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Thoughts On RealtyShares Closing Its Doors To New Investors

Started by Sam, November 07, 2018, 11:29:29 AM

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Sdb

I was in 2 of the 4 portfolios in the Utah Patch of Land deals in 2016. Both investments paid off within a couple of months, believe it was October or November.

Sdb

I checked my records and I actually only received one distribution from each. So they both paid off after one month from issue. The distributions were for September, 2016.

Sdb

Quote from: John on March 30, 2019, 04:05:46 PM
Quote from: Sdb on March 30, 2019, 03:00:19 PM
I checked my records and I actually only received one distribution from each. So they both paid off after one month from issue. The distributions were for September, 2016.

Thanks for checking your records so quickly. Were you surprised they were paid off so quickly? Were they supposed to be one- or two-year maturities?

They were 24 mo maturities. I was surprised, but at that time I was just starting to get involved in this space and thought that early pay offs might be normal. I've had many since, but don't think anything less than 6 mos.

groovydude

Folks, after giving this situation a lot of thought...

There are a lot of sketchy investments in the RS pool. Probably a much higher percentage than other platforms. I saw this in the year or so that I followed their offerings, before they folded. (I didn't stop to realize how this might effect my investments in what I thought were the safer offerings of course). The problem is that these sketchy investments will be very costly for whomever buys the portfolio. Legal action is a sure thing, and lawsuits are likely. Given this, will the 1-2% in fees even cover the cost of running the business? I'm not sure this is true, which may be why RS couldn't raise enough money to stay solvent. If that's the case, the portfolio as a whole is worthless, and bankruptcy is inevitable.

We might only stand a chance if someone takes over the portfolio, someone who has the ability and interest in taking the hit should the portfolio cost more to manage than it returns. Perhaps someone has stepped up, and RS is really in the process of turning the assets over. I hope so. I'm going to ask them that they communicate to us what's going on, but I'm not expecting an answer. If nothing has been announced in another month, I suggest we start contacting the VC investors and implore them to ask RS give the investments back to the sponsors in order to avert bankruptcy. I know that's complicated as heck, and investors in the sketchy deals will probably loose, but some of the better sponsors might be willing to absorb the legal costs for this. I don't see bankruptcy as much of an option for us. What the heck is a receiver going to do with a worthless portfolio? As I said in an earlier post, we're essentially creditors to a dying company. Not a good position to be in if they go belly up.

CushLash has contacted an attorney, below is his post on the subject. I suggest everyone read it.

https://www.financialsamurai.com/forums/real-estate-crowdfunding/thoughts-on-realtyshares-closing-its-doors-to-new-investors/msg2793/#msg2793

stingray

@groovydude.  It is good to be creative, but I don't understand what you are suggesting.  How do you propose to remove RS from a deal and yet maintain an infrastructure to distribute payments to investors and provide tax forms?  The recordkeeping and compliance burdens are considerable.  Most real estate developers do not know how to do this.  I can't imagine why they would agree to take on that responsibility (and the burden of irate, potentially litigious investors) to shave off the commission they're currently paying to RS.  Interested to hear your thoughts, however.

stingray

A thought on how the RS situation affects sponsor psychology:  it depends on whether the sponsor funded the deal from multiple sources or 100% from RS.  Where there are multiple investors still exercising vigilance over the sponsor, you would predict that the RS situation has no effect, and that sponsors continue to pay.  That is in fact what I am seeing.  You might say, "Well, the sponsor can pay the other investors but not RS, and pocket the difference."  In practice, they can't do that because it will either stick out like a sore thumb on K-1s--which will make a sophisticated investor go apesh*t--or they have to cook their books and run the (high) risk that the IRS or state authorities will catch them.  It's not worth it for them.

Now then, the deals funded 100% from RS create more opportunity and incentive for sponsors to enter into strategic default.  I have one deal right now--ROIPGM--where that has definitely happened.

My other deals seem to be performing fine, and although RS updates and payments are slow, they have been appearing.

groovydude

#446
Quote from: stingray on March 31, 2019, 11:33:52 AM
@groovydude.  It is good to be creative, but I don't understand what you are suggesting.  How do you propose to remove RS from a deal and yet maintain an infrastructure to distribute payments to investors and provide tax forms?  The recordkeeping and compliance burdens are considerable.  Most real estate developers do not know how to do this.  I can't imagine why they would agree to take on that responsibility (and the burden of irate, potentially litigious investors) to shave off the commission they're currently paying to RS.  Interested to hear your thoughts, however.

I suppose I'm of the belief that most of the sponsors will be able to handle the logistics. Many already do this, and there are software tools out there just for this task (Crowdstreet offers this tool). And if this were to happen, they would be freed of the RS commission, so it might be in their interest. Every sponsor our there wants connections with investors, this would give them that. Right now, RS shields us from the sponsors. I don't think it would be a tough sell to the Sponsors.

This is all assuming that RS has NOT sold the assets to another company, of course. I'm not a lawyer, I'm just offering an idea. I don't know if transferring control of the assets to the sponsors is even possible legally. But, I fear that if things are left alone, bankruptcy will happen and we'll all get severely screwed. The more investments that start underperforming and the more sponsors start getting greedy, the more bankruptcy is likely, IMHO. RS needs a steady income stream from what they have just to be able to pay a staff to manage whats there. If we sit back and wait it might be too late to act once a receiver is appointed.

dwengca

Quote from: CushLash on March 21, 2019, 10:14:30 AM
All-

I am growing increasing frustrated by the lack of communication from Realty Shares - I basically received an email from them today regarding one of my investments (RS 277- Lynnview Apartments) stating the sponsor is current with their payments but they are delayed in making distributions because they are transitioning to a third party Fund Administrator.  This concerns me even more in that I can understand a 30 day delay or so with a transition as they want to get things right with flow of payments, but its now been over 90 DAYS since the last distribution was made -- I can't help but wonder if they are taking the payments from sponsors and using them to fund the operations of their business while they look for an exit/acquirer rather than distributing these funds to investors.  Just all feels very fishy.

In an effort to take some action, I reached out to Mark Roederick (https://crowdfundattny.com/about/) yesterday to discuss options. From my research, Mark seems to one of the preeminent legal minds focused on crowdfunding real estate.  The range of options we talked about were as simple as writing a demand letter all the way to filing a class action lawsuit.  His recommendation where we landed
after talking through the options was to engage his company to write a letter to Realty Shares demanding that they take action - part of his thinking was that given that he is well known in real estate crowdfunding circles, a letter coming from him may carry more weight than if one us individually drafted a demand letter on our own.

The only kicker was that he wanted $2,500 as a retainer for his efforts -- I'm not super hopeful that a letter from Mark will have an impact, but I'm also tired of sitting around on my hands doing nothing while Realty Shares turns it back on investors so would be willing to go this effort if there was a 5-10% chance this might help shake things loose.  Just thought I'd throw it out there to see if there were other investors who were interested in joining together to engage Mark?  I figure if we could round up ~20 people, we could each kick in $100 and fund the letter.  I hate to throw good money after bad, but $100 seems well worth it.

Any thoughts from others on the board?

Count me in.. I'm willing to throw in a few hundreds on this.  Thanks!

SingleFamilyMan

My sponsor's exit date has come and gone (yesterday) and still, the last update was from December. I will gladly participate in a lawsuit.

John_PVF

This feels like an 80/20 thing to me.  A minority of the deals/sponsors are causing a majority of the headaches in terms of portfolio management.  Unfortunately that distracts from proper administration of the remainder and is likely the sticking point in the sale.  RS is trying to unload the entire thing to someone, but buyers are (reasonably) only wanting to buy the low hassle performing stuff.  If what folks have said is true and a lot of the crowdfund platforms turned down deals that ultimately ended up at RS, they're in as good a position as anyone to separate the wheat from the chaff.

At this point I'm hoping that the good sponsors will want to disassociate with RS as quickly as possible, especially if this is going to blow up in a major way.  Disassociation means recapping to take out the RS investment layer from their capital stack.  I just hope RS will be around to process my payments when that time comes.

As an aside, I'm going to back off them at least until after April 15th on the hope that they turn around K-1s on time.  While it's incredibly frustrating to have delayed payments, I'd like to avoid filing tax extensions on top of it.

John_PVF

Quote from: groovydude on March 31, 2019, 05:15:27 PM
Quote from: stingray on March 31, 2019, 11:33:52 AM
@groovydude.  It is good to be creative, but I don't understand what you are suggesting.  How do you propose to remove RS from a deal and yet maintain an infrastructure to distribute payments to investors and provide tax forms?  The recordkeeping and compliance burdens are considerable.  Most real estate developers do not know how to do this.  I can't imagine why they would agree to take on that responsibility (and the burden of irate, potentially litigious investors) to shave off the commission they're currently paying to RS.  Interested to hear your thoughts, however.

I suppose I'm of the belief that most of the sponsors will be able to handle the logistics. Many already do this, and there are software tools out there just for this task (Crowdstreet offers this tool). And if this were to happen, they would be freed of the RS commission, so it might be in their interest. Every sponsor our there wants connections with investors, this would give them that. Right now, RS shields us from the sponsors. I don't think it would be a tough sell to the Sponsors.

This is all assuming that RS has NOT sold the assets to another company, of course. I'm not a lawyer, I'm just offering an idea. I don't know if transferring control of the assets to the sponsors is even possible legally. But, I fear that if things are left alone, bankruptcy will happen and we'll all get severely screwed. The more investments that start underperforming and the more sponsors start getting greedy, the more bankruptcy is likely, IMHO. RS needs a steady income stream from what they have just to be able to pay a staff to manage whats there. If we sit back and wait it might be too late to act once a receiver is appointed.

Not a lawyer either, but based on my read of the offering documents, our recourse is that we can fire RS as the manager/administrator if investors holding 75% of the units vote for it.  We would have to set it up ourselves and basically build from scratch, so don't know how viable that really is.  As I said before, the best outcome all around is for sponsors to realize that it's in their best interest to have nothing to do with RS go forward and try to exit/recap deals to take us out. 

princyraj

#451
Quote from: groovydude on March 30, 2019, 07:59:23 AM
I'm up to date on most of my investments. 3 months behind on 4039 95th Ave though (RS says they are aware of this), and now one month behind on 1026 Corsica Drive. Anyone here in on these?

I'd like to ask if there is anyone out there who might be able to perhaps make a google sheet, or some way that we could voluntarily start making a database of investors by asset. I think we have power in numbers, right now this board is all we have that I'm aware of and it's pretty scattered. Sam?

I am invested in the 4039 95th. I sent them 2 reminders recently (after the March 15th update) and haven't received any response yet. I checked on redfin a while ago and they have been advertising completion by winter 2019. However, RS never bothered to "proactively" followup/update us on the delay before the initial maturity date (There was an update on June 2018 about 12-month delay) and till date hasn't updated the correct maturity dates on the site.

The new fund management has been operational for a while now, however they seem to be struggling. I believe some of the challenges might be the influence or co-ordination between asset management team and fund management teams.
 

mspringer

#452
Probably of little consolation to most, and maybe it actually makes it worth less if they don't finish, but I just called a few existing stores around the Church's Chicken in Apopka, FL (Orlando) and when I asked if they were near the new Church's Chicken, they both said yes.  One said "you mean the one they are building". 

Crazy that at this point I am actually excited/relieved to know there is at least some brick and mortar and it's not a complete hoax.  Now I just hope it's far enough along that it's easier for FG to finish and sell than to scrap.

groovydude

For whatever it's worth, this just received from RS:

"Thank you for your email. At the moment we are experiencing an issue with some of the distributions when being credited to the bank accounts of our investors. Our team is ready to re-submit these payments shortly. We apologize for this delay and appreciate your patience."

groovydude

Quote from: John on April 01, 2019, 07:35:11 AM
Quote from: groovydude on March 31, 2019, 05:15:27 PM
Quote from: stingray on March 31, 2019, 11:33:52 AM
@groovydude.  It is good to be creative, but I don't understand what you are suggesting.  How do you propose to remove RS from a deal and yet maintain an infrastructure to distribute payments to investors and provide tax forms?  The recordkeeping and compliance burdens are considerable.  Most real estate developers do not know how to do this.  I can't imagine why they would agree to take on that responsibility (and the burden of irate, potentially litigious investors) to shave off the commission they're currently paying to RS.  Interested to hear your thoughts, however.

I suppose I'm of the belief that most of the sponsors will be able to handle the logistics. Many already do this, and there are software tools out there just for this task (Crowdstreet offers this tool). And if this were to happen, they would be freed of the RS commission, so it might be in their interest. Every sponsor our there wants connections with investors, this would give them that. Right now, RS shields us from the sponsors. I don't think it would be a tough sell to the Sponsors.

This is all assuming that RS has NOT sold the assets to another company, of course. I'm not a lawyer, I'm just offering an idea. I don't know if transferring control of the assets to the sponsors is even possible legally. But, I fear that if things are left alone, bankruptcy will happen and we'll all get severely screwed. The more investments that start underperforming and the more sponsors start getting greedy, the more bankruptcy is likely, IMHO. RS needs a steady income stream from what they have just to be able to pay a staff to manage whats there. If we sit back and wait it might be too late to act once a receiver is appointed.

I'll say it again. I believe operations are improving and aside from the bad deals I already had, everything else is at or close to current.

So, any discussion of bankruptcy is purely speculative. If anyone on here is a lawyer with bankruptcy experience please opine, but it's not clear to me why a bankruptcy filing of the Realty Shares parent company would destroy our position as investors in the individual deal LLCs. Would a judge consolidate every subsidiary LLC, which were formed for the explicit purpose of NOT co-mingling funds and deal risk? If the answer is no, I think multiple entities could be interested in buying the servicing rights to the good deals (including the servicers that wouldn't touch RS as a whole because of non-performing deals). I also think workout shops would evaluate the non-performers for purchase as well, either the "servicing" rights or the investments themselves. Recoveries would vary on non-performing deals, but do you think they'd be better if RS was the one seeing those processes out til the end, rather than someone that does it for a living?

I look at my performing deals and I see millions of equity capital invested behind me. I don't know why sponsors in that position would try to impair a senior part of the capital structure and damage their reputations just to enact pain on groups of investors, especially when it's a clear loser in court. My non-performers are a different story. I see small slivers of "pledged equity" behind my loan, where the asset is underperforming or was never built, or in one case where I suspect outright wrongdoing.  I just think good deals are good deals and bad deals are bad deals. I don't think predatory sponsor behavior on good deals is going to cause this to unravel.

Good points.

This whole conversation is speculation! What has anyone actually heard from RS? I think we would all feel better about our position if RS would communicate with us. I've sent an email asking for that, but I won't hold my breath.

kt1984

I agree with you John- between did anyone get any updates from RS on any FG deals?  Please keep us posted, specifically on the Taylor MI deal which was supposed to close last week. I have sent repeated reminders to RS but have not heard back.

CushLash

Just following up on my previous posting to see if there was group interest in pooling funds to have counsel write a demand letter on our behalf.  So far, I've heard from 5 people who have expressed interest:
•   CushLash
•   GA Investor
•   Groovydude
•   Dwengca
•   sparkkim

Anyone else out there who wants to 'lock arms' and take action?

John - to your point above, i'm certainly not trying to bankrupt Realty Shares as I think that is the wrong answer.  That said, I am suspicious about their use of funds and more importantly, I'm pissed off about their complete lack of communication.  I'm bummed that things have gone sideways with the business, but the should be handling things much differently in the aftermath.  My hope is that some legal pressure might shake something loose or more quickly force a sale of the portfolio to a different servicer who is better equipped to handle the assets.

stingray

@John--you are a real voice of reason here.  I agree with you.

John_PVF

I agree with @John that engaging a lawyer at this point is likely counterproductive as it will divert some of what limited resources they have.  I had another idea that I'd like the group to consider.  Instead of a lawyer, why don't we as a group write one.  Address to the CEO, but copy to relevant board members at their VC owners.  We could express our concerns, make recommendations for how they could better serve us, but also reserve the right to go bigger if it came to that.  If a sufficient number of signatories committed, we might get their attention. 

In no particular order, here is what I would want to convey:

1. Concern about platform stability/their ability to accurately and timely service payments, provide updates and reporting (quarterly reports, 1099s, K-1s, etc.).
2. Accuracy of the items above, process by which we can audit/dispute if there are disagreements
3. Confirmation of what/where servicing has been transitioned and timing of those efforts.
4. Concern about lack of communication.  Their hasn't been anything global that I'm aware of since the official announcement.  I'm sure they know, but reiterate that without something from them people naturally assume the worst and will act accordingly (lawyer up, etc.).   They would likely be well served by providing us regular updates as I'm guessing they're answering the same questions individually multiple times.

Any thoughts?  It seemed like a reasonable option to me as it would be no cost to us (other than time to draft it) and wouldn't generate a legal response on their end.

ramesh

Quote from: John_PVF on April 02, 2019, 09:36:17 AM
I agree with @John that engaging a lawyer at this point is likely counterproductive as it will divert some of what limited resources they have.  I had another idea that I'd like the group to consider.  Instead of a lawyer, why don't we as a group write one.  Address to the CEO, but copy to relevant board members at their VC owners.  We could express our concerns, make recommendations for how they could better serve us, but also reserve the right to go bigger if it came to that.  If a sufficient number of signatories committed, we might get their attention. 

In no particular order, here is what I would want to convey:

1. Concern about platform stability/their ability to accurately and timely service payments, provide updates and reporting (quarterly reports, 1099s, K-1s, etc.).
2. Accuracy of the items above, process by which we can audit/dispute if there are disagreements
3. Confirmation of what/where servicing has been transitioned and timing of those efforts.
4. Concern about lack of communication.  Their hasn't been anything global that I'm aware of since the official announcement.  I'm sure they know, but reiterate that without something from them people naturally assume the worst and will act accordingly (lawyer up, etc.).   They would likely be well served by providing us regular updates as I'm guessing they're answering the same questions individually multiple times.

Any thoughts?  It seemed like a reasonable option to me as it would be no cost to us (other than time to draft it) and wouldn't generate a legal response on their end.

Several of us have said this over the past month:  legal threats will deplete RS resources, distract their management, and accelerate the flight of employees. In such an event, we could all end up worse.  Others seem to be convinced either that there is malfeasance on the part of RS, or a deliberate unresponsiveness.  If this is the case, legal action might help. 

I lean toward the former view.  I think a collective letter can help.  I'd be glad to add my name to the list of signatories to such a letter.