Quote from @Jim Peret:
I've got a few initial thoughts.
1.Is our investment so bad that's it's only worth 38% of what we paid for it? And they plan it going from .38 to 1.5 -2.0 if it's kept? I'd think there'd be a line of experienced syndicators at 38%. Or maybe some of Brandon's Hawaiian buds.
2.How many people are voting or how many votes are there? Does your vote count for more or less depending on the amount you invested?
3.What happens if they have a capital call and I don't give additional capital?
4.If the future billionaire doesn't want to fund his mistakes maybe they could sell one property to fund the other two?
5. How can you trust someone that was so wrong on his due diligence?
I'm just thinking out loud here and maybe I shouldn't put it all in writing but I don't have any SDP investors to talk to face to face. I have more but I wrote enough.
1. Based on the financials I believe it’s that bad or worse. I also think there’s no chance that they can come anywhere close to their new projections.
2. I believe that votes count for nothing. They don’t really want votes, they wrote this e-mail to show how “good” they are and to be able to shift blame to the LPs. Statements like “we’ve unanimously agreed to change the return structure.” They know this doesn’t matter at all since they won’t be making it above the pref return. If they were truly “good” they’d reduce their entire fee structure which is among the highest in the industry. We’re losing money and they’re continuing to get paid.
3. It doesn’t look like they’re considering a capital call. They know that’s a death blow to their company which is why they’ll instead dilute us by tricking unsuspecting investors into a new pref equity raise with unrealistic returns. I fully believe that in the end the new capital will save the deal for ODC, they’ll be able to return a small single digit EM to the pref equity holders after 10 years and the original LPs will still lose a portion of our investment. But that gives them ten years to continue raising money for other deals, charging fees and getting rich. This isn’t about saving your investment, it’s about delaying the inevitable so that they can keep the cash machine running for them.
4. Agreed but if they sell a property, that’s less fees they’ll collect every year and you’d want to sell the worst property which would be a significant hit. Two properties are holding the third one up to make the financials look not as bad as they are.
5. There are so many things in this letter that are deceptive. You cannot trust anything they say. That’s why I’m voting sell (not that it matters). I’m considering the investment a complete loss.
