Thoughts On RealtyShares Closing Its Doors To New Investors

[cfojim]

I have a K1 related question. I received a few K1s 10 days ago and almost filed my tax returns based upon the K1s (as I am due a refund that is stuck up due to these K1s) and then received a memo from RS indicating they made an error in K1 and will be sending an updated one.. The question I have when will it be safe to file the tax returns such that RS cannot come back after that date and say oops sorry we made a mistake.. Is it Sept 15th the absolute last deadline for K1s

Partnerships on extension have until September 15th to file, so all K-1's should be final by then but who knows if they will make the deadline.  I plan to file my return in October at the last minute, since my own personal preference is to not file amended returns if I can help it.

[JD]

I have a K1 related question. I received a few K1s 10 days ago and almost filed my tax returns based upon the K1s (as I am due a refund that is stuck up due to these K1s) and then received a memo from RS indicating they made an error in K1 and will be sending an updated one.. The question I have when will it be safe to file the tax returns such that RS cannot come back after that date and say oops sorry we made a mistake.. Is it Sept 15th the absolute last deadline for K1s

Partnerships on extension have until September 15th to file, so all K-1's should be final by then but who knows if they will make the deadline.  I plan to file my return in October at the last minute, since my own personal preference is to not file amended returns if I can help it.

Thanks, this is really good information.

Do you know how long they have to file 1099-INTs? I still have yet to receive any from RS/IRM and it seems like those would have been simpler than the K-1s.

Speaking of, has anyone else received 1099s for their debt deals?

[cfojim]

I have a K1 related question. I received a few K1s 10 days ago and almost filed my tax returns based upon the K1s (as I am due a refund that is stuck up due to these K1s) and then received a memo from RS indicating they made an error in K1 and will be sending an updated one.. The question I have when will it be safe to file the tax returns such that RS cannot come back after that date and say oops sorry we made a mistake.. Is it Sept 15th the absolute last deadline for K1s

Partnerships on extension have until September 15th to file, so all K-1's should be final by then but who knows if they will make the deadline.  I plan to file my return in October at the last minute, since my own personal preference is to not file amended returns if I can help it.

Thanks, this is really good information.

Do you know how long they have to file 1099-INTs? I still have yet to receive any from RS/IRM and it seems like those would have been simpler than the K-1s.

Speaking of, has anyone else received 1099s for their debt deals?

Received mine in the mail back in February, I believe.  It tied out to the interest payments on my dashboard.  I had to contact then president, Alex de Belloy, to also have it uploaded to my dashboard.  Apparently, there was more than one investor with a name the same as mine which was causing an upload problem.  You should immediately contact RS and let them know that you've neither received a 1099-INT in the mail nor on your dashboard.  In the unlikely event that they still don't produce the 1099-INT for you, then file with the interest that is reported as interest on your dashboard because it is likely that they've reported that to the IRS.

[JD]

I have a K1 related question. I received a few K1s 10 days ago and almost filed my tax returns based upon the K1s (as I am due a refund that is stuck up due to these K1s) and then received a memo from RS indicating they made an error in K1 and will be sending an updated one.. The question I have when will it be safe to file the tax returns such that RS cannot come back after that date and say oops sorry we made a mistake.. Is it Sept 15th the absolute last deadline for K1s

Partnerships on extension have until September 15th to file, so all K-1's should be final by then but who knows if they will make the deadline.  I plan to file my return in October at the last minute, since my own personal preference is to not file amended returns if I can help it.

Thanks, this is really good information.

Do you know how long they have to file 1099-INTs? I still have yet to receive any from RS/IRM and it seems like those would have been simpler than the K-1s.

Speaking of, has anyone else received 1099s for their debt deals?

Received mine in the mail back in February, I believe.  It tied out to the interest payments on my dashboard.  I had to contact then president, Alex de Belloy, to also have it uploaded to my dashboard.  Apparently, there was more than one investor with a name the same as mine which was causing an upload problem.  You should immediately contact RS and let them know that you've neither received a 1099-INT in the mail nor on your dashboard.  In the unlikely event that they still don't produce the 1099-INT for you, then file with the interest that is reported as interest on your dashboard because it is likely that they've reported that to the IRS.

Thanks.

This is what I figured as I contacted RS before they turned over to IRM and they said I would have received them in the mail and then tried to verify my address, which was wrong (I live in the UK and they had my correct street address but in Alabama).

I reached out to them again once IRM took over and they claimed all tax documents were still being worked on and they would post to my dashboard when ready.

I never believed it and now it's clearly time to chase up again...

[Sundevils89]

Just finding this forum....appreciate all the info...anybody in Chicago retail portfolio Elmhurst 2nd TD....Foreclosed then filed BK, now looks like a total loss.
Cleveland Office Highland Heights looks like another problem... In reading this forum, it appears like many of the properties have issues with repayment. What was the deal with RS? Did they not screen the borrowers appropriately? Or is the real estate market starting to go bad in many areas of the country? Thanks for any info....

[JD]

Just finding this forum....appreciate all the info...anybody in Chicago retail portfolio Elmhurst 2nd TD....Foreclosed then filed BK, now looks like a total loss.
Cleveland Office Highland Heights looks like another problem... In reading this forum, it appears like many of the properties have issues with repayment. What was the deal with RS? Did they not screen the borrowers appropriately? Or is the real estate market starting to go bad in many areas of the country? Thanks for any info....

Welcome and condolences. I'm in both of those deals myself and it's pretty frustrating. I'm in another Chicago Retail as well that is the same sponsor and it's having the same issue so hopefully you're only stuck with 1 of those.

The deal with RS - they did a bunch of bad deals without proper due diligence and eventually ran out of funding because of it. Clearly the VC investors they talked to looked at their portfolio and decided not to touch it; if only we clients had as much of an insight as they did.

It does also seem that several of the borrowers decided to try to take advantage of RS shutting down and stopped paying out. Fortunately several of them have been forced back on track by IRM now but a bunch seem to have skipped town.

Yeah, the real estate market has softened but not to the level that these fraudsters are claiming.

[rs_thoughts]

i'm also in this Cleveland Office structure. Including other deals, I'm just perplexed by how they handle this. For this Cleveland structure, not sure why they did not take over the property as soon as this borrower started making excuses. If the LTV is so low (assuming it's accurate, which it may not be), would have been better to take over, sell, and return notional rather than extend. Basically, we lose opportunity cost while we continue to wait and wait. Meanwhile, stock market moved almost 20%. Maybe the LTV is wrong. With fixed funding rates going lower and this borrower still waffling makes the structure look like a mystery.

i personally don't blame IRM, cuz RS is the culprit. The incentive of the crowdfunding model was mis-aligned. RS should have only gotten paid once investors got their money back. But given they were paid as a broker on inception of the deal, all they did was try to increase the flow. Obviously, VCs saw the delinquency and just ran for the hills, trying to mitigate the reputation risk. I also wish crowdfunding models gave investors access to the entire delinquency history of their loans, so at least there is transparency on whether asset manager are sourcing trash or quality. RS was a hider of that. I think once investors saw the history of deals that were going to default or missing payment, they would have thought twice about using the platform. Best wishes to those involved in these deals.

[Sundevils89]

With the Chicago Retail investments, do you think there is any hope of getting anything back? It sounds like if the BK happens, we are out everything.... And I agree with you rs-thoughts, they need to stop giving the borrower so many chances and just take it over before they hide behind bankruptcy also....this whole experience sours me on crowdfunded real estate for sure.....Not that I would do it again, but are there any reputable sites out there? Sounds like Fundrise is decent.....

[JD]

With the Chicago Retail investments, do you think there is any hope of getting anything back? It sounds like if the BK happens, we are out everything.... And I agree with you rs-thoughts, they need to stop giving the borrower so many chances and just take it over before they hide behind bankruptcy also....this whole experience sours me on crowdfunded real estate for sure.....Not that I would do it again, but are there any reputable sites out there? Sounds like Fundrise is decent.....

I like CrowdStreet a lot. So far very impressed with the offerings and results; the sponsors have been tremendously communicative and provided tons of material. One of them even holds a webinar for every quarterly update. And the website is lightyears better than RS with an investor forum for each deal.

I don't know enough about the details of the Chicago Retail but they seem to be in slightly better shape than the Cleveland one for example. I don't understand how we have zero recourse and my general understanding was the debt gets paid back before equity so if there's any value in the properties themselves, we should be entitled to it. I'm not certain on that, it's my general understanding - there are others here who can probably say more assuredly.

[Sundevils89]

Thanks, appreciate the info...

[groovydude]

i personally don't blame IRM, cuz RS is the culprit. The incentive of the crowdfunding model was mis-aligned. RS should have only gotten paid once investors got their money back. But given they were paid as a broker on inception of the deal, all they did was try to increase the flow. Obviously, VCs saw the delinquency and just ran for the hills, trying to mitigate the reputation risk. I also wish crowdfunding models gave investors access to the entire delinquency history of their loans, so at least there is transparency on whether asset manager are sourcing trash or quality. RS was a hider of that. I think once investors saw the history of deals that were going to default or missing payment, they would have thought twice about using the platform. Best wishes to those involved in these deals.

Great insight! Thanks. There were good investments on RS of course. The trick is to find a site that allows one to dig enough to make a well-informed decision. RS didn't do that at all, especially with their debt offerings (hindsight of course). Crowdstreet is the best, IMHO, although one has to be diligent, the good investments fund quickly. RealCrowd seems decent. Equity Multiple seems OK, although EM tries to control the dialog more than the others which feels a bit RS-like to me. I don't have much of an opinion on Fundrise, although they seem to be pushing their own mini-REITs more than individual offerings or sponsor funds.

The fee structure for all of these sites is a bit suspect to me, but I don't see it leading to closures in any of the aforementioned like RS. I'd love to see fees on the back end only, but I don't think any crowdfunding sites would exist if that were the case!

[Mike123]

The following are my opinions:

IINTOO and REAFF Holdings LLC seem to have not made things any better operating this new joint venture.   All they do is blame prior ownership as if they didn't do any proper due diligence. 

Multiple K1 mistakes after getting K1's from Sponsors. Why should 3 K1's  be issues within one month to fix issues?
Terrible communications
Unresponsive to requests and lack of knowledge when they do get around to responding to emails
Not understanding that NY K1's are supposed to be suppressed and not sent to non-residents when no NY activity.  Yes you can still file for the NY residents without generating for all members.
Incorrect payments and some missing.  While others don't show up in transactions list

Refusal to share list of investors in each LLC so that investors can communicate with eachother to determine if new management can be voted in (required under Delaware law) and per the investor agreements.  Read your investor agreements

Outsourced quite a bit of the work to Assure Services but they are just getting started and not able to handle the volume yet

Hired a law firm based on what experience to look after investor/member interests?  Connections to IINTOO?  Surprised it got through conflict check.

If Fraud involved with Sponsors then how come no complaints with FBI and other agencies.  More interested in the crowdfunding reputation rather than looking after member's interests first.

Trying to add terms to the agreements when you log into the new RealtyShares platform to get the information that they are required to provide. Not valid since you can't opt out and get the information they are required to provide per agreements!  https://www.realtyshares.com/terms-of-service-iirr 

In this they try to say that they in the future can charge users to use the platform so they can get access to documents, investment info, transaction history, K1's.   Can't do business for period of two years directly with any sponsor presented, etc.


I am getting concerned that Realtyshares was purchased primarily just to get the list of accredited investors and that proper investment has not been put into place to operate it properly but rather drain the fees and then pass benefit to parent companies.

We'll see what comes over the next months  and what pressure we will all need to put on these three entities.  IIRF, REAFF, INTOO

Would be a good story for WSJ if anyone has connections to highlight the problems that can come along with Crowdfunded Real Estate.  Besides all the headaches, losses in some cases, etc.....don't expect to get your taxes done before October! 

[barnold24]

Received two notifications yesterday from Realtyshares:

RS 116 - sponsor has been unresponsive in providing K-1 information and so they will issue an Estimated K-1 by September 15th and a real one at a later date if they are able to receive the information. This is an active investment so doesn't hold well for it paying.

RS 231 - issuing a corrected K-1 by August 31st. Assuming it is removing the capital loss and showing it as a distribution as cfojim said. The good news is the bulk of the return was shown on the 2016 and 2017 K-1 where interest income of $2.6k and $5.2k appeared so of the total $9k return, $7.8k has already been accounted for. Hopefully they pick that up.

[stingray]

Like @barnold24, I received two RealtyShares notifications yesterday saying that the Sponsor (same sponsor on two deals) had been unresponsive and had not provided financial information to allow RealtyShares to prepare our K1s.  I was surprised because the Sponsor has been pretty reliable.  I called the Sponsor, and they told me that they have been completely responsive and sent RealtyShares the deal-level Form K1 in March.  So basically, I think RealtyShares is lying about this or just plain clueless.

[cfojim]

Like @barnold24, I received two RealtyShares notifications yesterday saying that the Sponsor (same sponsor on two deals) had been unresponsive and had not provided financial information to allow RealtyShares to prepare our K1s.  I was surprised because the Sponsor has been pretty reliable.  I called the Sponsor, and they told me that they have been completely responsive and sent RealtyShares the deal-level Form K1 in March.  So basically, I think RealtyShares is lying about this or just plain clueless.

I also have a sponsor that is current on interest payments and has been providing generally timely updates, so I find it hard to believe tax information is being withheld by the sponsor.  I suspect a disgruntled former RS employee did not forward the information during the May-June transition period.

[barnold24]

Received two notifications yesterday from Realtyshares:

RS 116 - sponsor has been unresponsive in providing K-1 information and so they will issue an Estimated K-1 by September 15th and a real one at a later date if they are able to receive the information. This is an active investment so doesn't hold well for it paying.

RS 231 - issuing a corrected K-1 by August 31st. Assuming it is removing the capital loss and showing it as a distribution as cfojim said. The good news is the bulk of the return was shown on the 2016 and 2017 K-1 where interest income of $2.6k and $5.2k appeared so of the total $9k return, $7.8k has already been accounted for. Hopefully they pick that up.

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.

[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.

[cfojim]

Yesterday received final payoff for Philadelphia Multifamily Fund III RS228.  Underwritten return for this preferred equity investment was 8% current, plus 5.5% accrued.  As best as I can determine, IRR was 8.93% based on cash flows.  Not what was underwritten, but at least the return on this one will help offset losses on others.

[barnold24]

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.

[Beat_The_Fraud]

Email received from IRM:


Important Update For Franchise Growth Portfolio Investors

Last week, IRM senior leadership met in person with representatives of Franchise Growth, LLC in New York and announced our decision to reject the proposed settlement offer and our intent to proceed with legal measures to foreclose on the secured assets, in accordance with the original operating agreement and in the best interest of investors in the portfolio.

The representatives from Franchise Growth, LLC asked for several more days to discuss options, and suggest a revised alternative. IRM has agreed to this timeline and expects to communicate an update to investors by the end of month.