Multifamily Syndicators are Scum!!!
Literally just spoke to my cousin who is an accredited investor and he sent me screen shots of someone who reached out to him on social media. My cousin is an Anathesiologist but i've helped him understand CRE a bit and he's invested in like a dozen deals as a LP.
Going back to the story the random guy from Brightcove Investments reaches out to him on social media, here is the convo:
Random Guy: Are you accredited?
Cousins: Yes
Random Guy: oh well I got a deal for you. It's a multifamily class C deal in Kentucky. 16% irr. You in?
Cousin: I just met you and you told me nothing about the deal
Random guy: oh of course. What do you want to know?
Cousin: how much is sponsor putting in as equity? What are the fees? Etc.
Random Guy: let's get on a call first.
Cousin: you can't answer basic question about fees? I want to know this before I get on the phone
Random Guy: Ok fine I'll tell you. Acq fee is 4%. Pref is 6% and we get 30%.
Literally 4 FREAKEN PERCENT as their Acq fee. Best part is this guy refused to share how much sponsor is putting down. I went to their website and their OM mentions no loan terms, fees or anything. Seems like it's run by teenagers who have no money.
Company is Brightcove Investments (https://brightcoveinvestments.com/). I feel like there's just so many shops like this that popped up and manipulated innocent investors.
You mean you can't 10x your investment GUARANTEED?!
10x guaranteed!
I particularly enjoy the intro video on their website of Miami, NYC, Honolulu, etc meanwhile their only offering is a Class C 1970s vintage apartment in Lexington, KY.
I could swear these syndicators are a parody of other MF syndicators. Its like a SNL skit. You can't make this stuff up.
Someone’s gotta eat bro.
Eat what? at a 4% acq fee, they can have steak at Mortons for lunch and dinner
Dude. 4% on some shit strip mall deal is not a whole loy. Its like saying your remax broker is getting 6% split 3/3. These are small deals that is different than the institutional stuff we deal with. Not advocating for shady behavior, I’m just saying it’s a different ball game.
Yes, they're scam artists. But the only people who get scammed, generally, are greedy people who are asking for it. Someone is responding to that text and investing with that person, and we shouldn't feel anything but contempt for them either. A fool and his money are easily parted, and the only problem I have with it is that they're more likely to suck up valuable public resources as a result
I know several syndicators that are actually decent, but seems like multifamily attracts the worst. Their website makes no sense.
How exactly team of experts award winning? Like did they win an Oscar for being able to bullsh*t so well.
Then it says Invest with Purpose and unlock financial freedom. Do any of these firms try to intentionally act like douches?
Probably because multifamily is marginally accessible to the uninformed. The whole basis for syndicating is "lets take in a lot of naive idiots who don't understand the business model, fleece them out of a ton of fees, and then move on." If there was a better business plan, the sponsor wouldn't need to syndicate.
If you go out and say "we're going to buy and then triple net lease an industrial building to UPS," then Mr Smith in Nevada might think "hm, sounds complicated and risky, I'll stay away." If the plan is "we're going to buy a MF building, put in new refrigerators and bathroom fixtures, and bump the rent by 20%," then Mr Smith might be more interested, because everyone understands the concept behind buying a place to live, improving it, and then having it increase in value.
They won the award for best dressed at Rod Kliefs 3 day seminar in Phoenix.
"Invest with Purpose" is a Christian dogwhistle. Helps scam the elderly.
Hmm, such a professional company. Their location is listed as "Address"
I've heard of that place...
I’ve heard a similar story from a coworker that the syndicator “Lonestar Capital”. I briefly went on their website and all properties have a COC of 5%. Some young guy supposedly “daddy’s money” haven’t heard of them beyond this. Anyone know them or if they are legit or in this scam bracket?
Unfortunately many syndicators are scum but they will burn out in this environment, as they always do.
I just went down the rabbit hole on them. They are going to lose their investors so much money. Not a single person at the firm has any RE experience, and all of the acquisitions are in the past year, with no exists. And all of them try to live the influencer lifestyle and pay for PR.
Yes I forgot to mention my coworker said “grant cardone in the making” with him selling books/ courses or something. I’m going to look more into them tonight and write back.
I used to underwrite a few of their deals when I was on the debt side. The main guy got started fundraising through family friends (his mom was a big resi broker in CA). They rode the big TX appreciation story the last few years and made a killing on a few deals. They did take on a lot of variable rate debt however between 2020-2022. Lets see how they do in the next few years. Easy to hate from the outside.
Lonestar Funds is a really old well known PE group - seems like the group you're referring to might be hoping people confuse the two
That’s a different Lone Star. The Loan Star PE firm from the 90s is too notch. The Lone Star multifamily syndication group is decent, at least from what I’ve heard from other syndicators and investors in the space, though I personally haven’t invested with them. Rob Beardsley (the head of the company) wrote a short book on underwriting that is solid IMO.
Mordichai Weiss, part of Weiss Property Group in Monsey, NY - watch out for this scumbag. A fraudster who is selling all his assets cause he's about to go to jail - brokers beware of this guy.
Putting this piece of shit on blast.
Isn't this the guy who bought the student deal out in ABQ? If so, that one is a train wreck.
Can't say for certain, but if it is then no surprise. Him and all his Monsey pals have (had) quite the operation going. Can't wait to see them get fucked.
We have dealt with this idiot too, unfortunately far longer than we should have. I think the hammer will be coming down shortly and a few will be behind bars.
Are they involved with Greenrock? I want to know who this guy is and see a list of his deals.
Yes, heavily involved with Greenrock Funding - they are complicit 100%
I cant wait for all these scumbags to get what's coming.
There's just so many of them now is what's the scary part, that it makes the "good guys" harder to pick out.
Yep. Lots of suckers out there.
Curious an 18% IRR but only a 1.6x EM..... Seems sus af.
Lol you find that sus, look at the pictures of the Lexington KY apt. The first is what theyre claiming and second is the actual pic. Every time I look at their company I laugh even more. They make Tides/Rise look like a Fortune 500 company lol.
I know what they are actually marketing vs reality. My point was an 18% IRR over that same time period would generate more than a 1.6x equity multiple.
Now, I was never the world's best analyst nor did I have a PHD from MIT in Finance & Math, although I do have a public high school degree, buttttt....
5 year hold, 18% IRR, invested capital $100,000 would grow to:
Year 1: $118,000
Year 2: $139,240
Year 3: 164,303
Year 4: $193,888
Year 5: $228,776 - supposed exit
Equity Multiple = 2.29
Suspicions check out.
Actually, I guess if it were a 3 year hold then yes, but they said it was a 4-5 year hold in the investment memo.
That ONLY works in a 5 year + hold with 100% equity retention rights. The reality of how these deals work is that the equity is only locked up for like 18 - 24 months on average. Plus these IRRs projections are usually net of management fees. I have seen real returns profiles from people who invest in these deals. Even in the boom times it was projected 18% IRR deals that in reality were 14.5% deals, these then had 2 - 2.5% of fee drag on them. The equity was cycled back in 24 months and because these were unsophisciated investors they were signing contracts that cut their retained ownership as low as 25% after return of capital. The returns look more like this on a $100,000 investment.
$112,000
$122,200
$3,050
$3,050
$33,050 - 30% return on sale.
this is a bit over a 1.7x equity multiple. This might be an extreme scenario but I saw multiple things similar to this and I am not even including the fees on exit here. Also that 4-5 year hold is on the commitment not the asset, it takes them 12 months to deploy that time was just lost.
3-4 year hold.
My linkedin feed is full of multifamily syndicators that just mercilessly shill real estate. "No, no, forget stocks and bonds put EVERYTHING you have into real estate right now. Trust me, prices only go up!" The only upside to a potential recession is seeing these clowns get wiped out.
I wish the SEC would focus on cracking down on these groups
I always loved how syndicators would always label themselves as "PE firms" implying they had massive funds.
The worst of the worst are the syndicators who did value-add with rent -stabilized product in NYC before the laws changed. Always made aggressive assumptions and got caught with their dicks in their hands when the political climate changed. Fuck 'em.
Their dicks are too small to be held in their hands.
Were there a lot of them? I think the kinds of syndicators we see getting into trouble now, the Tides and Nityas of the world which were always clearly vehicles for mulcting "investors", didn't really exist in the NYC real estate market pre-2019. To be sure, there were a lot of syndicators, like in the Brooklyn Jewish community, where a lot of equity was being raised within the neighborhood, but I don't really view that as the same kind of scam. Passing the hat to friends and family is a little different than advertising on TikTok and Instagram.
But I 100% understand the kind of operator you're referring to. The whole reason we got HSTPA is because you had these unscrupulous landlords buying RS product at absolutely insane valuations and then resorting to all sorts of unethical or illegal methods to get tenants out so they could hit their numbers and get out quick. A lot of the political backlash was in response to this kind of immoral shit, and quite frankly, it was justified. The problem is that the law doesn't actually do anything to punish bad actors. The kinds of operators who were willing to break the law or treat their tenants/buildings like garbage aren't going to suddenly stop doing that because the laws are more strict.
Too many, I don't even know where to get started:
Magnum Real Estate Group, Castellan Partners, ....
There are thousands of these firms out there. I actually went to one of the conferences put on by Rod Khleif. These guys instruct their students to create firms that use the words "capital" "equity" "private equity" etc. The weekend event that I went to had ~1,500 people at it. If only 5% of the people took any kind of action that would be 75 people just from that weekend. Let's say that of those 75 people .6 firms are created per individual. That would be 45 new "private equity funds" generated from just a single weekend event.
If part of your business was debt work these events were a great place to find eager beavers.
Hey man, you have to stop this. In no way was HSTPA justified. I happen to agree it was a 4th amendment taking, and I agree because it was. The US constitution limits what the government can do. And while there is eminent domain, there has been no compensation or "just compensation".
Lol I just saw this syndicator with the word Private Equity put in their logo
https://bvcapitaltx.com/
A bunch of tools
My guy at CBREI. Are you in acquisitions or asset management? Can you talk about 2023 dispositions? Your shop is selling deals below your acquisition price from 5 to 10 years ago. No one is save in this environment. Are you saying it's only syndicators?
One thing I hate about these types of groups is how horrible of operators they are and literally see nothing but potential cash flow (which is of course way aggressively projected). Multifamily is an asset class, but in many ways there’s a service aspect to the business in providing value to your clientele that when executed properly benefits both parties. We often think about the investors that get duped by these guys, but how about the residents trapped in an over leveraged lock boxed workforce deal with non existent management, amenities (that they pay for) down, outstanding work orders, etc.? Most of these people in their asset profile are low-to-middle income looking for something somewhat affordable and get completely screwed. The investors have a choice to participate, but the residents are often there by necessity and these landlords are horrible look for the industry
I am sure they love you jacking up rents 3-8 percent YoY so you, or your boss can be a 1%er. Service my ass. Let’s get that paper!
Of course residents don’t like increases, but if you’re taking a product and adding actual value with capital and attentive management you deserve to get paid for it. The “passive cash flow king” idiots do neither and as many of these assets go into distress over the next year, actually make things worse.
A 3% increase in your rent hardly qualifies as "jacked up".
This is a good point, and speaks to a general shitty attitude on Wall Street or in Silicon Valley as well - no one gives a shit about operating assets or companies in a responsible way, they care about getting the highest valuation possible and then selling, and leaving someone else to hold the bag. Valuations are all being done on absolute bullshit numbers instead of actual cash flow, and it is having real impacts, socially as well as financially.
I'm just sitting here on my cash pile waiting for these idiots to collapse. Then I can go in an buy up all of the workforce housing in towns where my companies are located. Lock in their capital improvements and boost spending on services so that my employees will be happy. This way I don't need to keep paying them more to line the pockets of moron syndicators who are just fee whores that do nothing for their investors.
Hey its me your cuz, about that cash pile...
Ah yes you want my cash. The answer is no. When someone comes to me a says look at this great deal I can get a 28% IRR I tell them to fuck off. I have learned over the years that people who promise things like that are too fucking greedy for their own good.
Hey now, we're not all bad. But sadly I see your point, this industry has been taken over by "get rich quick", "mailbox money", inexperienced salesmen. I once thought crowdfunding and easier access to private funds for individuals was a good thing but I no longer believe that. There needs to be a barrier to entry at least for the sponsors and the SEC should be looking into 80% of the LinkedIn sponsors out there today. I don't feel bad for the institutional equity being lost but unsophisticated investors need to be better protected from the Rise48s of the world.
This! All these 506c turds milking innocent people. Our firm looked at doing a 506c but now there is so much scum and like a 100 new multifamily startups a week that we'd be a needle in the haystack. We'd be trying to convince investors we're not snake oil salesmen. Thinking to go the Reg A route. I don't care if the SEC makes it tough for us but they need to protect everyday investors. Companies like brightcove with no background, false advertising, excessive fees are going to end up being a ponzi scheme.
The sumrock guys and similar companies obviously had no idea what they were doing and charged absurd fees. I genuinely feel bad for the people that got dooped by them.
Let’s not forget the so called educated firms that fueled the fire and did the exact same thing with other peoples money.
Blackstone
Cim
Arbor
Ready cap
And the list can go on with the thousand other companies that did the exact same thing. Probably the same firms that most people in this message board work at.
The CLOs and CMBS and banks are about to lose hundreds of billions. They all had ridiculous fees too. The syndicators were all fueled by these other entities.
Some funds will be able to fund their losses with capital calls but they still made the same bad investments the bad syndicators did.
If you want some evidence of firms trying to get fees by doing bad deals look at all of the large developers and institutional firms doing large development deals right now.
All of those returns are going to be bad but the development fees are going to be enormous!
Herbie - you are spot on! syndicators, large LPs or anyone who transacted in 2020, 2021 and 2022 is completely underwater (why do you think brokers as if you are in a 1031 exchange?!! because they are nice or because they know they can milk you for the last $$$$). I know groups that stayed on the side lines and got into into the action late cycle. So many groups bought with a floater. I would love go get a PHOENIX INSTITUTIONAL BROKER DRUNK and hear the stories! To buy in Phoenix in 2021 or 2022, you had to use at least 3 years of 6-7% rent growth. Brokers peddling bull crap and in order to dance, you had to be aggressive or you might lose your job as the acquisitions guy or girl. For those throwing SHIT, go back and look at your firm's underwriting in 2021 or early 2022. The groups everyone is shitting on had HNW investors who had money to burn! Well, the smart guys played the game and made money for themselves. I am sure the same folks throwing shit think every broker who is nice to them is there best friend. Any job or census data story means you have to buy for a lower cap rate or get more aggressive on assumptions. You all need to understand the business you are in if you want to make money!
The Phoenix sht product sales is great for those period. I did a basic area search on axio and filtered for everything that traded in 2020-2022. It's the classic players that you expect but the average price per unit, vintage, and psf price is amazeballs.
Top players, minus private stuff, 1. Tides, 2. Rise, 3. Western Wealth, TruAmerica, Birdge, then you have a bunch of smaller one offs, like Knightvest did a few, ZMR did a few, Greystar, S2.
The funniest is the price per unit/psf these guys were paying for 1970-80s shit.
Below break out sorted by highest PSF pricing.
"Any job or census data story means you have to buy for a lower cap rate or get more aggressive on assumptions. You all need to understand the business you are in if you want to make money!"
Spot on. I know that new syndicators have made a sh*t ton of mistakes late cycle (mostly capital stack and crappy locations/physical assets), but at least they know they are just trying to get fees. In my experience, whats almost worse is those that are "seasoned" and been around multiple cycles but don't understand the "business" as you say, They think they made actual good investment decisions when buying the last few years. They still think their is alpha in markets like Phoenix and Dallas, and don't realize they are allocator/levered beta markets now. I guess census or job data helps sell a story, but some actually believe they are making a good buy because its 5 miles from new TSMC facility or whatever. As said, it's already baked into the price, and likely paying more for that value upfront than what it will end up being worth.
Also, all phx brokers I know are great guys. But as one told me mid 2022, "have to make hay while the sun shines in our business"
Brokers are brokers. They are my life blood to buy deals but I don’t take their advice on how to underwrite. Nor have I bought a thing in years. Some will be thoughtful about the market and some are not. The best broker group I know is the institutional CBRE team in Phoenix. I have never bought a single deal from them but they are thoughtful about the market.
It is their job to get the highest price possible for their clients. They don’t take risks and they make a lot of money. I don’t fault them for doing their jobs.
But to your point, they have got some great stories.
100% agree they are great brokers. SC, AG, & MP are straight snippers! To be frank, majority of the CBRE institutional IS folks I have met are all great across the South East, South West, Atlantic and West Coast.
For a minute, I was unable to get within 10 percent of guidance at close, and that's when a close broker guy pulled me aside.
This industry is not for the faint of heart! And I still think the best groups have mastered OPM and OPTIMISM aka insane rent growth or cap rate compression! I liked the STRIPMALL guys post today that the industry made 10 years of returns the last 3-4 years. SPOT ON!
YOU HAD TO BE WASTED, NOT GIVE A F**K OR BE OUTRIGHT STUPID TO WIN DEALS! THE DUMMER, THE BETTER.
What did he pull you aside to say? It's just 10% don't miss out on this when there's so much upside?
Plenty of smart boy funds who bought terrible deals just so they could clip their asset management fees. Plenty of smart boy funds pausing distributions and gating investors trying to exit. Obviously lots of scammers in the private syndication space and i know one personally who just got charged running a ponzi.
It's tough 95% of players out there so let's try to keep that in mind. Going to be a lot of painful conversations for lots of people in this industry.
Such a professional company!
I saw a pretty egregious one on a crowdfunding website.
Social media has got to be the most professional way to solicit an LP for a large investment. Anyone accepting such offers does so at their own risk.
Heard down the grapevine that Nitya may be taking on water shortly? Going to break major covenants at year-end?
Literally no surprise
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