Thoughts On RealtyShares Closing Its Doors To New Investors

[JD]

JD,  yes, Woodcreek is an RS equity deal.  No help from IRM in the turnaround as far as I know.

The sponsor claimed in the offering document that the seller had inherited the property and was an inexperienced operator, and that was why they were able to pick it up at a bargain.  But, once they took over the property they realized they were saddled with a low credit quality tenant base. It's taken them nearly 18 months to clean up the mess.  I hope this is the entire story, and that there are no more ugly surprises here; fingers crossed.

Man. Well at least it sounds like they are trying to get it back on track. That's a huge win for any RS these days.

[ManOfLeisure]

Looks like New England High Yield Portfolio VII will be a total loss 

As previously reported,  IIRR Management Services, LLC (IRM) took over the Asset Management and Fund administrative functions of this investment in June 2019. Since then, IRM along with legal counsel has been researching past records and analyzing financial information and disclosures received through the judicial process. IRM is taking steps to recover investment funds and maximize returns on this investment, but unfortunately, the prospects for a recovery have been determined to be remote.

Since the last update, the sponsor's attorney has provided IRM with detailed financial statements, as requested, from the principal's brother, Mario Massimino, and the related real estate entities. IRM agreed to a Confidentiality Stipulation in order to obtain the financial disclosure and thus, cannot make the financial statements public. The Sponsor and its related entities previously provided detailed financial statements.

After the document review, IRM has concluded that the Sponsor's brother and business partner has a substantial negative net worth. The lawyers for the Sponsor have suggested a possible bankruptcy filing for the Sponsor and/or the guarantors and have indicated they are also not being paid for their legal services. Unfortunately, the investment may be a total loss. IRM filed comprehensive litigation against the Sponsor, the guarantors, and the principals, even though recovery of IRM funds looks unlikely at this point. IRM engaged a national third-party collection agency and requested that they take over collection of the claim on a contingency basis. The collection agency, however, declined to take the case, signaling that the prospects of a recovery will be remote. IRM is analyzing the documents and conferring with IRM counsel to determine the next steps. We will continue to explore all options possible and will continue to act in the best interests of investors.

So now I'm wondering if we're finally going to get K-1s for all the Alliance Realty Capital/Massimino brothers deals so we can actually report the losses for tax purposes. I got the same notification for the RS 195 deal (New England Fund I). This surely means the lawsuit will be dropped. I'm frustrated that they are basically getting a pass for walking away with 10M of other people's money and there won't even be a judgement or lien placed. Googling Michael Massimino's name shows that he is actively involved in other companies and real estate deals, so he's going to make plenty of money in the future. I do not see this as a "trying to get blood from a turnip" deal. I'm betting that he walks away from this and makes plenty of money in the future.

[ramesh]

In one of my exchanges with IRM's customer service, the person said something like ".. but we didn't underwrite these messes" (I wasn't even pointing out anything about the outcomes, just expressing frustration about the absence of any reports of the financial condition of the businesses).    It is also clear that IRM is trying to wind  down these deals, and get then off  their porch as quickly as possible. I hope they don't wind these down without securing  the best outcomes for the investors, just because they can hide behind the fig leaf that this mess was not of their creation.  Their language certainly indicates that they are trying to do right by us investors, but a couple instances make me worry.

[JD]

In one of my exchanges with IRM's customer service, the person said something like ".. but we didn't underwrite these messes" (I wasn't even pointing out anything about the outcomes, just expressing frustration about the absence of any reports of the financial condition of the businesses).    It is also clear that IRM is trying to wind  down these deals, and get then off  their porch as quickly as possible. I hope they don't wind these down without securing  the best outcomes for the investors, just because they can hide behind the fig leaf that this mess was not of their creation.  Their language certainly indicates that they are trying to do right by us investors, but a couple instances make me worry.

Yep, I've had similar concerns. My worry is their priority is collecting fees and hoping to convert RS customers to Intoo. But they'll fail at that if they don't get some decent outcomes for us all.

They seem mostly interested in deals that impacted many RS customers, like FG, than ones where RS probably put up a good deal of the money, like Chicago Retail.

[cdratwien]

Has anyone else noticed in your IRA accounts that the reimbursements noted on the RS pages are not exactly equal to what your IRA receives?  I got in contact with IIRM and here is what they said...

"Thank you for your email. IRM has changed banking institutions, and as a result you may see very minor fluctuations in your distribution amounts associated with slightly different tranactionsal costs. These micro amounts are usually only a few cents, and never exceed one Dollar. We appreciate your understanding."

So 2 questions: 1) Does this just affect IRA accounts and 2) Why weren't we told - I've seen nothing about this and think their fees should cover this cost and more to the point why change banks if the cost is greater??

I never had "transactional costs" before - now we do with IRA accounts....something stinks here.

[Magoo]

I lost 10k in the Chicago Lockport deal.. I received the same letter/email
Frustrating

[mspringer]

I don't consistently get the email messages from RS that others do and wanted to check if there was anything new on FranchiseGrowth?

[ramesh]

I don't consistently get the email messages from RS that others do and wanted to check if there was anything new on FranchiseGrowth?

I haven't heard anything further.

[barnold24]

Just received this notification in NJ Retail deal:

Since the last update, IRM has reconnected with the sponsor. In Q3 2019, the property had a total income of -$188,902.08, Total operating expenses of $265,856.09, and a Net Operating Income of -$454,758.17


There was no explanation or anything. The financials were attached and in September they show every revenue account as negative - no explanation or anything. How does one have negative rent revenue on every line in your revenue accounts?

[schin98@juno.com]

Re: NJ Retail.
They showed an unexpected expense of $250,000 in accounting fees. sounds like the "accountants" are Tony Soprano and Paulie. And there ain't a damn thing we can do about it.

[barnold24]

Re: NJ Retail.
They showed an unexpected expense of $250,000 in accounting fees. sounds like the "accountants" are Tony Soprano and Paulie. And there ain't a damn thing we can do about it.

And $59k in legal fees in one month

[stingray]

@ManofLeisure:  Regarding your loss in one of the Massimino deals, you do not have to wait for a K-1 to realize a loss on your investment.  In fact, you can abandon your LLC interest now and potentially receive a better tax benefit than if you wait.  That is because if done correctly, the loss on an abandoned partnership interest can be deductible against *ordinary* income--not merely a capital loss.  Here is the information, which you might wish to discuss with your accountant:

https://www.cpajournal.com/2016/10/01/partnership-abandonment/

[ManOfLeisure]

@ManofLeisure:  Regarding your loss in one of the Massimino deals, you do not have to wait for a K-1 to realize a loss on your investment.  In fact, you can abandon your LLC interest now and potentially receive a better tax benefit than if you wait.  That is because if done correctly, the loss on an abandoned partnership interest can be deductible against *ordinary* income--not merely a capital loss.  Here is the information, which you might wish to discuss with your accountant:

https://www.cpajournal.com/2016/10/01/partnership-abandonment/

I'm going to look into this more thoroughly and would advise anyone involved in the Alliance Realty Capital/Massimino brothers deals to do the same.

Looks like a motion was filed yesterday to drop the civil case against them. So no one will be getting anything from the RealtyShares deals involved. There might be just enough time left to abandon the partnership before any final K-1s are issued. Would be nice to take the hit against ordinary income.

[Hindsight2020]

Has anyone received any update on Franchise Growth since the one sent via email 7 weeks ago?

Same on Utah investments. Anything?

[ReadyToSue89]

Redacted

[babets]

Has anyone received any update on Franchise Growth since the one sent via email 7 weeks ago?

Same on Utah investments. Anything?

On FG i asked and they said that an update should post soon.
Besides my 3 FG and 1 other everything else seems to keep paying their dues

[dwengca]

Just received updates on 2 of my investments.

New Jersey Multifamily Fund II  -  This looks like it's gonna be 60% loss

Philadelphia Multifamily Fund VII - This looks like its gonna be 20% loss

Both of these belong to the same sponsor.   They were sold to us investors as an extremely experienced sponsor with 50+ millions asset under management with hundreds of projects.  What happened to all the $$$? There are no accountability of any kind here and I really question how IRM is handling this right now.  It's like they just want to get rid of everything on their books.

[cfojim]

Just received updates on 2 of my investments.

New Jersey Multifamily Fund II  -  This looks like it's gonna be 60% loss

Philadelphia Multifamily Fund VII - This looks like its gonna be 20% loss

Both of these belong to the same sponsor.   They were sold to us investors as an extremely experienced sponsor with 50+ millions asset under management with hundreds of projects.  What happened to all the $$$? There are no accountability of any kind here and I really question how IRM is handling this right now.  It's like they just want to get rid of everything on their books.

Both of these investments have a personal guaranty from the sponsor's principals, according to the original underwriting:

"Personal Guaranty: The principals of the Sponsor are to provide a personal guaranty on the principal amount (not including targeted returns) of the investment. RealtyShares has verified the principals' net worth and believes that the personal guaranty improves the credit risk associated with the investment."

I was in Philadelphia Multifamily Fund III and exited more or less successfully, so can't vouch for whether or not their personal guaranty has value.  Based on my experience with some other RS failed investments, the personal guaranty's ended up being worthless according to IRM.

[dutchman]

This is incredible. How could there be 100% loss without a real estate market implosion?.......Fraud?  These Massimino guys are something else. I originally started investing in Realty Shares because I thought they had the time and resources to do proper due diligence better than I could. Guess that was not the case. There goes $50k down the drain. I passed this along to the FBI and some local news outlets and encourage others to do the same. It isn't going to get me my money back but if some bad press can make it a little tougher for these guys to rip people off in the future then it is worth it.


According to our findings, this fund has been identified as a Tier 3 (non-performing) asset. Since the last update, IRM has obtained a detailed, certified financial statement, regarding the principal and the principal's brother, Mr. Mario Massimino, and all the related real estate entities. IRM agreed to a Confidentiality Stipulation and will not make these financial statements public. After a professional and careful review of these documents, IRM now believes that the Sponsor's brother and business partner also has a substantial negative net worth. The sponsors' legal team has suggested that a possible bankruptcy filing is likely in the near future.

In addition, IRM obtained and analyzed a list of all real estate properties that the Massaminos own through their various entities and reviewed their fair market values. The majority of these houses are listed for sale and hence, the listing prices approximate the values. Our analysis concluded that the current debt exceeds the value of the real estate by approximately $5.6 million. In addition, IRM has uncovered an outstanding debt of some $200,000 in back taxes owed on some properties. IRM estimates a 7.5% market rate cost of selling the houses, which when deducted from the sales price, leaves negative equity of some $6.8 million. IRM also held discussions with the first lender in the fund, this lender financed the majority of the house purchases. This Lender stepped up previously to finance the completion of construction in hopes of building its way out of a major loss. However, this lender now reports an estimated $4.5 million loss. IRM then approached a national third party loss mitigations vendor, provided them with the operating agreements and all other documentation related to the case, under NDA, however, this vendor also concluded that costs to pursue the matter would eclipse any collections.

At this point, and after lengthy discussions, IRM does not believe a legal action will lead to any gains. Neither of the sponsors have any assets to attach, and even if a legal process, which is time-consuming, cost bearing and carries an uncertain outcome, is successful, it is likely the judgment can never be collected on. The lawsuit against the sponsor has now been pursued for over a year. IRM believes the losses are attributable to the sponsor purchasing more homes than it was able to renovate. The interest bill and payments to preferred equity holders became unsustainable since there were not enough finished home sales to generate positive cash flow to make the debt and preferred equity payments. As the cash flow was not sufficient, the sponsor took on second mortgages. IRM notes that If the homes were placed in the Fund's name as required, RealtyShares approval would have been required, and a total loss may have been avoided, however, this was not done at the appropriate time. IRM also finds that the structure of this investment, where all of the preferred equity funds were given to the sponsor at closing was also inappropriate for this type of business. Providing all of the capital at once creates the incentive to put it all to work at once since interest was owed on the entire amount. A revolving structure, where only the funds needed are provided and once a home is sold, the investment is paid back would have less risk for the investor and not encourage the sponsor to take on more than it can complete in a reasonable amount of time.

IRM has concluded that given the difficult situation this investment is in, all possible distributions, interest payments and proceeds from this investment have now been collected and paid in accordance with the investors' rights per the original operating agreement. No further action in this investment is possible, recommended or available to IRM and will now be considered closed.

New England High Yield Portfolio VII

[WengerTodd]

I didn't have to get through the first page of this 57-page thread to know how this was going to end up. As soon as I read "we are creating LLCs," I was like... yup... it's exactly what it is... a limited liability. Which means you get screwed, and they don't.

Housing in every market I own a house, has been *crazy* throughout the entire span of this 57 page thread. I can't imagine how they've managed to screw up in real estate when the market has been successful. Both my homes have gone up in value at least 6-8% in the past year (San Antonio and Fort Lauderdale).

I don't know the details, and not going to read all the posts... but the only thing that runs through my mind is fraud, or very bad mis-management.