Thoughts On RealtyShares Closing Its Doors To New Investors

[crossfire]

Sponsor for 1662 Linda Terrace is BBS Development.

16620 Linda Terrace – Asset Update (7/25/19)

IIRR Management Services, LLC (IRM) has taken over the asset management and fund administration functions of this investment. Our goal is to provide timely and accurate updates on each asset.

According to our findings, this asset is not performing according to the original business plan. The sponsor stopped paying interest and failed to pay off the loan at maturity. This property has been identified as a Tier 3 asset.

IRM continued to try to work with the sponsor to resolve the maturity and payment defaults but the sponsor became unresponsive. IRM has learned the construction on the home has stopped. The sponsor has not been able to sell the property as a "developer take over opportunity" most likely because the price is too high. The 1st position construction loan is not in default because interest payments are being taken from the interest reserve. When the reserve is exhausted the 1st lender will proceed with a foreclosure action.

The sponsor has defaulted on his other RealtyShares transaction and IRM has learned through equity partners and lenders that the sponsor may be having similar issues with three more development properties. IRM believes the sponsor is unlikely to complete construction on the Linda Terrace home and successfully sell it. Given the sponsors financial difficulties, and the number of potential claimants, it is quite likely that the sponsor will file for some form of bankruptcy protection. Consequently, the options are to wait for the 1st lender to foreclose and hope for excess proceeds or sell the note at most likely a significant discount. 

IRM believes that selling the note at a discount now provides the best opportunity to return some investor funds, but this approach will most likely result in a substantial loss of principal. IRM is discussing the terms of a note sale with a 3rd party investor. IRM will post further updates about this loan when there is meaningful activity to report.

*Disclaimer: all of the information above is presented on an as-is basis, as provided to our team members, and have not been independently verified by IRM.

[FinancialFreedomCountdown]

I have complained to the CA AG and also SEC. Has anyone on this thread also done the same?
Can't believe they messed up a simple debt deal. Shared my saga in a different thread if anyone was invested in the same property

[JD]

I have complained to the CA AG and also SEC. Has anyone on this thread also done the same?
Can't believe they messed up a simple debt deal. Shared my saga in a different thread if anyone was invested in the same property

That's a good plan - how did you make the complaint? I'll be happy to do so.

Do we need to complain to the AGs in the state specific to a particular deal or are you doing this against RS as a whole and thus picked CA?

[mspringer]

Sponsor for 1662 Linda Terrace is BBS Development.

16620 Linda Terrace – Asset Update (7/25/19)

IIRR Management Services, LLC (IRM) has taken over the asset management and fund administration functions of this investment. Our goal is to provide timely and accurate updates on each asset.

According to our findings, this asset is not performing according to the original business plan. The sponsor stopped paying interest and failed to pay off the loan at maturity. This property has been identified as a Tier 3 asset.

IRM continued to try to work with the sponsor to resolve the maturity and payment defaults but the sponsor became unresponsive. IRM has learned the construction on the home has stopped. The sponsor has not been able to sell the property as a "developer take over opportunity" most likely because the price is too high. The 1st position construction loan is not in default because interest payments are being taken from the interest reserve. When the reserve is exhausted the 1st lender will proceed with a foreclosure action.

The sponsor has defaulted on his other RealtyShares transaction and IRM has learned through equity partners and lenders that the sponsor may be having similar issues with three more development properties. IRM believes the sponsor is unlikely to complete construction on the Linda Terrace home and successfully sell it. Given the sponsors financial difficulties, and the number of potential claimants, it is quite likely that the sponsor will file for some form of bankruptcy protection. Consequently, the options are to wait for the 1st lender to foreclose and hope for excess proceeds or sell the note at most likely a significant discount. 

IRM believes that selling the note at a discount now provides the best opportunity to return some investor funds, but this approach will most likely result in a substantial loss of principal. IRM is discussing the terms of a note sale with a 3rd party investor. IRM will post further updates about this loan when there is meaningful activity to report.

*Disclaimer: all of the information above is presented on an as-is basis, as provided to our team members, and have not been independently verified by IRM.

I understand our note was in the 2nd position, but I still can't understand what happened with the money overall?  The total of all loans I think was around $7MM and it was under $4MM to refinance the loan and raze the existing structure.  Does anyone know what happened to the remaining ~$3MM?  Assuming that extra money would be used first to pay off the 1st lien and then the remaining money (likely whatever they could get for a reduced price on the land) could then go towards the 2nd loan (ours).

Am I thinking about this incorrectly?

Is it possibly the developer took the full $7MM from all loans, did some work at much less cost than that and then pocketed the remaining?  Man this feels a lot like Financial Growth and why is the ugliness of these loans coming to light now when RS is no longer in the picture?  Was it just a house of cards that they were applying band aids to?

[ft2008]

I was trying to total all the investments that IMO I do not expect to recover (based upon feedback from Realty share).. and it is about $20K for me (I may get lucky and get some of it but looks unlikely).

Anyone else wish to share how much they have as confirmed "lost" investment..

[barnold24]

Just received this email from IIRR about K-1's:

Thank you for your email. We do not have a specific date of when these will be uploaded but rest assure that our team is working with the sponsors in order to get all missing K1s for all of our investors. By end of July we will have several more forms uploaded, these be the ones provided by the sponsors.

We appreciate your patience.

—
Regards,

Emma Lagos
Customer Services Department
IIRR Management Services, LLC

[FloridaMan]

I was trying to total all the investments that IMO I do not expect to recover (based upon feedback from Realty share).. and it is about $20K for me (I may get lucky and get some of it but looks unlikely).

Anyone else wish to share how much they have as confirmed "lost" investment..

My best guess is $12,500 loss out of a cumulative investment of $75,000. If I offset against the earnings that I've made, that would make my capital investment in RS roughly a breakeven proposition.

I think it could be as little as $7,000 or as much as $25,000.

Lessons learned:

1. technology companies don't make good underwriters or asset managers.

2. Reputation and repeated game theory matters far less to some people than it seems it should. And maybe that is appropriate/economically rational, since it seems like every scoundrel gets a second, third, and fourth act with little to no negative consequences.

3. Risk assessment is complex — I focused largely on the macro risks, but in this case, the counterparty risk, fraud risk, and transparency/agency risks are far bigger.

4. This is a classic market for lemons. Real risk that simply no market can exist without either cost effective ways to diligence, monitor, and punish bad actors.

[Sdb]

I was trying to total all the investments that IMO I do not expect to recover (based upon feedback from Realty share).. and it is about $20K for me (I may get lucky and get some of it but looks unlikely).

Anyone else wish to share how much they have as confirmed "lost" investment..

My best guess is $12,500 loss out of a cumulative investment of $75,000. If I offset against the earnings that I've made, that would make my capital investment in RS roughly a breakeven proposition.

I think it could be as little as $7,000 or as much as $25,000.

Lessons learned:

1. technology companies don't make good underwriters or asset managers.

2. Reputation and repeated game theory matters far less to some people than it seems it should. And maybe that is appropriate/economically rational, since it seems like every scoundrel gets a second, third, and fourth act with little to no negative consequences.

3. Risk assessment is complex — I focused largely on the macro risks, but in this case, the counterparty risk, fraud risk, and transparency/agency risks are far bigger.

4. This is a classic market for lemons. Real risk that simply no market can exist without either cost effective ways to diligence, monitor, and punish bad actors.

I stopped all additional investments in RE crowdfunding last November when RS failed. I'm waiting to see fallout in this space, which I do think will happen especially if there is a economic downturn. I certainly agree that these tech companies are often great on an initial idea, but if there is no ability to execute then just ask those of us who are looking at a principal loss. I've never visited any of their, mostly west coast offices, but somehow I envision a bunch of tech people instead of some hardened RE professionals who know how to look at a deal and manage it after closing. That's where I screwed up when I invested, I got caught up with the idea, but failed to realize that someone had to manage the damn thing.

So far I feel fortunate, my only non performing investments on RS is FG. Fully expect a loss, but at this point it's impossible to calculate.

I'm not interested in any further investments in RE crowdfunding at this time. Maybe in the future. All of the RE portion of my portfolio will be in public REITS for the present.

[FloridaMan]

I was trying to total all the investments that IMO I do not expect to recover (based upon feedback from Realty share).. and it is about $20K for me (I may get lucky and get some of it but looks unlikely).

Anyone else wish to share how much they have as confirmed "lost" investment..

My best guess is $12,500 loss out of a cumulative investment of $75,000. If I offset against the earnings that I've made, that would make my capital investment in RS roughly a breakeven proposition.

I think it could be as little as $7,000 or as much as $25,000.

Lessons learned:

1. technology companies don't make good underwriters or asset managers.

2. Reputation and repeated game theory matters far less to some people than it seems it should. And maybe that is appropriate/economically rational, since it seems like every scoundrel gets a second, third, and fourth act with little to no negative consequences.

3. Risk assessment is complex — I focused largely on the macro risks, but in this case, the counterparty risk, fraud risk, and transparency/agency risks are far bigger.

4. This is a classic market for lemons. Real risk that simply no market can exist without either cost effective ways to diligence, monitor, and punish bad actors.

I stopped all additional investments in RE crowdfunding last November when RS failed. I'm waiting to see fallout in this space, which I do think will happen especially if there is a economic downturn. I certainly agree that these tech companies are often great on an initial idea, but if there is no ability to execute then just ask those of us who are looking at a principal loss. I've never visited any of their, mostly west coast offices, but somehow I envision a bunch of tech people instead of some hardened RE professionals who know how to look at a deal and manage it after closing. That's where I screwed up when I invested, I got caught up with the idea, but failed to realize that someone had to manage the damn thing.

So far I feel fortunate, my only non performing investments on RS is FG. Fully expect a loss, but at this point it's impossible to calculate.

I'm not interested in any further investments in RE crowdfunding at this time. Maybe in the future. All of the RE portion of my portfolio will be in public REITS for the present.

I have come to believe that GP due diligence is the key. *Most* of my other non-RS experiences have gone smoothly to exceedingly well. I've spoken with and met in person a number of GPs in other deals not part of RS. It becomes reasonably easy to discern the true professionals from the morons.

I think the real issue was RS coming between the LPs and GPs — but not truly playing a thorough due diligence role. In this case, it all comes down to people acting in accordance with their incentives.

RS - it was evident - became enamored with deal flow and marketing. I was 'lucky' to be in one of their deals that went tits up early in 2017. That clued me into what the real deal was with them.

[JD]

I was trying to total all the investments that IMO I do not expect to recover (based upon feedback from Realty share).. and it is about $20K for me (I may get lucky and get some of it but looks unlikely).

Anyone else wish to share how much they have as confirmed "lost" investment..

I'm looking at probably just over a 6 figure loss. If the deals that survive all pay out expected to the numbers, it will take me a little over 2 more years to break even.

[magpie]

I am looking at @35K loss on FG deals, then potentially another 10-30K loss on deals that seemed to be performing prior to RS closing their doors. It's more than ironic that 70% of my investments have stopped paying and 20% are in the danger zone of default.  I do with the SEC or someone with authority would investigate on our behalf.  There is no doubt in my mind there is fraud here!  Empathy to all those impacted.

[stingray]

I agree with @magpie.  It is so important for everyone who lost money here to file a complaint with the SEC:

https://acadia.sec.gov/TcrWeb/faces/pages/accept.jspx?_afrLoop=3634704279935698&_afrWindowMode=0&_afrWindowId=null#!%40%40%3F_afrWindowId%3Dnull%26_afrLoop%3D3634704279935698%26_afrWindowMode%3D0%26_adf.ctrl-state%3D1b3phk460p_4

And also with the California Department of Business Oversight:

https://docqnet.dbo.ca.gov/complaint/

You do not need to write an elaborate complaint.  What is important is that these regulators see how many people fell victim to RealtyShares' negligence and, in some cases, Sponsors' outright fraud.

10 MINUTES OF YOUR TIME CAN MAKE A DIFFERENCE.

[barnold24]

I was trying to total all the investments that IMO I do not expect to recover (based upon feedback from Realty share).. and it is about $20K for me (I may get lucky and get some of it but looks unlikely).

Anyone else wish to share how much they have as confirmed "lost" investment..

I was one of the lucky ones that stopped 2 and half years ago with RS so if my last two deals yield nothing than I will still be up $12k and if they just pay out then I am up $42k. Count my blessings everyday about it. On the other hand, I have two hotel deals on Realtymogul that are crap.

[Sam]

I was trying to total all the investments that IMO I do not expect to recover (based upon feedback from Realty share).. and it is about $20K for me (I may get lucky and get some of it but looks unlikely).

Anyone else wish to share how much they have as confirmed "lost" investment..

College Town in Arizona multi family by sponsor Taylor Fitzpatrick screwed equity investors and we will see a 80%-90% loss. I think the debt investors will be OK.

Purchase for $10.6M, sold for $8M! $7M was debt.

I'll write a post about my lessons learned on this crap to you in the near future. This deal is part of the domestic equity fund, so I probably lost about $40,000 on it.

[barnold24]

Wonder why I have 4 smites on this forum...starting to remind me of FB

[Ventan]

Chicago Retail Portfolio – Lockport, IL - 2nd Lien – Tranche 2 – Asset Update (7/26/19)
07/26/2019
IIRR Management Services, LLC (IRM) has taken over the asset management and fund administration functions of this investment. Our goal is to provide timely and accurate updates on each asset.

According to our findings, this asset is currently not performing according to the original business plan. The borrower is responsive to our communications but declared bankruptcy and is unable to provide financial support for the deal. This deal has been identified as a Tier 3 asset.

Since the last update, the foreclosure process was unable to proceed because the property is tied up in the bankruptcy estate. The is negative event for our second lien position since it increases the amount owed to the first lender by allowing the first lender to charge legal fees and default interest to increase. IRM believes that investors will suffer a substantial to total loss on their investment. The borrower has an investor who offered $100,000 to purchase this mortgage and another RealtyShares 2nd mortgage. IRM is analyzing this proposal. IRM hired local counsel to assist collection efforts and will continue to monitor the proceedings and take action that is in the best interests of our investors.


This is the latest update I received on this investment. I have invested in Clubcreek Apartments and Penbrook Apartments in Austin Texas and the k1 are showing losses and the ddistributionsare negligible. please let me know if anyone has any update on the above deals.

Thank you




Please continue to monitor the Investor Dashboard for updates and be sure to keep your bank account information up-to-date in order for our fund administrators to process payments accurately and avoid any delays or missed payments.

*Disclaimer: All of the information above is presented on an as-is basis, as provided to our team members, and have not been independently verified by IRM.

IRM Asset Management Team

[FinancialFreedomCountdown]

I live in CA and RS was headquartered in CA. Besides I am sure CA would be more responsive to such complaints. Complained about my specific deal so they can look into it. I see many such deals gone bad and it is better to complain early rather than wait and find out the money is all gone. Heck if they could make Bernie Madoff cough up the money I am hopeful we can get RS as long as folks take action.

I have complained to the CA AG and also SEC. Has anyone on this thread also done the same?
Can't believe they messed up a simple debt deal. Shared my saga in a different thread if anyone was invested in the same property

That's a good plan - how did you make the complaint? I'll be happy to do so.

Do we need to complain to the AGs in the state specific to a particular deal or are you doing this against RS as a whole and thus picked CA?

[JD]

Chicago Retail Portfolio – Lockport, IL - 2nd Lien – Tranche 2 – Asset Update (7/26/19)
07/26/2019
IIRR Management Services, LLC (IRM) has taken over the asset management and fund administration functions of this investment. Our goal is to provide timely and accurate updates on each asset.

According to our findings, this asset is currently not performing according to the original business plan. The borrower is responsive to our communications but declared bankruptcy and is unable to provide financial support for the deal. This deal has been identified as a Tier 3 asset.

Since the last update, the foreclosure process was unable to proceed because the property is tied up in the bankruptcy estate. The is negative event for our second lien position since it increases the amount owed to the first lender by allowing the first lender to charge legal fees and default interest to increase. IRM believes that investors will suffer a substantial to total loss on their investment. The borrower has an investor who offered $100,000 to purchase this mortgage and another RealtyShares 2nd mortgage. IRM is analyzing this proposal. IRM hired local counsel to assist collection efforts and will continue to monitor the proceedings and take action that is in the best interests of our investors.


This is the latest update I received on this investment. I have invested in Clubcreek Apartments and Penbrook Apartments in Austin Texas and the k1 are showing losses and the ddistributionsare negligible. please let me know if anyone has any update on the above deals.

Thank you




Please continue to monitor the Investor Dashboard for updates and be sure to keep your bank account information up-to-date in order for our fund administrators to process payments accurately and avoid any delays or missed payments.

*Disclaimer: All of the information above is presented on an as-is basis, as provided to our team members, and have not been independently verified by IRM.

IRM Asset Management Team

I'm in this one too. As the matter of fact, I've got 2 Chicago Retail deals and they both got this type of message last week.

It's definitely on my potential lawsuit list.

[magpie]

FYI -  I came across this private FB group while doing some research.  Some of you may want to join.  It's protected, so RS cannot listen to our plans and conversations.  Here is the link https://www.facebook.com/groups/362978171187445/?fref=nf

[JD]

FYI -  I came across this private FB group while doing some research.  Some of you may want to join.  It's protected, so RS cannot listen to our plans and conversations.  Here is the link https://www.facebook.com/groups/362978171187445/?fref=nf

Nice, I've requested to join.

Like barnold, I'm wondering how I've achieved 2 smites on this forum already. My guess is that we have some affiliates from RS/FG lurking.