hold) https://pprcapitalmgmt.com/strategy/
and would like opinions on comparing risk for something like this vs syndications and other alt investments. To me the notes seem far less risky with the pretty large geographically diverse holdings, but am I wrong about that? What is the black swan event to worry about? How can I lose my money?
Consider a preferred stock fund while waiting out the rough times. Ticker symbol PSK. Pays a juicy 6.21% dividend and has a decent expense ratio of .45%. Distributions paid monthly.
I've never invested with Ashcroft, but I think they had a good product/concept for certain investors. Hopefully ones that were still working and not depending on cash flow. I've studied 100s of offerings, probably 300 or more. I think they are probably as good of an operator in the space that they play as any. My guess is most operators are suspending monthly/quarterly payments right now, either because they have to, or it is the prudent thing to do to keep the deal moving forward. Very tough to tell today what the next rate cap might be, what the refinance interest rate will be, where cap rates will end up, and so many other financial decisions. You probably don't want them to pay distributions today and then get caught upside down in a year and either be forced to do a capital call in a potential recession, or not be able to raise needed capital call, pref equity, or refinance because they don't have the right stack. No one predicted the huge jump in interest rates and rate caps, so great operators want to be conservative moving forward.
This I disagree.
If one is reading any simple macro economic book, when CPE is jumping 40% on June 2021 we know the party is over and the Fed would raise the interest rate but may be late because they use laggard indicator (because they're lazy and dumb).
Sorry but the Fed is dumb , and the GP is even dumber, there's this GP school that's asking their student to raise capital using floating debt with bridge financing (in my opinion, it's suicidal). But the LP is the dumbest after all. At very least, the GP would eat your money through acquisition fee and annual fee LOL, but it's the LP that lost everything.
Sorry for you guys, as everyone is too dumb to even read basic economic principle. Sometimes not too invest is best thing to do. In July 2021, I sold some of my properties at highest price. GTFO.
Can you reccomend a book on economics for non grad school types?
Any economic book that does not base its material on “Modern Monetary Theory”. The world is about to experience the pain of reverting to the mean. What goes up must come down. View every Warren Buffett quote
A product of the administration's drive to expand homeownership to underserved communities. Seems pretty heavy-handed to me with this notion that you need to penalize one group to raise up another. I worked at Fannie Mae for a few years (during which happened to be under the previous administration) and the efforts to expand homeownership seemed much more tactful and balanced. Hopefully will revert back to a more targeted and nuanced approach with future administrations.
Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.
There are roughly 4800 FDIC banks in the United States. A billion dollars is a lot of money to regular folks like me and you, but in Corporate America a billion dollars is a drop in the bucket. At the limit of 250k per bank, in order to get FDIC insurance on a billion dollars, the company would need to spread its money across virtually every single bank in the nation, and it becomes physically impossible to do if you have 1.2 billion dollars.
When you have a billion dollars, its not just as easy as 'diversify and buy some real estate'. With no leverage that means buying over 3300 SFR homes at 300k each, or 6600 with a meagre 50% LTV. At that scale we aren't talking about just buying some real estate, we are talking about forming a major corporation to procure and manage that many rentals. And once again, remember that a billion dollars is a small number in the corporate world. What do you do when you need to spend 10 billion, or 100 billion?
You mention that markets like this can be beneficial for real estate investors who have preexisting relationships with people who have cash...but where do those people with cash keep their cash? Answer: In the bank.
Banks follow strict regulations when it comes to what they can and can not do with deposits, and how much reserves they are required to keep. These regulations are put in place to prevent risky behavior. If the federal government puts in place rules that say that "X is safe to do", and then completely and dramatically changes the financial landscape by changing from QE to QT virtually overnight, and dramatically jacking up interest rates sending the entire global financial industry into a tailspin is that really the banks problem, or is it the government themselves the problem?
And lastly lets not forget that this bank is failing because it invested its money in the absolute safest investments possible. Treasuries. So if playing it safe leads to a bankruptcy then what does that tell you about the government changing the rules mid game?
A functioning economy requires a safe place to store your money. Until crypto takes over and people are able to self custody their wealth, banks are the only option that we have.
the countless regulations create risk. The very problem is that government steps in and makes everyone feel safe (to the point you are making with your statement). Do you rely on government regulations to buy a car? no. you would most likely do your own research. When you buy a real estate property or rental, do you rely on federally regulated guarantee, no. If the government would remove themselves from banking - the free market will create avenues to rank banks with endless detail on which banks are being run into the ground by a management team that does not know how to manage duration risk. We didn't let banks fail in 2008 - delaying the inevitable. now the problem is much bigger and the Federal Reserve has zero "dry powder" to fix the problem. buckle up. it's going to get bad.
Id feel differently if they did something risky but to me they did not.
Are you worried if they don't get bailed out that Institutions/VCs/etc will only bank with large banks (JP Morgan/BOA/etc) who have 500B+ in asset? I could imagine in return anyone outside those few banks, especially small local banks, will start loosing footing which could lead to their slow death and a more monopolistic banking scenario.
The following are my thoughts on the collapse of Silicon Valley Bank and any thoughts of upcoming bailouts. As an advocate for responsible financial practices, I believe that the government should not bail out banks that collapse due to their own risky investments. Such bailouts not only create moral hazard but also set a dangerous precedent that banks can engage in reckless behavior with little or no consequences.
Depositors should not be bailed out for savings over the $250,000 FDIC limit because they should share the risk of banking with a particular institution. When depositors place all their cash in one bank, they are essentially placing all their eggs in one basket, which can be risky. Therefore, it is important for depositors to diversify their savings across multiple institutions to mitigate risk. Additionally, depositors should consider investing their money in assets like real estate, which can provide long-term returns and mitigate the risks that come with being too liquid. Ultimately, depositors should take responsibility for their financial decisions and not rely on the government to bail them out in the event of a bank failure.
When the government bails out a bank, it sends a message that the bank's risky investments were acceptable and that taxpayers should bear the cost of the bank's mistakes. This creates a moral hazard, where banks are encouraged to engage in risky behavior with the knowledge that the government will bail them out if things go wrong. This, in turn, puts taxpayers at risk and undermines the integrity of the financial system.
Moreover, when the government bails out a bank, it effectively rewards poor financial management and risk-taking. This sends the message that there are no consequences for engaging in such behavior, which can ultimately lead to a culture of complacency and a lack of accountability in the banking sector.
In addition to the moral hazard, bailing out banks can also be costly for taxpayers. The funds used to bail out a failing bank are typically drawn from the public coffers, meaning that taxpayers foot the bill.
As a real estate investor, I am aware that financial distress in the market can create great buying opportunities. An economic downturn can create great buying opportunities in commercial real estate for savvy investors. When the market is down, sellers are more flexible on price and terms, and may be more willing to negotiate seller financing or other creative financing options. Additionally, there is likely to be less competition from other buyers as money may be less accessible. This can be particularly beneficial for real estate investors who have preexisting relationships with investors who have cash, creativity, and resourcefulness, allowing them to take advantage of market opportunities that others may miss. Ultimately, an economic downturn can be a great time for investors to acquire high-quality assets at a discount and position themselves for long-term success in the real estate market. With that said, as a real estate investor I would be extra careful with what banking institution I do business with and put my reserve money in moving forward.
In conclusion, I strongly believe that banks and depositors should not be bailed out over the FDIC amount. Bailing out banks creates moral hazard, sets a dangerous precedent, and can be costly for taxpayers. As a society, we should encourage responsible financial practices and hold banks accountable for their actions, rather than rewarding them for their mistakes.
