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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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mspringer

Quote from: stingray on December 17, 2020, 05:47:54 AM
@mpspringer:

You do not need to wait to declare your investment(s) worthless.  In some cases (see below), you may even lose your ability to claim a loss if you wait.  The answers to your questions are contained in IRS instructions.  The short answer is, be reasonable and document the reason for your decision.  The even shorter answer is, and I say this as a friend: if you invest in vehicles like RS you should have an accountant who can handle questions like this and defend you in case of an IRS audit.

For tax purposes, for an untraded private asset, you can use your own reasonable method to determine when your investment becomes worthless.  You certainly do not have to defer to RS.  In my view, the factual circumstances make it reasonable to declare some of these RS investments worthless, even if RS has not yet admitted it.

If your investment is a partnership (LLC) interest, you can declare it worthless and take a (long-term) capital loss.

If you have not had partnership liabilities allocated to you (check your last Form K-1), in many cases you can affirmatively abandon your partnership interest and take a loss against ordinary income.  This approach would be better for you, if you determine that you are allowed to take it.  Here you must notify the LLC and document very carefully.
https://www.cpajournal.com/2016/10/01/partnership-abandonment/

If your investment is in the form a promissory note, the tax treatment is different.  A failed investment is treated as a bad debt.  If it is a personal investment, it must become 100% worthless, at which point you can deduct it as a long-term capital loss.  It is up to you to determine when it becomes worthless.  Note:  the IRS states that you MUST claim the loss in the year the debt becomes worthless.  If you wait until a subsequent year, the IRS could deny the loss.

Finally, a philosophical word about income tax:  when you invest in complicated private deals, the application of tax law and regulation to real-world situations is never 100% clear.  You have to do your best to comply, but there will often be gray areas that require judgment.  Consult an accountant.  Bear in mind, that if you act in good faith and document your reasons, the worst that will happen is that the IRS audits you and disagrees.  There is really no shame in that.  It happens all the time to sophisticated investors.  You will debate your position with them.  If you don't prevail, you will pay the difference in tax and some interest.  There may be some penalties, but you can avoid or minimize these by acting in good faith and documenting your decisions.

GOOD LUCK MY FRIEND.

Great info and links Stingray.

Thank you

berkel

Got an update from RS on the Castle Court Apartments Seattle 2nd Lien Tranche 2 deal and "gasp", a payment:

IRM has agreed to a 4th amendment to the business loan agreement and modification to promissory note for a loan extension from 10/01/20 to 12/18/21. This extension was made in order to have co-terminus terms with the senior lender.

The terms of this agreement are as follows:

1. The current fixed interest rate of 12.0% increased to 15.0% and will accrue from 12/18/20 to 12/18/21.
2. The Borrower paid the past-due interest owed from 05/01/20 to 12/18/20.
3. The Borrower made a principal paydown of $500k, reducing the remaining principal from $2,129,000 to $1,629,000.
4. The borrower paid an extension fee of $16,290 or 1.00% of the loan principal balance.


I went to my account that is linked to RS and lo and behold there was a deposit of $3075.50!

I reconciled it as follows:

Principal paydown of ~23.5% from $10K to $7,651.48
Interest of $726.99 for the period from 5/1/2020 to 12/18/2020

Hopefully they make the rest of the payments and I get out of this one without any losses.

My last open deal is unfortunately from FG (AFC in Largo, FL), but not a lot of hope that I'll get any of the remaining ~$2700 in principal. 


~$Retirement Nerd

sdnerd

Has anyone received or seen any updates in re: to the FG properties?

Feels like it's been a few months of radio silence.

mspringer

Quote from: sdnerd on February 04, 2021, 10:00:35 AM
Has anyone received or seen any updates in re: to the FG properties?

Feels like it's been a few months of radio silence.

Ironic because we just got one today saying they are working with a company who may buy into some, but not all, of the FQ investments.  I wonder if we ask for an update on this board, if we are more likely to get one, as it seems that's the only time I see it?

berkel

I hope you guys have some luck, regarding the American Family Care deal in Florida my update said it's a tier 3 asset and they seem to have lost the original loan documents.  They are trying to find them in storage, but the fees haven't been paid.  So they may have lost the original loan documents required to do the deal with the other company?  Awesome.

It's also awesome that my Karma is down to -27, that's a lot of bad karma!!
~$Retirement Nerd

mspringer

Quote from: berkel on February 05, 2021, 05:12:02 AM
I hope you guys have some luck, regarding the American Family Care deal in Florida my update said it's a tier 3 asset and they seem to have lost the original loan documents.  They are trying to find them in storage, but the fees haven't been paid.  So they may have lost the original loan documents required to do the deal with the other company?  Awesome.

It's also awesome that my Karma is down to -27, that's a lot of bad karma!!

I'm in the Church's Chicken in Orlando, FL and received the same wording.  I guess I am na├»ve as to assume documents like that are not that easy for everyone to lose.

sdnerd

Quote from: mspringer on February 05, 2021, 04:37:12 AM
Quote from: sdnerd on February 04, 2021, 10:00:35 AM
Has anyone received or seen any updates in re: to the FG properties?

Feels like it's been a few months of radio silence.

Ironic because we just got one today saying they are working with a company who may buy into some, but not all, of the FQ investments.  I wonder if we ask for an update on this board, if we are more likely to get one, as it seems that's the only time I see it?

Yeah, I received the updates shortly after posting that comment. Either great timing, or someone is monitoring for the forum - which would also be great (and hello and appreciate the updates if you are).

After all the ..."interesting developments"... the wrinkle about the missing loan docs or unpaid storage fees doesn't really surprise me at this point. Fortunately it at least sounds like the documents "should" exist. I'd rather hear they have to pay (what should be small) storage fee backpayments vs. something like the RealtyShares office dog ate all the paperwork on the way out the door.

Here's the update I received for the FG properties for those who didn't get one:

"
IRM currently classifies this investment as a Tier 3 asset. Interest payments from
this investment have not been distributed in accordance with the original
business plan.

Since the last update, IRM has been privately negotiating with a large, national,
franchise-focused real estate investment group based in Texas, about possibly
acquiring the notes directly from investors. This 3rd party group is aware of the
Franchise Growth portfolio and is conducting its own due diligence on each
asset. If a deal was to materialize, it would be on an asset-by-asset basis, not as
a portfolio. This means that different investors will likely see different levels of
returns/losses depending on the status of the individual asset they are invested
in.

IRM will consider offers for each asset that we believe best serve investors'
interests. The payment amount would have to reflect a positive net to investors
compared to the alternative time and cost of foreclosing, and then selling each
asset in the open market. IRM will evaluate each offer based on the most recent
broker opinion of value for each asset, versus the time and legal expenses of
foreclosing and accounting for possible back-taxes, fines, and mechanic's liens
on certain assets.

The negotiations have now advanced materially, and the parties are currently in
the final stages of drafting up a purchase and sale agreement. However, a
difficulty has surfaced in obtaining the original, wet-ink, loan notes drafted
originally by RealtyShares. Since RealtyShares ceased operations, the original
loan documents have been moved to storage, and in some cases, it appears that
the storage fees have not been paid. IRM has staff in different locations around
the country currently looking into storage facilities in an effort to locate the
required files, and IRM may have to pay outstanding RealtyShares bills in order
to obtain those documents.

We continue to work in an effort to obtain the original loan documents and
execute the best possible transaction on behalf of investors. We feel confident
that this deal can be executed in the coming months, but IRM can't guarantee
that outcome just yet. We will continue to update all investors in this portfolio as
additional information becomes available.

**Disclaimer: All information and financial statements above are presented on an as-is basis, as provided
to our team members, and have not been independently verified by IRM. IIRR Management Services,
LLC (IRM) has taken over the Asset Management and Fund Admin functions of this investment from
RealtyShares in June 2019.
"

rs_thoughts

I find it sneaky that I did not get some email from Realtyshares indicating there was an update. Instead, when I was checking to see if there were some tax documents I needed, I saw there was a more recent notification near the end of February on a pdf file. I think they turned off the email setting to notify people. It said:

"IRM has been able to obtain the original Franchise Growth loan documents from a storage location
in California. The files are safely in our offices in Dallas and are being reviewed by the legal team.
Upon first glance, the documents appear to be in perfect condition and properly labeled. We expect
the transaction for the sale of all portfolio properties to continue and hope to share more information
with you shortly.
The sale of the Franchise Growth notes is being done on a case by case basis, and updates with
expected returns will be sent to investors in each project, individually, as they become available"


Congratulations realtyshares. You found the loan docs.....Go GME!

mspringer

Quote from: rs_thoughts on March 01, 2021, 08:27:39 PM
I find it sneaky that I did not get some email from Realtyshares indicating there was an update. Instead, when I was checking to see if there were some tax documents I needed, I saw there was a more recent notification near the end of February on a pdf file. I think they turned off the email setting to notify people. It said:

"IRM has been able to obtain the original Franchise Growth loan documents from a storage location
in California. The files are safely in our offices in Dallas and are being reviewed by the legal team.
Upon first glance, the documents appear to be in perfect condition and properly labeled. We expect
the transaction for the sale of all portfolio properties to continue and hope to share more information
with you shortly.
The sale of the Franchise Growth notes is being done on a case by case basis, and updates with
expected returns will be sent to investors in each project, individually, as they become available"


Congratulations realtyshares. You found the loan docs.....Go GME!

I just checked and same for me.  Not a very official looking update but appears to be positive news.  Fingers crossed.

Allover


Hello All,

No news in this case really is just that. No news. IRM continues to drag its feet with yarns about lost documents and the like. Apparently now the documents have been found. Its a miracle!!

Meanwhile our money is basically dead.

How would you react if someone called you on the phone and said : " Hey, send me XXX amount of dollars in and in 3 or 5 years, if your lucky, I will send you your own money back. "   

BTW : Little to no interest from the legal community about chasing some of these scumbags down. Ian at the Law Firm in Boston says that case not going well. May not move forward at all.  Other attorneys showing zero interest in pursuing the sleazeballs who stole our money from the naive children we gave it too.

Once again : If you know anyone who is in law enforcement at any level......even better in a district attorneys office // DOJ// SEC // Postal Inspector......make sure that you tell them about this situation.   The only way that we are ever going to get any "justice" is going to be if someone with a badge and gun shows up at the RS / IRM offices and says :

"We need to see the files." 

Even then its doubtful this will help us get our money back........but at least someone will be made to answer for their actions. If the Fed can put Charles Keating in jail for being a bad banker.....then some people at RS can be held accountable. 

Best of luck to all.



barnold24

Has anyone received any tax documents or updates regarding timing of the K-1's?

DigitalNomad

Quote from: barnold24 on April 07, 2021, 04:23:01 PM
Has anyone received any tax documents or updates regarding timing of the K-1's?

No, I haven't received any of my 4 K-1s.

JD

Quote from: DigitalNomad on April 07, 2021, 04:45:08 PM
Quote from: barnold24 on April 07, 2021, 04:23:01 PM
Has anyone received any tax documents or updates regarding timing of the K-1's?

No, I haven't received any of my 4 K-1s.

Me either and simply assuming it'll be another required extension year.

Only RS/IRM missing them, yet again. My other sites have delivered pretty much all of them by now.

sdnerd

It would certainly be nice if they gave some type of update. It's been around 1.5 months since we've heard anything.

cgblack

A disappointing update on 1 Sand and Sea:
=====
IRM currently classifies this investment as a Tier 3 asset. Distributions from this
investment have not been distributed in accordance with the original business plan.
Since the last update, the house did sell. It was previously mentioned the closing was
delayed primarily due to the actions of one of the Managing Members (MM). The MM
who was trying to cause the delay demanded he get back his equity investment before
he would consent to the sale of the house. The active MM who completed the house
said the other MM decided not to contest the sale.
The house sold for $9,000,000 and after $450,000 of real estate commissions and
approximately $190,000 of other selling costs, the net sale price was $8,360,000. The
MM reported that the total acquisition, construction and financing cost was $10,528,196,
so the loss was $2,168,196.
The MM who has been involved in completing the house is a CPA. We have requested
much more detail than just a summary of the expenses. We will continue to work on
obtaining the detailed information to determine if the expenses were legitimate and
there was an actual loss. We are also taking steps to determine if there is any recourse
against the MMs for the apparent loss on this investment.
======

This is outrageous.  Here is the original listing for this investment:
======
The total investment, including purchase price, hard and soft costs, and closing costs is approximately $5,572,642. The senior debt will contribute approximately 47.5% of project costs, while RealtyShares investors will contribute approximately 35.9%, leaving the sponsor with a 16.5% contribution to total project cost. The estimated sales price upon completion is $6,600,000, or $3,185/sf (1). However, in order for the Sponsor to return the investors' equity, preferred return, and annualized exit fee upon sale, the sales price need only be $5,112,903, or $2,468/sf.
======

Suddenly a net sales price of $8,360,000 comes out as a loss.  Something stinks about this one!


dwengca

I agree!  I got $20k on this one, and probably all gone now.   I really think there might have been some sort of fraud going on here...   how did they go from 6.6 million to end up costing 10.5 million? 

The sad part I think here is that IRM will probably just let it go. 


Quote from: cgblack on June 11, 2021, 12:46:07 PM
A disappointing update on 1 Sand and Sea:
=====
IRM currently classifies this investment as a Tier 3 asset. Distributions from this
investment have not been distributed in accordance with the original business plan.
Since the last update, the house did sell. It was previously mentioned the closing was
delayed primarily due to the actions of one of the Managing Members (MM). The MM
who was trying to cause the delay demanded he get back his equity investment before
he would consent to the sale of the house. The active MM who completed the house
said the other MM decided not to contest the sale.
The house sold for $9,000,000 and after $450,000 of real estate commissions and
approximately $190,000 of other selling costs, the net sale price was $8,360,000. The
MM reported that the total acquisition, construction and financing cost was $10,528,196,
so the loss was $2,168,196.
The MM who has been involved in completing the house is a CPA. We have requested
much more detail than just a summary of the expenses. We will continue to work on
obtaining the detailed information to determine if the expenses were legitimate and
there was an actual loss. We are also taking steps to determine if there is any recourse
against the MMs for the apparent loss on this investment.
======

This is outrageous.  Here is the original listing for this investment:
======
The total investment, including purchase price, hard and soft costs, and closing costs is approximately $5,572,642. The senior debt will contribute approximately 47.5% of project costs, while RealtyShares investors will contribute approximately 35.9%, leaving the sponsor with a 16.5% contribution to total project cost. The estimated sales price upon completion is $6,600,000, or $3,185/sf (1). However, in order for the Sponsor to return the investors' equity, preferred return, and annualized exit fee upon sale, the sales price need only be $5,112,903, or $2,468/sf.
======

Suddenly a net sales price of $8,360,000 comes out as a loss.  Something stinks about this one!

Dgilpin

Anyone else get updates about the West Islip Family care deal in the Franchise Growth portfolio today?  To update those not involved, there is a buyer for the whole portfolio, that will be done in seperate deals.  one of my investments West islip Family care will be one of the first to close.  I just got the email today stating what the closing price will be.  Lets just say I am shocked by the heavy discount they are accepting and the hit I will be taking on this investment.  I can only assume my other investment in the Detroit Doghaus property will be even worse, despite the fact that they already failed to close a deal at a small loss to investors over a year ago.  Does anyone know how the suits against  IRRM are progressing?  I plan to reach out to legal counsel about this and would like to potentially organize with others here.

rs_thoughts

3 years to get a 50% haircut on senior debt, despite the underlying still working and paying income?? And now you need to take admin fee off that? A round of applause for the managers. And then they send some marketing material to buy into some of their investments? SMH...

John_PVF

Haven't seen much activity on here recently, but was curious if anyone had received any K-1s from Realtyshares for 2020 yet.  I've reached out to IIRM a few times, but the answer is always the same: they are with the administrator that processes them, and that there's nothing contractually they can do to force them to work faster and get them out to us.  This answer is unsatisfactory to me as they have taken longer and longer each year despite having more and more investments close.  The only deadline that seems to have any sticking is the Oct 2021 extended filing date, but I don't take much solace from that.  I could have filed in February were it not for this.  I just don't think they (IIRM or the administrator) are making this a priority and need a little more pressure to do so.  Thoughts?

mspringer

Just got info on Franchise Growth and while that was a pretty deep cut, at least there is finally some closure.