Thoughts On RealtyShares Closing Its Doors To New Investors

[FloridaMan]

My own statistics overall:

8 deals total, 6 preferred equity and 2 common equity.

4 repaid in full with full preferred returns (RS181, RS186, RS187, and RS196).
2 ongoing and performing (Rs239 and RS265, which both pertain to the same property 80 unit Sacramento multi family).
2 ongoing and look like partial to near total losses:
— RS195 (New England single family fund I - one of the Michael Massimino fraudulent deals that seems to be outright theft) will be about a 90% loss.
— RS Pref A southeast michigan unlevered single family fund. Has repaid about 50% of invested capital including earnings. Should be some additional recovery but can't say how much.

Assuming my ongoing and performing deals repay Invested capital in full with no further earnings , my overall RS PnL will be about net zero. Might be positive if the performing deal repays with more than invested capital or if there are more recoveries.

[erdenis]

I'm in Castle court as well. Feeling very optimistic. According to the sponsors site, there actually an update which recently posted.

http://www.node-living.com/seattle.html

Went from more info to an actual coming in 2021 logo which is in line with the extension information. Also, the company seems to have a decent portfolio of apartments that are fully rented out.

Will have two performing equity deals after this. I can finally see some light at the end of the tunnel. What a crazy couple or months!

[1UnknownSubject]

Total deals:  3

Repaid in full:  1
Exit with partial loss of principal:  0
Ongoing and current: 2
Ongoing, defaulted, look like total loss:  1
    Of those:  Church's Chicken Melbourne, FL / FG Deal

[danielj]

Total deals:  4

Repaid in full:  1
Exit with partial loss of principal:  0
Ongoing and current: 0
Ongoing, defaulted, 38% of principal returned: 1 (Church's Chicken Winston Salem)
Ongoing, defaulted, look like total loss:  2 (Louisville MSA Captain D's and Long Island American Family Care)

[JD]

Total deals:  4

Repaid in full:  1
Exit with partial loss of principal:  0
Ongoing and current: 0
Ongoing, defaulted, 38% of principal returned: 1 (Church's Chicken Winston Salem)
Ongoing, defaulted, look like total loss:  2 (Louisville MSA Captain D's and Long Island American Family Care)

Ouch, that's a brutal selection. I feel for you ☹️

[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.

UPDATE RS193:  received notification today that the 2018 K-1 is correct (reports no income or loss activity, which doesn't pass the smell test) and the 2017 K-1 provided by RealtyShares last year was not the one that was filed with the IRS.  The correct 2017 K-1 now shows in the 2017 tax documents and can be downloaded.  Amending 2017 should provide small refund for me if I pursue it.

RS190 and RS176 K-1's were previously finalized.

[reidy83]

 57 deals
36 exited---one total loss (Student Housing)
21 active--- 12 partial losses

[ATLJAD]

Who else is in the Linda Terrace fiasco?  They put out an update yesterday, so check it out if you haven't seen it.  Based on the info, it'll be a 65+% loss (79% principal loss, made about 13% in interest)  Wondering if there are any other considerations?  I recall discussions about going after the borrower since there is no way they used the entire loan since they never even built anything.  Just curious to hear other opinions.  Obviously, this was a horrible outcome, and it is mind-boggling that you can lose this much on a flip in Pacific Palisades, CA. 

[MSH]

Who else is in the Linda Terrace fiasco?  They put out an update yesterday, so check it out if you haven't seen it.  Based on the info, it'll be a 65+% loss (79% principal loss, made about 13% in interest)  Wondering if there are any other considerations?  I recall discussions about going after the borrower since there is no way they used the entire loan since they never even built anything.  Just curious to hear other opinions.  Obviously, this was a horrible outcome, and it is mind-boggling that you can lose this much on a flip in Pacific Palisades, CA.

I'm in the LT deal. What I'm not comprehending is how the loss is this high when BBS didn't even build the home? I guess they did some foundation prep but that was it.  BBS/Scott Moore acquired the property back in 2015 with a $2M loan. He refinanced that loan with the $4M loan that included the construction costs (estimated at $2.5m). If they didn't end up building you would assume very little of those funds to be used for construction costs would have been used??

I guess the writing was on the wall with this disclaimer/note on the original listing....

Please Note: The principal of BBS Development, Scott Moore, experienced a foreclosure in 2011 related to a property that was owned by his father through a family limited partnership but with respect to which Mr. Moore was listed on title. The property experienced a substantial decline in value due to the Great Recession, and was eventually sold at auction. Mr. Moore also experienced a short sale on another property at around the same time.

[ramesh]

IRM just sent out a notice about NJ Multifamily Fund II. This is a preferred equity deal sponsored by O'Neill Property Group.   Looks like a significant loss -- approximately 34%.

Since the last update, IRM has received the portfolio valuation. As of September 30, 2019, the portfolio contained 28 properties that have an aggregate value of $1,860,000 and an average property value of $72,856. On September 30th, the cash position in the bank account was $179,972, valuing the assets in the fund at $2,039,972. There is one lender that provided a total of $1,217,165 of debt. The net value of the equity in the fund is, therefore, $822,807. This is $662,193 less than the current invested equity of $1,485,000. As such, IRM believes that Investors will sustain a loss on their investment. Partially offsetting the loss, investors have received approximately $163,000 in interest payments since the inception of the investment. The sponsor has brought in another partner one other of the RS Funds and bought out the equity-based upon bank ordered appraisal value. The sponsor then stays in the deal as manager and gets the management fee and a part of the upside of the investment. Once again, these values are based upon bank ordered appraisals. This approach saves on transaction costs which on houses in this price range can be between 10% and 15%. Based upon conversations with the sponsor, IRM expects an offer in the next 90 days. IRM will continue to act in the best interests of investors. By doing so, IRM aims to achieve the highest return possible for investors, given this difficult investment.

[dwengca]

I'm 10k in this one, and also 20K in another one by the same people...  Philadelphia Multifamily Fund VII 10/18/2019, which is also expect to have significant loss as well.

Both of these were not properly managed by RS, and I am also suspecting the sponsors are/were doing something fishy. 

IRM just sent out a notice about NJ Multifamily Fund II. This is a preferred equity deal sponsored by O'Neill Property Group.   Looks like a significant loss -- approximately 34%.

Since the last update, IRM has received the portfolio valuation. As of September 30, 2019, the portfolio contained 28 properties that have an aggregate value of $1,860,000 and an average property value of $72,856. On September 30th, the cash position in the bank account was $179,972, valuing the assets in the fund at $2,039,972. There is one lender that provided a total of $1,217,165 of debt. The net value of the equity in the fund is, therefore, $822,807. This is $662,193 less than the current invested equity of $1,485,000. As such, IRM believes that Investors will sustain a loss on their investment. Partially offsetting the loss, investors have received approximately $163,000 in interest payments since the inception of the investment. The sponsor has brought in another partner one other of the RS Funds and bought out the equity-based upon bank ordered appraisal value. The sponsor then stays in the deal as manager and gets the management fee and a part of the upside of the investment. Once again, these values are based upon bank ordered appraisals. This approach saves on transaction costs which on houses in this price range can be between 10% and 15%. Based upon conversations with the sponsor, IRM expects an offer in the next 90 days. IRM will continue to act in the best interests of investors. By doing so, IRM aims to achieve the highest return possible for investors, given this difficult investment.

[Sdb]

I'm in three of the O'Neill deals in N.J. and Philadelphia. Go back and read the investment summary, if the experience of this sponsor is correct, which now I doubt it is, there is no way they would be in this position across all of the funds. Is it fraud, I don't know, but at the least it's incompetence in this housing market.

[Hindsight2020]

I'm in one of these. In hindsight I can't believe I invested in something with 1) such a tiny equity sliver from the sponsor and 2) a 5% construction management fee based on capital improvement budgets. That construction fee could have recouped almost all of their equity in my deal.

Ultimately, I was swayed by the "track record" presented. Mine was at least their 6th deal on the platform.  Sometimes you don't know if sponsors are in over their heads until they drown.

[mspringer]

Who else is in the Linda Terrace fiasco?  They put out an update yesterday, so check it out if you haven't seen it.  Based on the info, it'll be a 65+% loss (79% principal loss, made about 13% in interest)  Wondering if there are any other considerations?  I recall discussions about going after the borrower since there is no way they used the entire loan since they never even built anything.  Just curious to hear other opinions.  Obviously, this was a horrible outcome, and it is mind-boggling that you can lose this much on a flip in Pacific Palisades, CA.

I'm in the LT deal. What I'm not comprehending is how the loss is this high when BBS didn't even build the home? I guess they did some foundation prep but that was it.  BBS/Scott Moore acquired the property back in 2015 with a $2M loan. He refinanced that loan with the $4M loan that included the construction costs (estimated at $2.5m). If they didn't end up building you would assume very little of those funds to be used for construction costs would have been used??

I guess the writing was on the wall with this disclaimer/note on the original listing....

Please Note: The principal of BBS Development, Scott Moore, experienced a foreclosure in 2011 related to a property that was owned by his father through a family limited partnership but with respect to which Mr. Moore was listed on title. The property experienced a substantial decline in value due to the Great Recession, and was eventually sold at auction. Mr. Moore also experienced a short sale on another property at around the same time.

I am also in Linda Terrace and I have no idea where the money went given that the property was only razed and prepped for new construction.  The expenses for the actual construction as well as any planned profit should still be within the cushion to support the 2nd loan payout.  This really seems like one IRM could dig into and figure out pretty easily.  Just need receipts for expenses.

[Ventan]

Anyone invested in any of the below deals, its been a while since I got any update on them .

1.Downtown Minneapolis Office
RealtyShares 375, LLC • RSN3680.1-1.. the last payment I received was for 12/31/18. RS posted updated that quater 1 2019 there will be no distributions.

2.Chicago Retail Portfolio Lockport 2nd Lien Tranche 2 RSL.2017A.127 • RSN3367.1-2..this is in bankruptcy ..no update after that
3.RS323 • RSN3643.1-1- University at Buffalo Student Housing Amherst, NY...The last payment I received was for Q12019. No update after that.

Pls let me know

Thanks
Ven

[ramesh]

3.RS323 • RSN3643.1-1- University at Buffalo Student Housing Amherst, NY...The last payment I received was for Q12019. No update after that.

I am in this one as well.  I wrote to Eric Sullivan at IRM asking about financial updates almost a month ago.  He replied promising a Q2+3 financial report, but no follow-through yet. So,   I wrote to Shaofan Zhang, the CEO of OC Ventures -- the sponsor for this deal, a couple days ago.  Shaofan replied promptly the last time I contacted him, but he hasn't responded to the current inquiry yet.  On the positive side Shaofan advertised a job on linkedin for the Amherst property a couple days ago.  That is a modest indication that the business is operational. Also, as you surely know, this investment has been marked Tier 1 by IRM, for whatever that's worth.

And while we all stew in our juices with this multitude of defaults and frauds, Nav Athwal and his pals,  who built RealtyShares into this fine company that we know and love, are on to other ventures.  God bless limited liability and venture capital 

[JD]

Anyone invested in any of the below deals, its been a while since I got any update on them .

1.Downtown Minneapolis Office
RealtyShares 375, LLC • RSN3680.1-1.. the last payment I received was for 12/31/18. RS posted updated that quater 1 2019 there will be no distributions.

2.Chicago Retail Portfolio Lockport 2nd Lien Tranche 2 RSL.2017A.127 • RSN3367.1-2..this is in bankruptcy ..no update after that
3.RS323 • RSN3643.1-1- University at Buffalo Student Housing Amherst, NY...The last payment I received was for Q12019. No update after that.

Pls let me know

Thanks
Ven

I'm in #1 and #2.

Regarding #1, I had the following correspondence with IRM about it in Sept:

"I have a question about my investment in RSN3680, RS375, Downtown Minneapolis Office.
Although there is an update from July saying that the sponsor's payments are up to date, my investor dashboard notes that the last distribution I received was in January."

Their reply:
"The missing distribution for the Downtown Minneapolis Office deal is because the 1.5% management fees charged by RealtyShares in all of our deals was deducted. Because of the small amount the sponsor paid on 07/09, this fee is what was covered."

I'd still like to see another distribution from them sooner than later.

With respect to #2, I don't have any new update other than the latest one which said they were moving to a different lawyer based in the area where the property was. That was on Sept 9 so it hasn't been too long and I'd expect another update in the next month or so.

[kt1984]

Did anyone hear any updates on the FG portfolio? I emailed and was told that a forbearance agreement has gone out and is being reviewed by both parties.

[berkel]

Hi,

They sent an email update just today.  Doesn't show for me on the RealtyShares site though.

There is one excluded property (Antioch, TN), but per the agreement FG is going to return 100% of originally invested capital.  I only have one deal (American Family Care Largo, FL), but I hope they can come through.

Update Regarding Franchise Growth Portfolio Progress

Dear RealtyShares Franchise Growth Investor,

IRM recognizes that several weeks have passed without a material update, as such we want to update investors on the current progress.


IRM and Franchise Growth were able to arrive at an understanding regarding the terms of the forbearance agreement. This agreement, once executed, will give Franchise Growth a window of 90 days to try and recapitalize the investment portfolio, while IRM agrees not to foreclose on the assets.
IRM has agreed to remove the liens and effectively end the investments in this portfolio in exchange for Franchise Growth returning 100% of originally invested capital to each and every investor in this portfolio.
It is important to remember that while Franchise Growth agreed to these terms, their ability to pay is dependent on a successful raise of additional capital from new sources. If this process is unsuccessful, IRM intends to move quickly to foreclose on all assets and sell them in the market, in the best interest of investors.
The last few weeks have been spent drafting up the agreement between IRM legal department and representatives of Franchise Growth, as well as completing the exhibits to the agreement that include the entire accounting log for each investment. This accounting log includes the original invested amounts, any interest paid to investors, any funds returned to investors from the reserves, and the outstanding balance.
IRM was able to get Franchise Growth to include the Decatur, IL property in this settlement. The only property excluded from this agreement is the Antioch, TN property for now. IRM is keeping all options open regarding the excluded property and will communicate progress directly to investors in that group.
As stated before, IRM strongly discourages investors from making negative public comments regarding Franchise Growth and the current investments. As these properties are now being marketed, and could possibly be foreclosed on for the purposes of sale to third party, any such public comments are directly hurting investors interest and will could result in increased financial losses.
We are exchanging final versions of the agreement and expect to have it executed very soon. Once executed, a period of 90 days will begin until Franchise Growth will need to finalize fund raising and report progress to IRM. Final payment, if made, will likely take additional time beyond this initial period.

IRM will continue to update investors once the agreement is executed and share updates about Franchise Growth progress, to the extent those are available to us.

[Dgilpin]

Wow, hopefully this goes through.  Although intentions aside,  I am skeptical FG will have the ability to raise the funds to buy out all of these deals.  But apparently they're optimistic enough to include the Decatur property.  You may be in luck Hindsight.