Raise The Alarm or Walk Away Quietly?
I work at a small merchant developer/syndicator in a major real estate metro area (LA/NY/TX). They appeared to be active and growing, but the firm has shit culture, poor pay, and massive turnover. I tried to be a strong team player, contribute in whatever areas they needed help in--working 12 hour days and some weekends to take up the slack from all the turnover and not replacing people. I have finally decided that I will take my talents and efforts somewhere else and leave.
While I have been at the firm I have seen a number of dubious business practices. They prey on low information investors and dumb money. Proformas can be extremely aggressive/ grossly misrepresented. If they aren't being legally unethical and overly greedy with excessive fees and reimbursements, Operating Agreements and distribution % for LPs are merely guidelines to them.
I don't know a single GP partner they haven't stolen from. Typically mickey mouse crap--10, 20, 30k at a time. Fake Invoices, fake budgets/reimbursements. They will fight with vendors for discounts/lower invoices, get the discount, but then send the original invoice to the the partners to fund and keep the entire discount for themselves and have the other partners essentially fund their share for them.
It is all shielded through various LLCs, but another issue that annoys me is there are a number of people getting "payouts" and "consulting" payments that would absolutely have legal ramifications if they were to come to light--these are payments to people that are supposed to be on the other side of the table.
I don't care about the consulting payments as much, but the fake invoices and treating LP/GPs OAs like toilet paper really annoys me because these are people that are supposed to be in the same foxhole as you. What would you do, walk away quietly or let people know what is going on as you walk out the door?
Honestly, get out before you somehow become the scapegoat. Don't try and turn it into a John Grisham novel, just leave.
I would probably contact a lawyer too, before you leave, to make sure you establish that you're in the clear. They can give you the right advice.
This is good advice. Move on and CYOA before you get out. Be up front and transparent if you get questioned about this in the future without disclosing too much. Something to the tune of, "My understanding of the business increased as my role and responsibilities grew and I become uncomfortable with some of the business practices that I felt were unethical and thus decided to separate from the Company."
This is on point:
1. Leave immediately (I know you need to pay your living expenses but staying is only going to damage you), and
2. Speak to a lawyer and know exactly what legal risks you're running and how to protect yourself.
Agree. Get a lawyer and quietly go
I’m not a lawyer but yeah run
Tides Equities that you bro?
What most people here thinking lol
Just leave
Leave. My first job was like this.
Do NOT shed any light on the situation unless you want them to fuck your entire career. Just leave and in 4-6 years after you have an established career elsewhere you can blow them out of the water.
I mean it, dude. These people will FUCK your career up if you get them in legal trouble and they find out it was you.
Unfortunately seems to be the best way, but with so much turnover who knows. Just seems in general people opt for the next opportunity and move on, very rare to see xyz firm in the news from disgruntled employees and there are more than a few firms that might deserve it.
Not surprised at all by this post. I grew up in the industry in NYC and witnessed all this shit first hand. I can’t speak for other markets but in NYC CRE has some dog shit people who are willing to line their pockets at anyone’s expense. If I were you I’d just leave. There’s so many operators like this in major cities that raising the alarm won’t do much and will likely backfire. These types of firms don’t go on forever and eventually there’s a reckoning. Make sure you’re not around when that happens.
Any examples you can share from work without the company's name? Know some smaller firms in TRD now and seems HFZ qualifies?
A lot of outer borough firms that bought and turned rent stabilized apartments. Generally speaking, anyone on the Worst Landlord list is likely to be the kind of person you wouldn't want to lend money to without collateral. My guess (and slight experience with) tells me that lots of middling condo developers cut corners; they're not doing enough work to bring in tons of cash flow but have huge aspirations to be the next Extell and get caught out.
In this industry, where there is smoke, there is fire. So if you hear whispers about this firm or that, there is probably a fair bit of truth behind it for it to get to that point.
Ozy touched on some of the shady shit on the sponsor side but an example on the services side is with property managers.
I’ve seen a lot of property managers taking money on the side or just committing outright fraud. In some cases the property manager will pass all their construction work to a specific contractor and in return will take a percent of the contract value under the table. All the parties involved are incentivized to jack up the value of that contract by a good bit which really fucks over whoever owns the building.
My father had a property manager come to him about 12 years ago who managed a building that needed significant deferred maintenance. This guy wanted to award us the contract but take 50% of the value. He basically told us that we didn’t have to actually do any of the construction work and instead he would lie to the landlord that everything was going great and on schedule. Value of the contract was 6 MM so it was a good bit of money to walk away with but my father was definitely not risking prison and his reputation.
To echo others, the first thing to do is talk to a labor attorney, cover your ass, and then leave. Also, document everything they ask you to do.
Then I'd look into whether you can get paid for being a whistleblower.
Whistleblowing would not pay enough unless you are advanced in your career. As a VP or below, your reputation is all you have.
If OP whistleblows for a small sum of money, there is a high probability of "slightly legal" retaliation in OP's future that could cost them more than they earn whistleblowing.
OP--just secure yourself and let this be a QUIET lesson and a memory.
There isn't such a thing as "slightly legal" retaliation. Retaliation is illegal. And sometimes doing the right thing is worth it for the sake of it.
You could just as easily argue that being a whistleblower in this scenario will help OP's career. This may shock you, but most investors and most businesses don't like it when they're being defrauded. I feel like lots of people make a career out of being honest operators.
While the first hunch would be to leave quietly and care about your own interests since you are young and don’t need conflict, the older me, finds that contracts and fiduciary duties are only as good if you are willing to enforce. I have enforced and it’s not cheap.
What the lawyers might say:
You’re not a party to the entity.
You’d be a witness.
The LPs, they are party to.
Jiminy Cricket (your conscience) might say:
If you have to satisfy your conscience, you could write a truly anonymous letter that is carefully dictated and delivered, to one of the actionable LP’s as a tip off. It would help this intellectually curious LP ask the right questions and investigate, which is very very likely their right. They would decide whether the evidence and damages are enough to take legal action. Their partnership/subscription documents could allow wide latitude in management decisions, or the actions are in violation to an extreme.
I don’t think anyone will go after you as you will be anonymous. First of all, this is a civil law matter (no lie detectors, CSI forensics), and the potential defendant has alleged unclean hands. Nobody will know definitively that you are involved. And if the LP goes legal, who did the tip-off would be the least of their worries. Them counter suing the alleged whistleblower will only make them look more guilty.
If it goes into litigation, you can follow the docket as it should be publicly available. You may be a witness. Consider your communications discoverable.
If GP’s do shady stuff, chances are people will find out eventually. Short term thinking can lead to jail, bankruptcy, suicide, litigation, etc. This stuff happens a lot, just not public. Stay on the right side, because there are people who will fight and enforce.
Thank you for all the responses and suggestions. I have taken certain steps to document and protect myself, but I most likely will be leaving quietly (but very suddenly) once I have found a safe landing spot for myself.
Sunt voluptatum qui nihil sit facilis ut. Dolor fugit maxime qui voluptatem veritatis. Tenetur facere sed in voluptas ut molestiae quo.
Cumque aliquam doloremque voluptatem sint consequatur fuga aliquam est. Exercitationem ad mollitia in cupiditate hic consequatur. Beatae repellat odio consectetur iste nulla.
Adipisci quasi rerum nesciunt voluptates corrupti et. Inventore ipsam voluptatem et. Suscipit doloribus voluptatem illo voluptatem pariatur perspiciatis sed. Enim debitis voluptatibus dolorum ratione dolorem maxime est. Quos deserunt sint commodi dolore error. Iusto aut animi sed ipsum sit.
Fuga omnis et aut ut est accusantium. Temporibus voluptatem dolorem sit sequi itaque voluptatem consectetur. Consequatur quis sit sit rem sunt. Est sint deserunt nihil.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Est dolores magni aut quia. Qui aliquid sit enim quo. Natus officiis cum perspiciatis dolores rerum velit occaecati.