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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: DECA on April 30, 2019, 11:17:07 AM
RS just posted an update on the FG deal for Louisville MSA Captain D's in Shelbyville, KY.  While not encouraging in where this is headed, it is encouraging that it is the most detailed and non-generic report I've seen from RS on my investments.

"This property has been actively for sale since September 2018.  While we hope the sale is successfully concluded, we are considering selling the loan as the possibility of a successful sale at the list price seems improbable and may not result in the highest net proceeds. We have received a number of investor emails inquiring about the potential loan sale. We are currently conducting due diligence to determine if a loan sale is the best option to recover maximum invested funds.  The borrower reports that although the franchisee still holds the lease for this location, this franchisee has closed at least one other location after less than one year of operation. The restaurant is not open because construction is not complete, and significant capital is needed to finish.  We are obtaining current financial statements from the franchisee, determining the status of construction and the costs to complete, and are hiring an appraiser to determine both the "as-is" and "as-stabilized" values of the property. Once the due diligence is complete, we will be in a better position to negotiate the loan sale or if negotiations fail, foreclose. RealtyShares will update you when we have additional relevant information to share."

Also, to update my prior list of FG deals with responses from a couple of you, there are at least nine non-performing FG deals (listed below).  So far, no one has cited a performing FG deal.  If anyone has one, please let us know.

The non-performing FG deals (the first eight of which had the same notice from RS on April 22 about allowing 30 days for loan buyout terms to be determined and then, if unsatisfactory, beginning foreclosure) are:

Church's Chicken – Apopka, FL
Church's Chicken – Westminster, CO
Church's Chicken – North Carolina
Church's Chicken – Deland, FL
American Family Care – West Islip, NY
American Family Care – Largo, FL
Captain D's – Shelbyville, KY
Dog Haus – Decatur, IL
Dog Haus – Taylor, MI

If anyone has any other FG deal updates, please let us know. It is still concerning to have such a consistent pattern of failed deals and calls into question RS' due diligence on FG as well FG's due diligence on the franchisees.

DECA: this is also the same update I got today on Church's Chicken in Apopka.  This deal was consistently performing on payments until January 2019 and based on previous updates it was nearing completion in January.  Therefore, and maybe this is wishful thinking, I would assume it would take less capital to get that location up and running than others that are not as far along.  But based on the similar updates, it would seem they are just throwing all the FG locations into one pot.

Hindsight2020

#541
Today I received 4 months of interest and a small partial principal repayment on my Utah Diversified Residential Fund II investment. Interest is now current through the end of March. I haven't received any notification about it yet from RS. I saw it in my bank account and then checked the earnings section on the website to see what it was for. I hope this portends good news for everyone in the delinquent Utah investments, because this sponsor stopped talking to RS a month or two ago. Did anyone else get catchup payments on other Utah investments?

I should also say that I am now current on monthly distributions on 8 of my 10 remaining RS investments. The only two that are delinquent (and also in payment default) are the FG deals in Decatur, IL and Taylor, MI.

DECA

mspringer,  Thanks and I agree.  I just got another RS notice -- this time for Long Island AFC -- which is pretty much a cut and paste from the Louisville Captain D's notice, except for the specifics saying that the franchisee has not paid rent for four months. The bothersome part of that is that I learned from the franchisee that they made a partial rent payment for April, so the RS update is relying on older information from FG (repeating the same info they posted on 3/20/19). So either RS didn't get a more recent update from FG and is just trying to appear to satisfy investors' requests for more info, or FG is not telling RS the whole story.


ramesh

Predictably..

Church's Chicken Westminster CO 4/30/19
04/30/2019
We have received a number of investor emails inquiring about the potential loan sale. We are currently conducting due diligence to determine if a loan sale is the best option to recover maximum invested funds. The borrower reports that the franchisee has terminated the lease.  According to the borrower, construction has not begun and determined permitting and constructions costs are likely to exceed budget and additional capital will be needed to complete. We are obtaining current financial statements from the franchisee and are hiring an appraiser to determine the "as-is" value of the property. Once the due diligence is complete, we will be in a better position to negotiate the loan sale or if negotiations fail, foreclose. RealtyShares will update you when we have additional relevant information to share.

GA Investor

Quote from: Hindsight2020 on April 30, 2019, 12:25:36 PM
Today I received 4 months of interest and a small partial principal repayment on my Utah Diversified Residential Fund II investment. Interest is now current through the end of March. I haven't received any notification about it yet from RS. I saw it in my bank account and then checked the earnings section on the website to see what it was for. I hope this portends good news for everyone in the delinquent Utah investments, because this sponsor stopped talking to RS a month or two ago. Did anyone else get catchup payments on other Utah investments?

I should also say that I am now current on monthly distributions on 8 of my 10 remaining RS investments. The only two that are delinquent (and also in payment default) are the FG deals in Decatur, IL and Taylor, MI.

I received the January payment for Utah III and IV today but no February or March.

Sdb

Quote from: Hindsight2020 on April 28, 2019, 10:08:39 AM
Quote from: DECA on April 27, 2019, 10:39:47 AM
As I read the comments, I keep seeing Franchise Growth (FG) deals that are not performing (and all appear to have stopped performing around December or January).  Does anyone have an FG deal that is performing?

At least five FG deals had an identical notification by RS on April 22.  Those five and the notification are:

Church's Chicken – Apopka, FL
Church's Chicken – Westminster, CO
Church's Chicken – North Carolina
American Family Care – West Islip, NY
Captain D's – Shelbyville, KY

"The discussions with the borrower regarding bringing in outside investors to buy this loan have moved forward and we are working to complete our due diligence, including determining a final value for a buy-out. We will give this process 30-days to finalize transaction terms. We will begin to foreclose if, after 30-days, we believe we are not close to a deal. RealtyShares will update you when we have additional relevant information to share."

Additionally, FG's Dog Haus deals in Decatur, IL and Taylor, MI are not performing since December according to the above post.  So that makes seven.  For investors in those deals, have the RS notifications been different from the above?  Have they had any meaningful information?

I have tried contacting RS about my concerns about FG, but so far have not gotten a response. If anyone has an FG deal that is performing, please let us know. (Or if there are more non-performing FG deals that I've missed, please update us on those.)

The Decatur, IL loan received the same notice noted above.

The Taylor, MI loan reached a repayment deal for 91 cents on the dollar on 3/5. The papers were signed and notarized on 3/21, and we were told they hoped to close within a week. On 4/15 we received this notice:

"The sale has been delayed by approximately 30 days. The transaction has gotten a little more complicated. The buyer is still committed to the sale but the buyer indicated that they would be rolling this loan up with others in a package and the equity for the purchase needs to be moved from South America. RealtyShares will update you if the situation changes." 

There have been no subsequent updates. I have no idea why it would take 30 days to move cash from South America to the US, but that's what we were told. I assume the other loans referred to in the 4/15 Taylor, MI disclosure are some or all of the ones you listed above. It should be noted, too, that RS still has about 55% of the original Taylor, MI loan in its possession. The restaurant was never built. FG is only repaying 81% of the loan drawdown.
Quote from: DECA on April 30, 2019, 01:49:10 PM
mspringer,  Thanks and I agree.  I just got another RS notice -- this time for Long Island AFC -- which is pretty much a cut and paste from the Louisville Captain D's notice, except for the specifics saying that the franchisee has not paid rent for four months. The bothersome part of that is that I learned from the franchisee that they made a partial rent payment for April, so the RS update is relying on older information from FG (repeating the same info they posted on 3/20/19). So either RS didn't get a more recent update from FG and is just trying to appear to satisfy investors' requests for more info, or FG is not telling RS the whole story.



Looks like no FG investments are performing. Investments that never started construction aren't worth more than the dirt, less the expenses already incurred. The deals that are already under construction are far more complicated.

For those of us in the AFC LI, I have questions. There is a tenant in place with a lease with a viable business. Why aren't they paying the rent? No business just stops rent payments if they expect to continue. And as a previous post said that a partial payment was made in April.... where are the other months?


I'm in three other platforms currently, but have no intention of placing any additional funds until I see more transparency. This RS mess is certainly a wake up call for me. 




kt1984

Sdb- totally agreed AFC in West Islip NY has great reviews. I am not sure why would they stop making rent payments? Also- why is not posted in the note that a partial payment was made in April.  There is no accountability by RS and FS around how was the initial money spent? Why were there so many cost overruns? Also- RS should make it clear for other investments like Captain D- what % of the funds have been disbursed and what % is still with RS.

This entire FG saga has made me give on RE crowdsourcing completely.

Sdb

I like the idea of crowdfunding but when you look at the viability of a platform as a profitable business it looks problematic. For example, many of the current offerings on my other platforms are inexperienced and first time sponsors. Looks like an attempt to grow the business with volume vs quality. I'm letting all of my investments run off for now. At some point in the future I'll get back in if I feel comfortable that I'm seeing someone who can offer me transparency. I'm ok with some risk as long as I know honest details of the deal.... and current updates as it progresses. 

Hindsight2020

Today I received the full return of principal plus the accrued preferred return on the Peachtree Medical Office Portfolio in Atlanta, GA.

groovydude

Inexperienced first time sponsors = red flag! Stay away from these platforms. I saw this happening on RS & it had me worried, but by then it was too late. This is the internet, it will all shake out to one crowdfunding platform soon enough. Netflix, amazon, Facebook, YouTube, google, who are their competitors? I'm irked with myself for not seeing this more clearly, and not thinking enough about the consequences to investors when I started investing with crowdfunding sites. If you ask me, the winner will be Crowdstreet. Anyone think otherwise?

Mark

For the first time since the RS announcement, I have received principal back from one of my investments.  It is also the first time that only a portion of the initial principal has been returned.  The "Redford Package 2" investment has returned 33% of the principal. In the 7 deals I was invested in before all of this hit the fan, all of them were repaid 100% in one lump sum.  Has anyone on here experienced partial principal return, specifically from a Debt deal?

At least I am starting to get some of my money back from this.  I was concerned that I may never see any of it again.  I still have 5 active deals with RS, including the Redford Package 2.


rtd3


dwengca

Quote from: Mark on May 02, 2019, 09:51:32 AM
For the first time since the RS announcement, I have received principal back from one of my investments.  It is also the first time that only a portion of the initial principal has been returned.  The "Redford Package 2" investment has returned 33% of the principal. In the 7 deals I was invested in before all of this hit the fan, all of them were repaid 100% in one lump sum.  Has anyone on here experienced partial principal return, specifically from a Debt deal?

At least I am starting to get some of my money back from this.  I was concerned that I may never see any of it again.  I still have 5 active deals with RS, including the Redford Package 2.

I'm in this one as well.  It's not the first time for me to see partial principal return.  I have seen it several times, even before RS sort of went under.

REI

Investing in real estate via a platform like RS seemed appealing to me - a passive investment without having to do it via REITs and the stock market volatility it comes with. But, there is no free lunch - as all of us have found out RS type investments is not without its risks. In retrospect, especially when investing deal by deal, I would not have achieved diversification with the amount of capital I was allocating to this. Which is why I am analyzing Fundrise now. I know The Samurai has long recommend this alternative. This way we get a diversified exposure with a single investment, and it doesn't have to be a big outlay either. It would be great to get feedback from others on whether any red flags are showing up at Fundrise as well. Kindly share your thoughts. Admittedly I am being once bitten twice shy!

Lionking

Quote from: REI on May 03, 2019, 07:30:49 AM
Investing in real estate via a platform like RS seemed appealing to me - a passive investment without having to do it via REITs and the stock market volatility it comes with. But, there is no free lunch - as all of us have found out RS type investments is not without its risks. In retrospect, especially when investing deal by deal, I would not have achieved diversification with the amount of capital I was allocating to this. Which is why I am analyzing Fundrise now. I know The Samurai has long recommend this alternative. This way we get a diversified exposure with a single investment, and it doesn't have to be a big outlay either. It would be great to get feedback from others on whether any red flags are showing up at Fundrise as well. Kindly share your thoughts. Admittedly I am being once bitten twice shy!

I have invested through a number of platforms including Realtyshare, Crowdstreet, Fundrise, RealtyMogul.  The issue with Fundrise is low returns and very active hands on management of projects by Fundrise.  I am not sure how it will sustain overtime.  I stopped adding to it sometime back.

The formula I am moving towards is to research the sponsors of the deals and go with ones that have dominant share and expertise in some area.  There is less of a sponsor surprise this way.  Also build direct link with the management of the sponsors.  Many will allow direct funding through their portal and give you advance info on upcoming deals.  It helps if the sponsor is in your town and you can personally meet with them.  These sponsors typically target 15% type IRR over time on average and may be able to deliver it through the cycle with firepower to withstand a recession.

If diversification is an issue due to size of each investment, find others like you and form a partnership that invests together.  This can reduce exposure to single deal.

daletucker50

Most recent communiction...

Utah SFR Fund IV
05/01/2019
The sponsor's attorney replied to our default letter. He indicated that we now have the sponsor's full attention. He forwarded us a spreadsheet with a list of houses owned by the Fund. The spreadsheet also lists financial metrics and a disposition strategy including sale timelines for most of the houses. The spreadsheet can be accessed HERE. The current outstanding balance of investment is $3,000,000. A recent principal payment was made by the sponsor which was credited to your account for interest owed.

We have requested books and records from the sponsor as well as term sheets for those houses refinanced and sales contracts for the properties under contract to sell.  The sponsor stated he is willing to provide access to books and records for the company.  We will also run title reports on a sample of the properties to confirm the houses are owned by Fund. This process will take a while to complete. We are noticing the sponsor that he has six months to sell the houses, after which we have the right to remove him as managing member.  This will keep the pressure on. We will update you when we have additional relevant information to share.

dwengca

Anyone an investor on this deal?

Club Creek Apartments
Austin, TX

Has anyone received any updates?  I haven't seen anything since Dec, and have requested RS to provide an update.  So far this investment has provided zero return....

Thanks!

andyo

It's nice to see some principal flowing back out. I'm in one of the Church's Chicken tranches in Apopka as well as two other properties. It feels like all of the properties are in the same weird, sh*tty shape and that everything imploded in November/December.

Sdb

I'm actually somewhat more optimistic now than even a few months ago. My distributions are back on track, even showing on the dashboard and my bank on the same day. Getting more timely notifications as well. Not all is perfect.... but out of my 12 investments the only non performing deals are the 3 FG. I do have one common equity apartment deal that is struggling with their original turnaround plan, but I have been in contact with them and they were very transparent on the issues and how they plan to pivot. Certainly not any sponsor misbehavior.

This is just what I can report on my particular deals, not saying that there aren't other individual problems. And I'm still not sure how the FG mess will shake out. I do know one thing.... I'm wiser and if I do venture into crowdfunding in the future I'll be a hell of a lot more careful in my due diligence.

DECA

There have been some comments about other crowdfunding platforms. Fundrise offers a different approach with their more hands-on management, but lower returns, and is probably good if you have smaller amounts to invest and wish to diversify. Crowdstreet seems to do a good job vetting its sponsors. Plus you are dealing directly with the sponsor, getting reports monthly or quarterly and having access to contact the sponsor.  Crowdstreet also offers an investor forum for most deals, allowing investors on a deal to communicate with each other.

RealtyShares was a huge disappointment. While many of us are kicking ourselves for not figuring out in advance the lack of quality of the sponsors/deals, in reality, very little information was available about the sponsors -- at least ones like Franchise Growth, which still is virtually invisible on the Internet. I believe that RS had a responsibility to do due diligence on sponsors before just promoting them to online investors. RS was interested in selling deals to investors since that is how it made money. In the case of FG, it touted FG's substantial business in assisting franchisees to establish new franchise businesses. It stated in its materials selling the deals that "The sponsor, Franchise Growth, LLC (the "Sponsor"), has a reported track record in restaurant franchising and anticipates the development of 400+ units in 13 states in the next 3 years."  A reasonable investor would expect that RS would not make such a statement without verifying its truth. 

Now we are seeing, only through a forum established by a third party, that FG appears to have no expertise. It appears that every deal they did has failed.  That's not normal fallout of "not all deals succeed." When every deal fails and the only payout that has occured is from the reserve that was held back, then one has to suspect that FG may have been either dishonest or totally inexperienced and incompetent.  Any reasonable amount of due diligence by RS should have uncovered that. Individual investors were typically only involved in one or two FG deals, but RS promoted at least nine FG deals (perhaps more). So RS really should bear the responsibility for the FG debacle.