Thoughts On RealtyShares Closing Its Doors To New Investors

[JD]

I am new to posting here but have followed the conversation. The reason I'm posting is I had my accountant, who has 50 years of experience, look at the Realtyshares situation. HIs comment: "There is no way real estate investments could go bankrupt in this market...unless there is theft on a grand scale or a ponzi scheme....

I just don't understand how after 9 months, perhaps because some returns are still coming in, offices haven't been invaded by the FBI or the SEC, or this hasn't made it on a major news station.

How long did it take before Madoff's scheme was exposed? What are we looking at for a timeline?

Lol can we please stop being so dramatic and mention FBI and stuff? You guys are funny

Why not? We're talking about pretty obvious fraud across multiple states; that's exactly what the FBI should handle. On top of that, it's for millions of dollars, not small claims.

It's pretty evident that several sponsors signed contracts with claims that they had no intention of following through with, took our money and ran. RS was complicit, as they were supposed to guard us from exactly that.

It's not like these guys actually tried and couldn't deliver - maybe a few of them did but I have at least 5 deals completed in 2018 that clearly never even attempted what they were supposed to - they paid out a couple hundred dollars of interest over a few months and then claimed there was nothing left that they could do. That's absurd - especially in the economy as it was, as mentioned by schin's accountant.

If people think they can simply file bankruptcy and walk away, that's pathetic; they should spend as long as it takes to pay us back one way or another. If that's not money, it's incarceration, something similar, or all of the above.

Hopefully IRM is going to get a wedge in before we need to go that far. I too am happy with what they've done in the little time they've had. But if, by the end of the year, I am out $150k on $250k in investments, I will seek to recover it with the aid of more powerful organizations.

[schin98@juno.com]

There is $800 million dollars at stake. IRM stepped in for their own capitalistic interests, not for some altruistic purpose. Those of you who think IRM is your "friend" or anybody is going out of their way in your interest to recover this money is seriously deluded. The borrowers see an "out" by stating they have no money to pay you back. The only way this is going to be fixed is if law enforcement steps in and threatens jail time unless debts are paid.

[JD]

There is $800 million dollars at stake. IRM stepped in for their own capitalistic interests, not for some altruistic purpose. Those of you who think IRM is your "friend" or anybody is going out of their way in your interest to recover this money is seriously deluded. The borrowers see an "out" by stating they have no money to pay you back. The only way this is going to be fixed is if law enforcement steps in and threatens jail time unless debts are paid.

Great, so what do we do now?

As linked to before by another member, file complaints with the SEC and California AG, that's for sure.

And then? Short of hiring lawyers, why not report this to the FBI? It certainly can't hurt.

[schin98@juno.com]

The media needs to hear about this. Once a story goes on an investigative show, like "American Greed" on CNBC, it forces the government to investigate. $800 million should be enough to get the media interested. I tried contacting CNBC about this, but they never responded. We would need somebody "connected".

[JD]

The media needs to hear about this. Once a story goes on an investigative show, like "American Greed" on CNBC, it forces the government to investigate. $800 million should be enough to get the media interested. I tried contacting CNBC about this, but they never responded. We would need somebody "connected".

Fair enough. That's not me but maybe someone else here.

I have some other ideas and connections along the law enforcement path so I'll be looking into those independently. I'll post back if they get somewhere.

[stingray]

Depending on your state of residence, here are some officials who have looked into one or more aspects of the RealtyShares mess.  If you reside in their state and have information, they might wish to hear from you.

**Do you have contacts for other states?  Please add to the list.**

Alabama
Ricky Locklar
Special Agent, Alabama Securities Commission
Ricky.Locklar@asc.alabma.gov

California
Adam Wright
Senior Counsel, California Dept. of Business Oversight
Adam.Wright@dbo.ca.gov

Maryland
Max Brauer
Asst. Attorney General, Securities Division
410-576-6950

Massachusetts
Brandon Sisson
Enforcement Investigator
brandon.sisson@state.ma.us

[cfojim]

RS 116 - one day after getting the note above saying the sponsor is not responsive and they will provide a K-1 estimate, I receive a note that the K-1 has been uploaded - looked at it and it is the actual K-1 - makes me wonder about their internal communication.

Some K-1 activity from yesterday:
RS190 - received version 5, which is the same as version 4.  This investment is the good performing preferred equity Class A Multifamily in Dallas Fort Worth, which is current on monthly payments and operationally seems to be running well.  Distributions were corrected in a previous version, but it is still missing investment income (historically reported as block 5 interest income), so the capital account ending balance is too low by the amount of the missing income. I've told them repeatedly that the investment income is missing, but so far they are ignoring me.
RS193 - estimated K-1 for the Marriott Courtyard Columbus, a poor performing equity investment that provided no 2018 distributions and which historically for me was the last K-1 RealtyShares sent each year.  No information is provided yet on this K-1, except for block L capital account beginning balance, which is wrong because the ending balance from 2017 was not carried forward correctly to the 2018 K-1 beginning balance.
RS176 - estimated  K-1 for poor performing preferred equity Stellar Homes Fund I, which is current on monthly payments but anticipated to return substantially less than the original investment.  Distributions and capital account beginning balance are correct, but the income is missing on this version 1.

Jesus on version 5, there is no way accountants should screw it up that bad and I wonder who at the accounting firm is reviewing them before they are issued.

On RS190, received email today saying version 6 will fix it.

Downloaded version 6 today for RS190 K-1.  This one now looks correct to me.

[cfojim]

Received RS188 K-1 version 3.

It removed the erroneous capital loss, added in the distributions, and is now showing all of the 2018 cash yields as income.  Block L left me with a capital account balance of $1 instead of $0, but all in all this K-1 now looks to be "close enough for government work".

Are they showing it as a final k-1?

I have no way of knowing.  They may change it again.

RS 231 they marked as a final K-1 at the top of it but another investment that closed out in 2018, shows a capital balance and wasn't marked final K-1 at the top.

Yes, RS188 exited in 2018 and the K-1 is marked as "final".  I don't know what I was thinking when I originally responded to you...

[cgblack]

Received my K-1 for 1 Sand and Sea.  They stopped paying cash yields last year, and are over a year behind schedule.  In 2018, I received 10 monthly cash yields of $187.50.  On my K-1 this is reported as $1875 of withdrawals and distributions, reducing my capital account from $25,000 to $23,966 (there was also a $159 loss)??  I'm not a CPA, but this does not seem correct at all.

I'm assuming this investment closed prior to 2018.  Check your 2017 K-1 and see how the cash yields were reported.  I have several preferred equity investments that report cash yields as interest income.  It is possible that your $1875 in cash yields should be reported as interest income and your capital account should be higher by that amount.

No, this investment has not closed, and there was no K-1 produced for 2017 (even though there were cash yields).  I too feel that they should be interest income and that my capital account should be higher.  I've sent them an email inquiring about this, but I'm not holding my breath.

We'll they finally answered my email and pointed me at my 2017 K-1 (predefined filter for 2018 only, DOH!)  The 2017 shows business income and distributions with no change to the capital account.  No answer in the email concerning the discrepancy from one year to the next.  It is not marked as Final though.

Encouragingly, I did receive a response from IRM:
=====
As the sponsor is currently not current with payments, the K-1 is reporting the distributions as return of capital.
If and when the sponsor becomes current, the income received over the original basis will be reported as ordinary business income. 
=====

Hopefully that happens.   

Their last update below was on 7/9, so much for an update every 30 days.   The expected maturity date was 10/6/18, now we're probably talking 2020.   
====
According to IRM's findings, this investment is not performing according to the original business plan. The sponsor changed the floor plan of the property, added square footage, and increased the deck area. All of the changes required municipal planning review and approval.  Additionally, now that the floor-to-ceiling sliding door system and size has been determined, the door system needs to be ordered. This is a custom job that has a 14-week lead time with delivery expected in November. These changes have delayed slated project completion to at least the end of 2019.

Since the last update, an IRM asset manager has visited the property and met with the sponsor's point person on the project. The rough wiring and plumbing have been completed. The HVAC contractor was on site. After the HVAC and all other aspects of the MEP (mechanical, electrical and plumbing) have been completed and inspected, the insulation can and sheetrock can be installed. The sponsor has been communicative during this process.

IRM plans to provide updates on this investment approximately every 30 days.

[dwengca]

Just received this update.  Again, it shows that RS totally was not managing our asset/money at all.

New Jersey Multifamily Fund II 8/30/2019
08/30/2019
IIRR Management Services, LLC (IRM) has now taken over the Asset Management and Fund Admin functions of this investment. Our goal is to provide timely and accurate updates on each asset as best as possible.

According to our findings, it is difficult to determine if this Fund is performing according to the original business plan. This investment has been identified as a Tier 2 asset.  The sponsor of this fund is responsive to our communications

Since the last update, the sponsor provided the 2Q2019 quarterly reports. The reports appear to more prepared for tax accounting. Renovation costs are expensed instead of being capitalized which distorts the Net Income and Net Worth of the Fund.  IRM has requested a list of the homes in the Fund, the purchase price and renovation costs. IRM has also asked for any appraised values they may have obtained. This information will enable IRM to determine the amount of equity in the Fund and whether the Funds are making or losing money. Once, IRM gets this information, an update will be posted for investors.   IRM will continue to act in the best interests of our investors. By doing so, IRM expects to get the highest return possible for investors.

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 information and financial statement above are presented on an as-is basis, as provided to our team members, and have not been independently verified by IRM.

IRM Asset Management Team

New Jersey Multifamily Fund II

[groovydude]

I'm sharing this to other investors here as I think it's informative. I received this today in regards to my Corsica Drive investment - an unsecured second of $1.4M on a spec house in an upscale area of Los Angeles:

"According to our findings, this asset was identified as a Tier 3 asset. All possible distributions, interest payments and proceeds from this investment have now been collected and paid in accordance with the investors' rights per the Operating Agreement. IRM found a buyer of the RS mortgage prior to the foreclosure sale. The note was sold for $350,000 and proceeds less costs will be distributed shortly.

IRM has classified this investment as Failed.  Due to cost overruns and poor management, the borrower ran out of money to complete the project. The borrower had another partially finished house that was auctioned in foreclosure. The only bidder was the first mortgage lender, all other investors lost everything. This investment was a second lien mortgage which would only be repaid if a bidder in a foreclosure auction bid more than the 1st mortgage holders' debt, legal fees, default interest, and late fees. Several offers for the RS mortgage were made by investors. The highest offer was $350,000 which IRM accepted. IRM now believes no further recovery is possible because the collection rights under the mortgage now belong to the new owner of the note."

As for the settlement of about $0.27 per $1, one could argue that IRM is doing what they should here, or one could say they should hold out for more. Sure, I wish IRM would have been able to salvage this by buying out the first mortgage, and finding another builder to take over and complete the project, but that's expecting way too much. I'm not happy with the loss on a relatively small investment for me, but without IRM taking over it would have been worse.

The RS deal is another matter. IRM reports that the sponsor had another totally failed investment. I know the area he was building in and a halfway respectable builder would have been able to make this work in the current market in LA, which is why I took the plunge on this. It's just another case of RS lending not giving a rat's butt who they raised money for. I tried contacting the sponsor to find out for myself what was going on when loan payments stopped. I managed to get a hold of the listed sponsor - a company in LA called BBS Real Estate who referred me to a someone named Scott Moore at a different number -  and it was immediately clear to me that this guy was a shady. I checked again today, and BBS real Estate is not answering their phone, and the message says I've reached some other company. Even the architect on the project today doesn't answer and his voicemail is full. It a smells totally rotten to me. This isn't anywhere nearly as big a con as the FG deals, but it's clearly shady.

I really wish we could publicly shame the individuals at RS responsible for approving these horrible debt deals. They appear to have been so bad that it's hard to imagine that at the very least the approvers knew that the deals had a 100% likelihood of failure or possibly even that kickbacks were involved. Sam, our amazing host, has a few names posted on his site: Nav Athwal, Asash Sotoodehnia, Javier Benson, Simon Morris to name a few (I'm including them so that search engines can find this thread). It's hard to imagine these folks weren't aware of or even complicit in the scamming. Other names anyone?

[barnold24]

RS 32 - just got a new K-1 for it today - version 3, went line by line and literally nothing changed from version 2 - even the state K-1 is the same.

[mspringer]

I'm sharing this to other investors here as I think it's informative. I received this today in regards to my Corsica Drive investment - an unsecured second of $1.4M on a spec house in an upscale area of Los Angeles:

"According to our findings, this asset was identified as a Tier 3 asset. All possible distributions, interest payments and proceeds from this investment have now been collected and paid in accordance with the investors' rights per the Operating Agreement. IRM found a buyer of the RS mortgage prior to the foreclosure sale. The note was sold for $350,000 and proceeds less costs will be distributed shortly.

IRM has classified this investment as Failed.  Due to cost overruns and poor management, the borrower ran out of money to complete the project. The borrower had another partially finished house that was auctioned in foreclosure. The only bidder was the first mortgage lender, all other investors lost everything. This investment was a second lien mortgage which would only be repaid if a bidder in a foreclosure auction bid more than the 1st mortgage holders' debt, legal fees, default interest, and late fees. Several offers for the RS mortgage were made by investors. The highest offer was $350,000 which IRM accepted. IRM now believes no further recovery is possible because the collection rights under the mortgage now belong to the new owner of the note."

As for the settlement of about $0.27 per $1, one could argue that IRM is doing what they should here, or one could say they should hold out for more. Sure, I wish IRM would have been able to salvage this by buying out the first mortgage, and finding another builder to take over and complete the project, but that's expecting way too much. I'm not happy with the loss on a relatively small investment for me, but without IRM taking over it would have been worse.

The RS deal is another matter. IRM reports that the sponsor had another totally failed investment. I know the area he was building in and a halfway respectable builder would have been able to make this work in the current market in LA, which is why I took the plunge on this. It's just another case of RS lending not giving a rat's butt who they raised money for. I tried contacting the sponsor to find out for myself what was going on when loan payments stopped. I managed to get a hold of the listed sponsor - a company in LA called BBS Real Estate who referred me to a someone named Scott Moore at a different number -  and it was immediately clear to me that this guy was a shady. I checked again today, and BBS real Estate is not answering their phone, and the message says I've reached some other company. Even the architect on the project today doesn't answer and his voicemail is full. It a smells totally rotten to me. This isn't anywhere nearly as big a con as the FG deals, but it's clearly shady.

I really wish we could publicly shame the individuals at RS responsible for approving these horrible debt deals. They appear to have been so bad that it's hard to imagine that at the very least the approvers knew that the deals had a 100% likelihood of failure or possibly even that kickbacks were involved. Sam, our amazing host, has a few names posted on his site: Nav Athwal, Asash Sotoodehnia, Javier Benson, Simon Morris to name a few (I'm including them so that search engines can find this thread). It's hard to imagine these folks weren't aware of or even complicit in the scamming. Other names anyone?

Scott Moore and BBS were also in on the failed Linda Terrace (California) deal.  I still can't figure out where the money went as it was raised with the intention of building a house and selling it.  The construction never started, so that money should be sitting in an account somewhere that can pay down the 1st lien and then leftover to our 2nd.  But instead it's going to be considered a complete loss and appears to be limited forensic accounting involved.

[rs_thoughts]

groovvydude sorry for your loss. i'm in a similar situation with FG deals. I think RS did know their pipeline was flawed, but they didn't care as much. They just need to inflate the flow to validate the VC funds (which goes back to the incentives being wrong). However, I think as the deals became more delinquent, the VCs likely pressured Nav Athwal and his team out and consequently replaced with a true Real Estate veteran---  I think some guy from Cushman & Wakefield (old school Real Estate company). Once the real estate veteran saw the delinquency in the portfolio that Nav left behind and reported it to the VCs, they pulled the plug on the whole shop to minimize the reputation risk. Likely VCs, should have assigned a true Real Estate veteran from the beginning, because RealtyShares is not really a technology company. Rather they were just an amateur Real Estate shop with a website. Best wishes

[holymackerel]

Did anyone receive the payout from 1026 Corsica drive scam I mean deal? Groovy?  Unfortunate I was in that deal as well, haven't seen anything yet but got the same update. We'll see just how much table scraps they give us back .... 350,000. Out of 1.4 mil..... seriously Wish there was something more we could do  I also got stuck on a fg deal as well and got about 30% back. So much for real estate crowdsourcing on RS Sam.

[holymackerel]

So received 1,200 back on 5,000 ......

[Dgilpin]

Did anyone receive the payout from 1026 Corsica drive scam I mean deal? Groovy?  Unfortunate I was in that deal as well, haven't seen anything yet but got the same update. We'll see just how much table scraps they give us back .... 350,000. Out of 1.4 mil..... seriously Wish there was something more we could do  I also got stuck on a fg deal as well and got about 30% back. So much for real estate crowdsourcing on RS Sam.

Which FG deal closed out and when?

[groovydude]

Did anyone receive the payout from 1026 Corsica drive scam I mean deal? Groovy?  Unfortunate I was in that deal as well, haven't seen anything yet but got the same update. We'll see just how much table scraps they give us back .... 350,000. Out of 1.4 mil..... seriously Wish there was something more we could do  I also got stuck on a fg deal as well and got about 30% back. So much for real estate crowdsourcing on RS Sam.

Holymackerel - I did get the distribution. Of course, IRM doesn't label their deposits.

[groovydude]

I'm sharing this to other investors here as I think it's informative. I received this today in regards to my Corsica Drive investment - an unsecured second of $1.4M on a spec house in an upscale area of Los Angeles:

"According to our findings, this asset was identified as a Tier 3 asset. All possible distributions, interest payments and proceeds from this investment have now been collected and paid in accordance with the investors' rights per the Operating Agreement. IRM found a buyer of the RS mortgage prior to the foreclosure sale. The note was sold for $350,000 and proceeds less costs will be distributed shortly.

IRM has classified this investment as Failed.  Due to cost overruns and poor management, the borrower ran out of money to complete the project. The borrower had another partially finished house that was auctioned in foreclosure. The only bidder was the first mortgage lender, all other investors lost everything. This investment was a second lien mortgage which would only be repaid if a bidder in a foreclosure auction bid more than the 1st mortgage holders' debt, legal fees, default interest, and late fees. Several offers for the RS mortgage were made by investors. The highest offer was $350,000 which IRM accepted. IRM now believes no further recovery is possible because the collection rights under the mortgage now belong to the new owner of the note."

As for the settlement of about $0.27 per $1, one could argue that IRM is doing what they should here, or one could say they should hold out for more. Sure, I wish IRM would have been able to salvage this by buying out the first mortgage, and finding another builder to take over and complete the project, but that's expecting way too much. I'm not happy with the loss on a relatively small investment for me, but without IRM taking over it would have been worse.

The RS deal is another matter. IRM reports that the sponsor had another totally failed investment. I know the area he was building in and a halfway respectable builder would have been able to make this work in the current market in LA, which is why I took the plunge on this. It's just another case of RS lending not giving a rat's butt who they raised money for. I tried contacting the sponsor to find out for myself what was going on when loan payments stopped. I managed to get a hold of the listed sponsor - a company in LA called BBS Real Estate who referred me to a someone named Scott Moore at a different number -  and it was immediately clear to me that this guy was a shady. I checked again today, and BBS real Estate is not answering their phone, and the message says I've reached some other company. Even the architect on the project today doesn't answer and his voicemail is full. It a smells totally rotten to me. This isn't anywhere nearly as big a con as the FG deals, but it's clearly shady.

I really wish we could publicly shame the individuals at RS responsible for approving these horrible debt deals. They appear to have been so bad that it's hard to imagine that at the very least the approvers knew that the deals had a 100% likelihood of failure or possibly even that kickbacks were involved. Sam, our amazing host, has a few names posted on his site: Nav Athwal, Asash Sotoodehnia, Javier Benson, Simon Morris to name a few (I'm including them so that search engines can find this thread). It's hard to imagine these folks weren't aware of or even complicit in the scamming. Other names anyone?

Scott Moore and BBS were also in on the failed Linda Terrace (California) deal.  I still can't figure out where the money went as it was raised with the intention of building a house and selling it.  The construction never started, so that money should be sitting in an account somewhere that can pay down the 1st lien and then leftover to our 2nd.  But instead it's going to be considered a complete loss and appears to be limited forensic accounting involved.

I think it's highly likely that it's in some offshore bank.

[babets]

Same exact message for Long Island Family care in West islip NY.  Somehow this is an even bigger disaster than we expected.  I sure hope new management has some ace in he hole leverage for recovery,  but it sounds like they're just setting us up for terrible news.

Is the franchisee of Long Island Family Care in West Islip, NY affiliated with FG at all?  Is that business still operating? Do you have a link to the initial investment page?

i am on this deal (west islip family care). out of the 3 FG investment I own, this is the only one that has not been returning any capital yet. The other 2 are in default but at least they returned approx 50% of the initial investment plus some partial interest during the time. according to RS we should have resolution soon on FG with a new offer from FG or foreclosure.
The west islip one is strange as it seem the only one of my 3 operating but no news for a long time...


ironically an update just came from RS...if this will be the case, not bad! good luck to all.