Rise48 - video response to Real Deal article
what do you think about the Real Deal article on Rise48, Tides, etc and Zach Haptonstall’s (CEO/Founder) response.
He just posted a video response today:
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I want those 16min back
Who advised them to respond? I would have said nothing
Lets say in the future they need to do a capital call and one of their Investors ever litigated them about being upset about that, they can use that Video in court for sure.
These guys have multiple loans on watchlists right now and definitely are handing some keys back at some point as they were so aggressive.
The best part of that video was him acting like them pushing hard to get to a 1.0 DSCR was some sort of accomplishment.
All these syndicators this cycle are straight Trash and the fall is going to be fun to watch
Where can I find these watchlists?
Trepp or Morningstar
Probably pushing a 1.00 IO DSCR as well.
The downfall of taking on literally only bridge debt & having little-to-no prior operating experience (sorry Z, your 2 years operating as “ZH Multifamily” doesn’t cut it) is that he likely has a huge blind spot as-to how stabilized, conventional deals get sized.
I also love the continued focus on barely beating proforma rents when cap rates have expanded 200+ basis points in PHX.
P.S - to the lovely Grace Haptonstall who is likely lurking here, many of the folks on this anonymous forum have multitudes more experience than you & have nothing to lose simply stating the facts. Xoxo
I feel like a goof ball for even asking this, but you think they know a lot of their project details are public because of their debt? They have to, right? But this response seems so clueless, it further confuses me.
For example, Rise48 purchased Marble Creek (1985 vintage) in Phoenix, AZ for $65M in 2021 on a TTM of $1.87M. That's a 2.88% cap rate, unadjusted. If you adjust for property tax and insurance, it would be even lower. Their internal business plan forecasted GPR @ $1,755 / unit. The ratings agency's forecasted GPR @ $1,270 / unit. They're currently asking $1,275 ($1,217 effective) for one bedrooms and $1,500 ($1,442 effective) for two bedrooms. That's a weighted average effective rent (assuming all units at marked to market today, which some surely will be lagging) of $1,380 or a 21% miss on revenue assumptions. Their forecasted stabilized yield was 5.78% and I'm getting closer to actuals of 3.58%. These is the reality of the fundamentals.
But how about the capital markets? Even with a rate cap and a fully renovated, fully leased asset, they're probably landing close to a 0.70 DSCR currently. How are they making up this shortfall to keep payments current? If you forecast a refinance today with a GSE based on a required 1.25 DSCR, you're looking at $28M in proceeds. Their capital stack is $50.8M of debt and $18.7M of equity. So you'd need to inject $22.8M, or 121% of the initial equity, to even save the deal. But why would you do that if you're stabilized closer to a 3.50% yield? You'd have to assume market cap rates are, or soon will be, below that mark to even have any equity left in this deal. The reality is the equity is gone and the debt is probably worth $0.75 - $0.90 depending on the condition of the property.
This is ALL public information. It is very easy to call b/s on any refuting the reality of what is going on. Special servicers will have even more details that are less public, but are accessible. Why even bother trying to refute this with a video?
Thanks for sharing this! Mind sharing where you find the public debt info?
Not sure if it's public per say but anyone invested in CMBS or CLO tranches that securitize the debt gets access to monthly data which reports financials, DSCRs, etc. 3rd party providers like Trepp and Costar supply the info as well.
No this Zach guy seems like a total financial pyschopath who lies just to lie
You review any of their deals done pre June of 2022 and the ingoing cap rates were anemic and were unprepared for debt to rise. They paid like double what groups had paid two years prior.
These guys are so stupid that the only capital they can raise from is individual investors who have no idea the right questions to ask and fall for their garbage
Rise48 going to turn into Fall24 pretty quickly
Thanks!
Here is what’s even crazier
in 2017 Western Wealth bought the deal for $16.6M
in 2019 they recapped it with Alliance Berstein as part of a portfolio recap at $28.3M
in 2021 they sold it to Rise48 for $62.3M
That is straight insanity
Rise48 thought it would be worth $87.85M in 2024
So the thesis was a property that was worth $16.7M in 2017 would go up by 5.25x in 7 years
Keep in mind this property is not in a good area of Phoenix either
Never go full…insert tropic thunder line
I had a parallel thought some time ago when ZMR purchased a property from Tides in Phoenix a few years ago. It's interesting how incestuous the part of the market became over the last several years. Tides purchased the property for $24.5M in in 2019, ZMR purchased it for $40.6M in 2021, and I think they were targeting an exit of $65M+ in 2024.
Based on the above, it is hard to believe that they were able to get to a loan of $50.8MM. The property would need astronomical NOI growth for a Cash-Neutral refinance:
Similar story with cap rate sensitivity. Astronomical rent growth required to be breakeven on project cost:
It is not a question of "if" they will lose money but of "how much".
Pretend time is over.
They thought they could take NOI from $2M to $4M in three years after buying the deal from a value add group who bought it from a value add group. It feels almost criminal to have gotten this loan.
If they were able to double NOI and interest rates stayed low, then the lender probably felt fine but zero chance either happens now
Not to be contrarian but after reading the above comments, I kind of hope they make it. A good ol billy Madison story.
When are these debt funds and CLOs going to start doing something about the underwater debt?
When the debt payments stop or maturities start.
The pretend and extend is only going to happen so far until they realize these assets aren't worth the paper.
Many of these CLO shops are already getting bid on these guys notes at 90-95 cents from the loan to own groups, but they are still holding at par. I suspect it'll be like that til the wave of maturities hit, and the notes start trading in the 70/80s. Lenders always hold out until it's too late, they never look like the hero for taking a slight hair cut to be safe.
What data service can I use to track these clo deals besides trepp? Equity group at my firm doesnt have it…
The linkedin support comments after his video are super funny.
They are literally the dumbest comments ever.
It blows me away how bad things are going to get this cycle because of the massive groupthink
Literally the real deal was just quoting the servicer comments
I loved watching him pat himself on the back that his DSCR is 0.88 and not 0.77! They're burning money like its going out of style, but want to reassure investors there will be no capital calls? That does not jive. How does getting to a 1.25 DSCR on your existing debt help you refi into an environment where rates are 2x?
This video will not age well.
I bet his investors have no idea how stupid that looks in reality
Oh Zach said we will get to a 1.0 DSCR…that’s great right
By the way, these are short-term, variable rate, interest-only loans. The bond holders only care about making sure they are covered in their interest payments and secure in t heir principal. This has nothing to do with an actual DSCR as the GSEs would evaluate it, i.e. that little thing called amortization. If you're at a 0.70 DSCR currently and working your way to 1.00 DSCR, that has ZERO to do with a DSCR at i) a current interest rate and ii) amortizing. Even if you get interest only from the GSEs, they're still going to size it to an amortizing loan to make sure they are covered.
Maybe some of their investors are clueless enough to feel comfortable from this rebuttal, but anyone who has a clue of how these financing mechanisms work will be even more certain how much trouble they're in after listening to these stats.
So for the deal Marble Creek referenced above the As-Is NOI was $2M and they projected to get it to $4M.
They took on $50.74M in debt at a 5.9% interest rate cap so their yearly Debt is $2.993M
Right now for 1st quarter they showed $726K in NOI. Lets give them credit this is true so times 4 its $2.9M in NOI for 2023 so they are barely going to cover their Debt Service.
And that's a big Maybe.
But lets say they push NOI from $2M to $3M by 2024. I doubt they push it more given the market.
At $3M NOI with current GSE financing at say 6% Interest Rate with a 1.25 coverage ratio that's a $33.3M loan
So they need to put roughly $17M of equity
That means they would have $35M of equity in the deal. There yearly mortgage payment assuming I/O would be $2.4M so they would have $600K in positive cash flow
That total equity would be earning a 1.7% Cash on Cash return then.
Now if they sold it with a $3M NOI for say a 5.5% cap rate then that's worth $54.5M and they lose roughly $10M in Equity.
Literally its all bad. This is what happens when you overpay for assets.
There is rampant obfuscation of NOI going on in this market for the last few years. If you hide most repairs, turnover and make ready expenses in the capital expense account, you can really make NOI sing while showing you’re “investing” capital into the property. It’s been common practice by some groups and I’ve always been really impressed by how low expense ratios are given the building vintages. I would imagine once a non-beholden PM steps into assets run in such a fashion the picture will be starkly different than what was previously provided and the DSCR will be pummeled.
Where are you getting your numbers from? We should clarify a few things,
1. Unadjusted TTM was $1.87M per regulatory filings. As stated, it would be lower when you factor in increases in property tax and insurance.
2. Agreed their projected NOI @ exit was $4.00M. This NOI figure assumed a 25% OPEX ratio - important for later.
3. Agreed on the debt balance.
4. That is the NOI figure THEY'RE reporting. If you believe it to be true and based on current rents, they're running a circa 30% OPEX ratio. Does that seem reasonable on a 1985 vintage property?
5. But for the sake of your math, let's give them credit for $3M in NOI and let's assume a 6.0% interest rate with our 1.25 DSCR. That comes out to $33.3M in proceeds. How are you getting for $40M? =PV(interest rate, term, NOI / DSCR) or =PV(6%/12,30*12, $3M / 1.25 / 12) = $33M. I'm guessing your math is off because you forgot to actually divide the NOI by the DSCR.
6. Who in the world is going to buy a fully renovated,1985 vintage, Class-B MF property in a secondary (arguably tertiary) market in a Class B/C submarket for a 5.50% interest rate where the cost to borrow is 6.00%? Does that make any common sense?
I understand we're landing in "it's not a great situation" territory, but we should also be real about the numbers and in what position this is actually in.
.
Absolute ass clowns- should have stuck to being a news anchor or whatever he was doing prior. Would have saved a lot of poor folks from losing their hard earned money…..it’s sad
This guy looks like a skyrim character. How could anyone have invested with this Altmer-looking mother######
He's got a punchable face for sure
Look at this guy...been in real estate for decades...oh wait
https://www.linkedin.com/posts/elijahwbrown_passiveincome-multifamilyre…
Oh look... a syndicator investing other people's money into other syndicators. Any investors with these clowns should be put in jail for their own safety...
That's a whole new level of low
He shouldn't have made a response in the first place, but he just provided more evidence for future lawsuits. He also became the first person to brag about having a DSCR under 1.0
Totally hilarious video. When he got upset about his age being wrong it reminded me of a toddler saying he was "three and a half" not "three"!
So funny. He was just focused on all the wrong things and not the main issue at hand
Also, the quote is saying that they launched in 2019 by 27 year old by Zach Haptonstall. He's 31. 2019 was four years ago. He was 27 at the time lol.
There was a video on their Instagram think it was posted like last week that has their CFO explaining why they chose floating rate vs fixed rate.
Spoiler alert: They didn't know there was yield maintenance on fixed rate when they were ALREADY buying value add flips!?!? Who was giving them money and not even asking about that.
I wouldn't give this guy $10 of my money.
It's funny and all but honestly, someone needs to do something. It's public information and he's flat out lying so that he can still pray on unsophisticated retail investors. They are still actively buying deals. I've been going through each deal they've acquired and running quick numbers. Every deal since they acquired in Phoenix since Rise Encore in 7/2022 is under water (debt > today's estimated purchase price). I've ignored the Texas portfolio because it's a non-disclosure state but knowing the timing of when they started buying there, those are under water as well. Only about 15 properties into the portfolio list but it's pretty clear where the rest of the properties will shake out. The support from the LinkedIn community is only making matters worse for those retail investors. It's easy to say that those retail investors are at fault for not doing due diligence but I don't accept that, especially now with how blatantly Rise48 is lying about public information. Average 60-70% leverage? Not a chance. Every deal prior to July 2022 was 75-80% debt funds. Average property occupancy is like 85%. Seriously, someone needs to raise a red flag here. At least Tides had the decency to be upfront about coming capital calls and valuations (although much too late as well).
60% - 70% post-renovation *proforma NOI / 4-handle exit cap ;)
What can be done? There are hundreds of these groups doing the exact same thing. The debt funds and CLOs are not dealing with the problems, which they helped cause. The government isn't doing anything so far to come after these guys for misleading investors.
The SEC should certainly be looking into them already and/or investors should be demanding an audit. There may have been hundreds of groups like this buying blindly but they've pulled back/stopped when the inevitable became clear. It's one thing to be a reckless sponsor (Tides), it's an entirely another thing to lie to investors and continue to be buying in the face of a giant wave of 80% distress across your portfolio. Zach went from irresponsible to straight fraud with this video. I got tired of going through their entire portfolio but below is 60% of it with assumed value's today at costar/yardi rents and occupancy, 65% expense ratios, and 5.5% cap rates. Generous on two fronts 1) 5.5% cap rates on crappy 80s product and 2) costar/yardi rents are mostly tracking asking rents which is usually the post-renovated units only so it's assuming fully renovated properties. Over half of the sample portfolio is under water. All public information. Why state that your portfolio is 60-70% levered when I can see that the below averages 77.64% leverage?
The way he says “force appreciation” is bizarre - it’s like a renovated unit is a magic bullet.
It's a BiggerPockets buzzword. Similiar to calling units "doors". He's dog-whistling to that audience.
Oh, you must not know.
You simply inform the potential tenants the unit is renovated and they’re obligated to pay the owner a $500 premium.
Voila! Forced appreciation. Thats how it works.
By the way, the Tides equities guys must be loving Rise48 going crazy. They are probably thankful attention isn’t on them.
It seems like they just took their medicine and didn’t complain
Rise48 going to really regret going out in public so much and so aggressively on this
Is your name in tribute to the movie north shore?
Great movie
He has those tired eyes that even sleep wouldn't help with.
Alright everyone, time to put our best grave dancing shoes on. It's clearly showtime
I've had mine on for a year now, I might need a new pair by the time this shakes out.
Haha agreed. The market can stay irrational longer than we can stay solvent and all that. We've been in the 12th inning for what feels like forever, but clearly the music is about to stop all around and its about damn time. The wait has been exhausting. Stock market is next...
Anxiously awaiting The Real Deal's next article on them because they certainly painted a target on their back and they don't have a leg to stand on.
All these value add companies tout themselves as professional and above average. They all are using the same business plan. Slap on some new flooring, add some new stainless steel appliances, etc. maybe they’ll go a little outside the box and update the leasing office and amenities. And this business plan has worked for quite some time given all the tailwinds in multifamily.
I used to work in acquisitions and development and this is why we never got a competitive offer for years. My/our underwriting was just way too conservative. So maybe I’m a little moody about it haha.
I’m sorry, not everyone can be “above average.” It’s kind of like in that example of a random study where they asked a group of drivers and 70% said they were above average at driving. These firms are all competing against other firms with the exact same business plan and the sucker that pays the most wins.
All of these above-average "multifamily masterminds" believe their own bullshit. They spent the GFC getting participation awards in junior high and deserve the fees they generate from overpaying for properties before passing them on to the next mastermind dipshit. Perhaps they are all above-average in...naivety, negligence, delusion, psychopathy, bank account balances, and very soon . . . lawsuits.
Yes, but now there will be a wave of opportunity.
At the peak of a frothy market, good operators and conservative underwriters don't do a lot of work. But sitting that out and holding on to cash means you pick up a ton of assets when the market turns. That's where you make the real money, buying at a relatively low basis. Even if everything kept going as it was, you think the Tides guys or Rise48 guys would actually be making big promotes? They're pushing every assumption they have and banking on every macro condition staying strong and they're still probably only underwriting to a mid-teens return.
I mean it’s not like some of these syndicators didn’t have home run deals where they bought, rents went up and cap rates continued down, and they could refi out in 24 months or less and hit their IRR hurdles and cash out a bunch. Can’t tell me Tides didn’t have a bunch of these also. It’s the deals that can’t be refid or sold that are currently in “distress”.. to play devils advocate for a sec: if you made an investor 2x their money on a property in month 24 and had to give the keys back in say month 40-48, how bad of a situation to them is that? The Rise48 guys aren’t tides though…. Not even remotely close…
They just closed on one today in Arlington - Alcove Oaks, says there is 219 individual investors, I can tell you about 219 people who just lost a ton of money.
Who the hell is still giving them money…
Absolute morons...
GoldHawk Capital and Impact Equity
These guys are either geniuses or ding dongs. Either way, they are great marketers and know their clientele. They raise money upfront to fund cash flow and slap a 4% exit cap on it and state it's lower than Costar projects so it's "conservative". Their investors have no idea if this is good/bad or best practice/fraud. In their pitch decks they show sensitivity analysis for "catastrophic" case where exit cap is like 5% and organic rent growth is 2% and they still hit PF rents. Seems more like upside case to me. They need to go away so reasonable investors have a chance of winning a deal in TX or AZ. They are brokers first call bc they beat anyone else's price by 20% and then tout to investors that they got the deal off market due to broker relationship.
Zach's comment to TheRealDeal's comment about his 0.66-0.8 DSCR - "Big surprise, anyone who bought deals the last few years has DSCR's below a 1.0"
What??? Who is giving out these loans?
Also, looks like we made TheRealDeal follow up. https://therealdeal.com/national/2023/07/13/we-are-not-distressed-rise48-disputes-red-flags-on-loans/
How hard would you be sweating if you're at Nitya? Seems like only a matter of time TRD does some leg work on their deals and writes another article.
and ZMR,
Real Deal right now has that Bingo table sitting in their office throwing darts at it. "Who we got next, let the darts decide"
My comment made it in the article
Who is funding the warehouse lines on their lenders? If those get called in, the debt will become a lot less friendly.
Their “brilliant” CFO snapped back this morning with a post on LTVs. These guys are like a bunch of children arguing.
Isn’t this the same guy who didn’t know about prepayments on fixed rate loans just 2 years ago!?
He turned off the comments as he got crushed on a Couple of the first ones where people called out his BS
These guys are going to lose so many people so much money
This is getting wild.
Did this guy seriously use sources like "moneytips.com", the FannieMae SFH LTV calculator and "bankrate.com" to explain their positions?
I need to go to the store and buy some more popcorn.
Is it deleted already? I can’t find it on LI
Laughed out loud when he said that the property is now called “Rise Thunderbird”
God this is so good- Nathan Reid deserves a medal- I swear someone could make a movie about this. They have been tricking ill informed folks for so long they actually believe their own bullshit and now when faced with actual real estate logic - can’t handle it… math is math and facts are facts…. Dumb is dumb and fraud is fraud….
Yes, dumb is dumb, fraud is fraud, but dumb is not fraud.
The fraud would be if these guys have been stuffing opex expenses below the line for years, programmatically inflating building value by doing so. That could be a potential explanation why Morningstar's DSCR number is different from their internal DSCR number, this discrepancy could happen if there were some "adjustments" after the fact.
If they've all been doing this BS and incestuously selling to one another. Once the chips start to fall they're all could start suing each other for the same things they're doing to eachother. Amazing!
The courts will definitely be tasked with determining if dumb is or is not fraud.
Just saw Zach’s post on LinkedIn about Rise Lakeside. Seems like he’s trying to post this stuff to make everything seem like it’s running according to plan. Guy seems like a clown.
Man he is about to get crushed.
Deleted
Hi Everyone - I am a small time investor that invested in the recent Rise48 Oak Creek project. All of these comments have me very concerned about my investment and I was wondering if anyone had any advice regarding what I can do to protect myself? Rise48 says they will begin financial reporting for the project at the end of July 2023. If Rise48 put all renovations on hold, put the excess cash in a high yield savings account @5% and waited for the interest rate term on the variable debt to expire before a sale or refinance, I feel like that might yield a better return then spending all of this money on renovations for a depreciating property? Thoughts? Any advice on steps I can take to recover part of or all of my investment?
Unfortunately given the nature of syndications they are a Jesus take the wheel type investment meaning the only thing you can do is call them and ask if they will buy you out which I would do asap.
The challenge is the lender probably made them sign a completion guarantee in which case they have to do the improvement work.
I would write your investment off and in the future be wary of people soliciting for investments online. I know it all sounds good but these are not the people you want to be investing with.
I would hesitate to say that OP needs to write the investment off immediately, but they should be mentally prepared to never see that money again (like any investment in non-liquid assets).
Rise's biggest problem right now is the basis of their 2021 - 2022 acquisitions. They're sitting on ~ 300 - 400 bps of negative leverage assuming they were purchasing top-of-market cap rates (was seeing deals with 2-handles in PHX).
What they're buying now is likely still ~ 200 bps of negative leverage, but it's impossible to really comment on this deal considering TX is a non-disclosure state.
I'm resisting the urge to dunk on you and would encourage everyone else to do the same since you came here hat in hand. So hopefully the below helps,
So what can you do?
If you're interested for more specifically direction, feel free to shoot me a DM - but will need a copy of the Business Plan, Operating Agreement and/or Limited Partnership Agreement.
If it’s any consolation and if these guys have any clue, the return on cost for unit renovations should be well in excess of what they would get in a money market account and should be in excess of 15%. But, that is predicated on “Ruse”48 actually knows how they should be quantifying their risk/return and assumes their ability to execute.
May the force appreciation be with you…. It is your best chance of escaping the debt star and not getting burned…
Hey if you invested with Rise, I may have a bridge to sell you. Just kidding
I hope it works out for you, would just be cautious for next time you invest with a group that seems to good to be true, because generally they are and it's only a matter of time before they get caught.
To be fair, this is also a very biased blog, where most folks in here are in the industry and hate when new comers who have no prior experience come in on the scene and think they know better just to get burned and the whole while take the deals away from the diligent/intelligent groups who wouldn't nearly pay those kinds of prices or take on that type of debt and risk. So everyone wants to see the financial justice being served.
Also by the excess cash do you mean the capex money? That's probably sitting with the lender so they wouldn't have access to put that into a HY savings account. Generally, the lender will fund 100% of the future capex, and the borrower funds all the equity up front, and if they are smart holds additional funds in self reserved funds (which seems doubtful that they did a material amount here).
No. By excess cash, I mean excess cash. Trust me, I understand all of the funding mechanisms very well.
On this particular deal, it appears they have actual excess cash. My best guess is given the operating cash flow shortfalls they're experiencing on other deals and their inability to call capital from smaller, retail LPs, they've wised up and are raising excess funds on new deals to be better positioned to cover themselves if and when shortfalls occur.
Hard to say from the outside looking in, but based on what was shared with me this is what I can best determine.
Proofs in the Pudding...Look at some of these Rise deals offering discounted rents and lots of concessions
https://www.riseencore.com/?utm_knock=g - Reduced Rents + 1 Month Free
https://www.riseskyview.com/?utm_knock=g - Reduced Rents
https://www.riseparkside.com/?utm_knock=g - Reduced Rents + Free Rent
Almost all their deals seem to be doing this too...but hey they are getting $29 above their underwritten remodeled rents right...problem solved!
Lol just look at their post from today... Rise Lakeside is outperforming by $30, it's doing so well! Property website: 1 month FREE or $1,500 off PLUS $500 off move-in. Their false marketing is enough of a reason to at least initiate a case against them should equity be lost.
In all fairness, this isn't necessarily a sign of financial weakness. Everyone does this. What matters is looking at their P/L compared to their underwriting, and where the rents are versus their original pro forma.
If they were getting $50/ft when they were expecting $40, a 10% discount isn't actually a sign that the deal is falling apart.
You don't offer 1 month concessions unless you are trying to increase leasing velocity either a result of new construction lease up or vacancy has spiked at an existing property. There are a few reasons vacancy can spike at properties but the most likely reason is that they are charging higher than market rates. If they want to be truthful about property performance, they should be posting the rental rates net of the 1 month FREE or $1,500 off PLUS $500 off move-in.
Concessions sure..but reducing rents...thats not good
Lets look at a couple of their deals where Trepp has their PDF Loan Summaries
Rise Encore - So they said the Market Rents they would achieve after their "Premium renovations" would be on Average $1882. Right now, per their recent lowering of Rents is now $1572. Now, this loan is due in August of 2025 so maybe Rents run in Phoenix (DOUBTFUL) but clearly they are not hitting the rents they thought they would.
Rise Skyview - They said Market Rents were $1606 a Unit after renovation. Right now average asking rents are $1436 and they just decreased them. So again, not hitting the renovated rents they thoughts they would. Again, maybe they eventually do as Loan is due Dec of 2024 (DOUBTFUL)
I could find more data too but clear they are dropping rents in certain places which you only do if increasing concessions is not working. Clearly they missed the mark on some deals in terms of achievable rents
Live in a complex owned by a large institutional investor in the Midwest... Rents are down ~13-15% from the peak ~18-24mo ago and they are now offering what equates to ~70% off your first months rent... They are clearly struggling to keep & attract tenants. I'm sure there's much more of this going on than people realize.
The real estate sales and syndication mafia is keeping their BS rolling. Posting positive market stories on LinkedIn doesn’t change the facts of what’s happening on the ground.
They probably actually believe their own hype at this point. It’s sickening.
Rents are going down FAST, concessions are rampant. We are seeing waived application fees, $0.00 deposits + 4-8 weeks free for immediate move-ins. Widening application criteria.
The turnover rate is exploding, lease renewals are much harder to earn.
No one is talking about this reality but its hurting over-levered operators and they can only hide it for so long.
How long until the lenders figure out they’re going to take a bath on these projects?
I concur. We are seeing increased concessions, vacancy, and turnover on our deals. I would guess rents down by 13%, occupancy has gone from 97% to 92% and turnover has increased a ton as well. Delinquency up a bit and expenses waaay up. Thankfully we are not over levered, on floaters or looking at near term loan maturities.
I can’t imagine what it would be like if we were in another position. Would not be fun.
First time reviewing one of the investment summaries today. Unreal. Charging 3.5% acq fee on $43m purchase. Their investors are dumber than rocks
3.5% acq fees? If true that is so wrong. That is literally targeting low-knowledge retail investors and taking them on a ride.
How could they look themselves in the mirror in the morning? I couldn't do that.
There were a lot more things wrong about it than that.
To play devils advocate for a second: if someone’s able to charge 3.5% for an acq fee and someone else is willing to pay for it, than that’s their problem, but ultimately you’d still do it yourself if you could….. it’s the same as all these developers who take unbelievable land lifts on CrowdStreet and the other platforms that syndicate LP/GP money from non institutional investors. You’ll see sponsors who bought the deal for say $10m, but capitalize it in the project at $20m+. They are ALL praying on dumb investors in this case… Acq fee or land lift, compensating work is in the eyes of the check writer I guess…
3.5%?! wtf? What were their AM and Dispo fees?
$124K/year or 3.2% of year 1 total income lol. Unbelievable. No mention of an exit fee or any slides that show all fees in their 70+ page deck. They are going to get burned so bad. 4.8% exit cap on 100% renovated 2000s deal? Good luck.
https://www.trepp.com/trepptalk/multifamily-syndicators-come-under-scru…
Thanks for posting the article
Trepp significantly underestimated the problem on the floating rate loan.
I like trepp and I follow them but their data tends to be reactionary and too granular. The debt service on the loans mentioned in the article are certainly way under 1.04x. I wish they would dive in more and understand the effects of rate caps and interest only payments.
I mean its still not saying these groups are in good shape at all. Yes they are worse off then what they report...BUT this still basically says they are going to have major issues when these loans come due
Looks like it’s time for a new Rise48 video.
Globe Street is now featuring a piece on the Trepp Report Report:
https://www.globest.com/2023/07/26/multifamily-syndicators-face-cre-deb…
Wow it’s so crazy that tides did all these bad deals at the same prices and same locations with the same capital structures but Rise is still beating proforma by $20. Hmmm seems like the laws of math don’t apply to sweet black ties over red button down shirts tucked into for formerly fake but recently real ferragamo loafers. I’m not a knowledgeable real estate professional. What could be the difference #savenewscasters
Huge difference. Rise48 purchased many of the Tides deals that they managed to hit grand slams on. Maybe the second time around, with even more aggressive pricing, will work out better. Lipstick gets even more vibrant once you apply it a second time.
Still closing deals…saw they just closed a deal yesterday…what a world
You do understand that "closing" is just the terminal point of a process that can take months? Like, if they went into contract in January, they might only be closing now... if they're still closing on deals next August, that will be shocking. Not 3 months after they blow up
They went under contract on this deal two months ago and raised money from individual investors after all the articles about them came out.
Heard they went hard out of the gate with $1.5M to get it tied up
At least the Tides guys haven’t closed anything since January. I mean Rise48 is still working on new deals while existing ones are cratering
Does anyone else cringe every time their co-founders post a LinkedIn post of one of their most recent acquisitions? Serious question, why doesn't a reporter on Linkedin reply to every one of these posts and asks "thanks for the update on this project - could you please advise what the current DSCR is, what is current occupancy, what is the current loss to evictions, etc?"
When does their next big loan come due? Anyone know?
Last I saw, they were modifying most of their loans and extending another 12 months out. That had a handful of acquisition in 5/2021 and 6/2021 which will likely need more cash in to successfully modify. They’ll need to buy a few more properties with 4% acq fees to roll it into the modification that will require needing 0% GP loans.
https://therealdeal.com/la/2024/03/01/oc-homes-of-ab-capital-owners-rai…
Rise 48?
Tides?
Gva?
There’s a big difference between syndicating terrible investments and misappropriation of funds. Not saying this hasn’t happened but there is no proof of anything other than reckless investing. Although Rise48’s continual “there’s nothing wrong” messaging is probably a case for fraud that LPs can make.
They have all been misleading investors for years and it is clear that they were misappropriating funds between capex and interest. I have heard of several firms moving funds between different investments. A lot of groups have been pre raising distributions which will land you in heaps of trouble unless your very clearly outline that in investors docs.
These are just houses of cards.
Zach will figure it out all out, the dude has an MBA (as clearly displayed everywhere his name is written). And it's from Grand Canyon, no less--that must be a target school for the real estate illuminati.
Here is your chance to learn how it is done from a true expert. Perhaps he needs this as a side gig to bail out his investments...
What is the saying?
Those who can't do, teach.
And those who can't teach, teach (RE)PE?
It's actually a genius strategy. He essentially trains random people to become capital raisers of their own "funds", they in return raise the retail equity for his deals. It is why Rise is buying so many assets and is able to close so quickly. Can hate the guy, but he has a system.
Weird they're using his Linkedin account, I guess they're using his brand but just seeing hey it's someone else is a definite no from me.
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