Author Topic: Thoughts On RealtyShares Closing Its Doors To New Investors  (Read 467550 times)

JD

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1280 on: April 10, 2020, 07:40:55 AM »
I thought that today was the deadline under the Franchise Growth deal, and that IRM was going to provide an update prior to the deadline.  Has anyone heard anything? 

Although the pandemic was not foreseeable, it was absolutely foreseeable that allowing Franchise Growth to string us along for well over one year would open the door to setbacks in the local or broader real estate markets.  I am especially frustrated because Realtyshares, and then IRM, have refused to speak with me (not even once) or respond to any of my emails.  I had been warning Realtyshares that my FG deal looked like a full-blown fraud long before they finally admit that anything was wrong.  Especially under such circumstances, it is important not to be fooled twice, three times, etc., when a borrower simply cannot be trusted.  I now expect a potpourri of "gee shucks" excuses, if we even get an update.

We have all been biting our tongues to help IRM close the settlement with FG.  But, at this point, I worry about criminal/civil statutes of limitations approaching.

Fortunately there are some class action lawsuits going on against them. I'd encourage you to reach out to one of them if you're concerned.

I agree with everything you say and it's pretty pathetic they haven't communicated about it by now. Even covid isn't an excuse after all of this time.

JD

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1281 on: April 14, 2020, 04:58:50 AM »
I remember somebody here saying that they talked to IRM and were told that there would not be any K-1s issued for deals that had gone under.

Assuming this is the case, does anyone here know how we would file such a loss on our tax return?

Thanks in advance :)

stingray

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1282 on: April 14, 2020, 05:24:31 AM »
@JD, if a partnership fails to issue you a K-1, you should use whatever information you have to estimate what the K-1 would have shown.  You should ask your accountant exactly how to file, but I believe you can use IRS Form 8082.  The instructions for that form state "Also use the form to notify the IRS if you did not receive Schedule K-1 ..."

As a practical matter, if you did not receive any payments in the applicable tax year and the partnership has failed with no reasonable expectation of a return of capital, I would report zero partnership income and would report the capital account as zero.

A point that I have made before on this board that you really should consider:  under certain conditions, you can affirmatively abandon your partnership interest.  Why would you want to do this?  Because you may be able to claim an ORDINARY LOSS that offsets ordinary income, rather than a long-term capital loss.  The tax savings can be substantial.

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

Again, your accountant can help you with this matter.

Good luck, and sorry for your troubles.

JD

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1283 on: April 14, 2020, 12:55:33 PM »
@JD, if a partnership fails to issue you a K-1, you should use whatever information you have to estimate what the K-1 would have shown.  You should ask your accountant exactly how to file, but I believe you can use IRS Form 8082.  The instructions for that form state "Also use the form to notify the IRS if you did not receive Schedule K-1 ..."

As a practical matter, if you did not receive any payments in the applicable tax year and the partnership has failed with no reasonable expectation of a return of capital, I would report zero partnership income and would report the capital account as zero.

A point that I have made before on this board that you really should consider:  under certain conditions, you can affirmatively abandon your partnership interest.  Why would you want to do this?  Because you may be able to claim an ORDINARY LOSS that offsets ordinary income, rather than a long-term capital loss.  The tax savings can be substantial.

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

Again, your accountant can help you with this matter.

Good luck, and sorry for your troubles.

That's great info, thank you so much!

Beat_The_Fraud

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1284 on: April 14, 2020, 01:55:02 PM »
Just received this email notification from IRM:

Dear RealtyShares Franchise Growth Investor,

 The deadline for the Franchise Growth forbearance agreement has expired a few days ago, on April 9th, 2020. The executive team at the Franchise Growth Group has been in contact with IRM for several weeks before the deadline expired and has indicated the following:

1. A buyer has been secured for the properties, has completed due diligence, and is still committed to the transaction
2. A lender has been secured for the transaction, but has backed out in light of the COVID19 crisis. they are seeking another lender
3. Given the COVID19 situation, the buyer is planning to convert several Fast Food locations to Emergency Care locations
4. Franchise Growth is unable to transact at this time, and is seeking an extension to complete the purchase

 IRM has not granted the extension, but given the court system suspension of foreclosure hearings and the COVID19 slow down, IRM is evaluating the merits of an extension. We are seeking additional assurances and cash deposits from Franchise Growth and the buyer before making a final decision. If IRM is unable to obtain those assurances, our intention to commence a foreclosure process as soon as possible.

 IRM will continue to update investors in this portfolio on a frequent basis, as news materials.

cfojim

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1285 on: April 18, 2020, 10:36:15 AM »
A point that I have made before on this board that you really should consider:  under certain conditions, you can affirmatively abandon your partnership interest.  Why would you want to do this?  Because you may be able to claim an ORDINARY LOSS that offsets ordinary income, rather than a long-term capital loss.  The tax savings can be substantial.

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

Again, your accountant can help you with this matter.

Good luck, and sorry for your troubles.

Here is some more information: 
https://www.thetaxadviser.com/issues/2016/feb/taxation-of-worthless-and-abandoned-partnership-interests.html

The author of this article makes the point that if you have any liabilities allocated to you on the K-1, then it will be nearly impossible to claim the loss as ordinary.  Even without any allocated liabilities, the bar is high to achieve an ordinary loss instead of capital loss.  I personally would not try it, as I do not want to invite an audit.  If the loss is significant, then maybe it would be worth the risk - that is a personal decision that should be made only after consulting your tax advisor, as stingray suggested.

John_PVF

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1286 on: April 23, 2020, 08:42:33 AM »
Hello all. Wanted to make you aware of some potentially favorable developments with some RS investments and give you my take on it.

Two of my remaining equity investments have recently announced they are refinancing the debt on the underlying properties to take advantage of more favorable financing terms. We will be getting a distribution from excess proceeds as well, so this is essentially a cash out refi.

I think this is smart for sponsors to do for a couple reasons:
  • Lowers the interest rate and/or improves terms of the debt outstanding, which will lead to improved cash flow.
  • Improved cash flow can support higher distributions or buffer against the upcoming downturn.
  • Gets us a partial return of capital today, which is preferable to waiting even longer for the market to improve for a full exit.
Both of these deals will return a meaningful (although sub-50%) portion of initial capital which limits downside while also preserving the upside of a full exit at some point down the road.   Additionally, both have distribution waterfalls which provide a disproportionate amount of early returns to deal-level investors vs sponsors. Given the complexity, I expect IIRM will provide some support for their distribution calculations.

While my preference since the RS issues began was to get my money back and just walk away, this is reasonable alternative in my mind since these coronavirus issues will likely impact exit timing/values for some time. Will be curious to see where the numbers land. Stay well everyone.

Beat_The_Fraud

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1287 on: May 04, 2020, 11:44:43 AM »
Received this new notification from IRM:


Dear Franchise Growth investor,


You are receiving this update because our records indicate you are an active investor in a Franchise Growth entity;


The forbearance agreement with Franchise Growth LLC expired on April 9th, 2020. The executives at Franchise Growth have been in contact with IRM in the weeks and days prior to the deadline and have indicated that due to the COVID19 crisis, the main lender for the portfolio acquisition has backed away from the deal and they will not be able to finalize before the deadline expires.


IRM has asked to speak directly with the buyer, a private equity group from Chicago, IL to verify the identity of the purchaser and negotiate certain terms in order to extend the forbearance period. Our request was granted and IRM has since held multiple conversations directly with the potential buyer. IRM did not know this buyer in advance, and we are not familiar with their real estate activities.


An important factor in IRM's upcoming decision about this portfolio is the impact that COVID19 had on the legal landscape and the likely delays in executing any foreclosure and/or eviction of multiple Franchise Growth properties in several key States. No rights have been waived, and no fees have been forfeited, but execution delays are likely during the health crisis as many courts are not holding hearings, and prioritizing urgent matters ahead of other proceedings. This fact, by itself, is not a reason for IRM to decide one way or another but is an important consideration among all factors in pursuing the best course of action for investors.


The buyer has stated that it has completed the due diligence process on all locations and has already invested a considerable amount of time and resources in the transaction, and is therefore motivated to secure a new lender for the debt portion of the capital stack and complete the transaction promptly.


IRM has laid out several demands, as described below, that if met, could lead to an extension of the forbearance agreement due to COVID19. If these demands are not met in full, IRM will start the foreclosure proceedings at once, even given the likely delays in the legal system:


1. An additional, non-refundable deposit towards investors overall returns

2. A bank signed, proof-of-means by the equity investor

3. The name and terms of the debt providing lender

4. A statement of hardship due to COVID19 in closing the transaction


Please note this process is being conducted directly with the potential buyer at this point, and not solely with Franchise Growth management. All parties' concurrence is required in order to execute an extension.


As of this morning, our demands have not yet been met in full, and we continue to communicate with the buyer for the terms of a possible agreement. IRM will update investors in this portfolio in the coming days regarding the outcome of these negotiations, and the resulting next steps and timeline.

JD

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1288 on: May 09, 2020, 05:39:28 AM »
How are everyone's K-1s coming in so far? You'd think the sponsors with IRM chasing them up would have had plenty of time to get them done during lockdown.

Personally, I've received 2 out of 12 of mine - a whopping 17%.
As a point of comparison, CrowdStreet and their sponsors have sent me 10 out of 12.

In the COVID notice IRM put out last month, they patted themselves on the back several times, including: "IRM and our Fund Admin team is ahead of schedule and have processed more than 90% of the K-1 forms provided to us already." Of course, upon reading it more closely, they are only talking about the K-1s that have been provided to them.

Throw in the 1 distribution per month I've had the past 2 months (not even breaking into triple digits) and then getting updates about properties that are Tier 1, have paid per their expectations and I haven't seen a red cent from them because it's all eaten up by management fees... Yeah, I know, COVID but seriously - what are these people doing? They shouldn't be delivering at 20% of their competitors, claiming victory and siphoning off what little profits we have.
« Last Edit: May 09, 2020, 05:41:16 AM by JD »

stingray

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1289 on: May 11, 2020, 07:21:13 AM »
@JD:  Thank you for sharing your statistics.  I am afraid that some K-1s will not be available until September, if ever.  As you know, the IRS deadline for LLCs to file partnership returns is September 15 after extension.  I suspect that many partnerships will wait until then to file.

It is a fact of life for people who hold partnership interests:  K-1s are often delayed, and we have no choice but to request a 6-month extension to file our own tax returns.

Beat_The_Fraud

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1290 on: May 21, 2020, 09:13:17 AM »
A new update posted by IRM on 5/21

IRM currently classifies this investment as a Tier 3 asset. interest payments from this investment have not been distributed in accordance with the original business plan.

Since the last update, Franchise Growth has accepted all the demands set by IRM, and we have fully executed an extension to the previous forbearance agreement with Franchise Growth LLC. This agreement provides Franchise Growth additional time to execute a sale of the portfolio and return capital to investors. Failure to execute a sale of the portfolio will result in IRM foreclosing on the assets, with the aim of selling each one at the highest market value attainable.

This was not an easy decision, and ultimately IRM decided this route presents the best potential outcome for investors given the COVID19 crisis, based on the following considerations:

1. IRM has negotiated this agreement directly with the potential buyer, and not the Franchise Growth management executives.

2. IRM has secured an additional, non-refundable cash deposit towards a final settlement.

3. IRM was seriously limited in its ability to execute an efficient foreclosure during the COVID19 crisis, and refusing to extend the forbearance would likely have espoused investors to a holding period with no payments and no recourse. We believe that securing additional funds and allowing the time to be used for a potential sale is the most effective and economical use of the period.

4. IRM can't guarantee a successful outcome, and the ultimate return of capital to investors depends on the buyer's ability to execute the transaction, which in turn depends on their ability to secure a lender for the purchase.

The agreement has now been signed by all parties and will become effective with the deposit of the required funds. IRM will update investors with the final timeline and confirmation of execution, once the process is completed.

**Disclaimer: All information and financial statements above are presented on an as-is basis, as provided to our team members, and have not been independently verified by IRM. IIRR Management Services, LLC (IRM) has taken over the Asset Management and Fund Admin functions of this investment from RealtyShares in June 2019.

IRM Asset Management Team

rs_thoughts

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1291 on: May 22, 2020, 09:48:40 AM »
Does anyone know why IRM never posts the pdf of the actual agreement word for word?
I mean we are the stakeholders...so it’s seem logical that they post the signed agreement so we understand items such as actual extension time, deposit, etc...I’m not a big fan of them generically saying “extension” because that word could mean anything

If they are worried about us contacting buyer, then just black out that section. Strange

Beat_The_Fraud

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1292 on: May 26, 2020, 08:47:41 AM »
A new update posted by IRM on 5/26/2020

To all Franchise Growth investors,


The extension to the forbearance agreement has been fully executed, and the non-refundable deposit has been received on May 22nd, making the following dates effective:

Original forbearance agreement amended and executed, January 30th, 2020

COVID19 declared a federal emergency by the President of the United States on March 13th, 2020

The amended termination date will now be July 29th, 2020 at 17:00 Dallas, Texas time.

A non-refundable deposit of $65,000 has been received. (This is in addition to the original $100,000 that were deposited in January)

The Lender (Franchise Growth) has been given an optional extension of 30 days, subject to notice being provided at least 5 days before Termination, and an additional $35,000 non-refundable deposit being posted.

babets

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1293 on: May 26, 2020, 11:20:01 AM »
A new update posted by IRM on 5/26/2020

To all Franchise Growth investors,


The extension to the forbearance agreement has been fully executed, and the non-refundable deposit has been received on May 22nd, making the following dates effective:

Original forbearance agreement amended and executed, January 30th, 2020

COVID19 declared a federal emergency by the President of the United States on March 13th, 2020

The amended termination date will now be July 29th, 2020 at 17:00 Dallas, Texas time.

A non-refundable deposit of $65,000 has been received. (This is in addition to the original $100,000 that were deposited in January)

The Lender (Franchise Growth) has been given an optional extension of 30 days, subject to notice being provided at least 5 days before Termination, and an additional $35,000 non-refundable deposit being posted.



for regular people like me (lol)  what does it mean?
I am in 3 FG investments:

2 returned approx 50% of the total capital
1 returned 0 of the capital

thanks for those who can give a little more clarity...


No one??
« Last Edit: May 29, 2020, 04:53:32 PM by babets »

cfojim

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1294 on: June 10, 2020, 12:46:10 PM »
A new update posted by IRM on 5/26/2020

To all Franchise Growth investors,


The extension to the forbearance agreement has been fully executed, and the non-refundable deposit has been received on May 22nd, making the following dates effective:

Original forbearance agreement amended and executed, January 30th, 2020

COVID19 declared a federal emergency by the President of the United States on March 13th, 2020

The amended termination date will now be July 29th, 2020 at 17:00 Dallas, Texas time.

A non-refundable deposit of $65,000 has been received. (This is in addition to the original $100,000 that were deposited in January)

The Lender (Franchise Growth) has been given an optional extension of 30 days, subject to notice being provided at least 5 days before Termination, and an additional $35,000 non-refundable deposit being posted.



for regular people like me (lol)  what does it mean?
I am in 3 FG investments:

2 returned approx 50% of the total capital
1 returned 0 of the capital

thanks for those who can give a little more clarity...


No one??

I'm in two of these FG investments.  I'm not counting on anything until I see the eventual proceeds, if any, hitting my account.  At least there is a little more money to distribute with the increased non refundable deposit, as long as it isn't eaten up by legal fees.

John_PVF

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1295 on: June 12, 2020, 10:35:44 AM »
I received a K-1 from RS yesterday for an investment that wrapped up in 2019 and paid out a final distribution.  The K-1, however, still shows a positive balance in the capital account at the end of the year.  Not an accountant, but would have expected the final balance to show as zero if all funds were distributed.  My concern was that net income/gains (and thus taxes owed) were overstated, all else equal, for the final distribution to no return the capital account balance to zero.  Anyone have any insights whether this is typical or if I should raise with RS?  I had multiple K-1s last year get restated more than once, so am hesitant to just accept them without some validation.

folsomsri5f

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1296 on: June 13, 2020, 09:32:06 PM »
Is their way to do a claim that RS did not do due diligence on their part. The bad part is the title was not even clear and lot of money was spent on it. They did not even provide details on how much was recovered and how much was spent on the fees etc.

I see some talk about RS releasing all servicing rights back to the sponsors.  Do the sponsors want this?  Wouldn't this mean that the sponsors would then be responsible for issuing K-1 forms to all the individual RS LLC holders (as opposed to just issuing 1 K-1 to the LLC itself)?  I'm not sure if all sponsors would want to deal with the additional paperwork and logistics of that.  I guess they get to keep the servicing fee, but it may not cover the additional expenses that they'll incur.  I don't blame some of these sponsors for just trying to unwind their deal with RS to get away from the sinking ship as quickly as they can.  That's what I would be trying to do if I were a sponsor with a RS deal.

I remember when all the FG deals starting popping up as I have a friend who was involved on the franchisee end of the Dog Haus and Captain D's deals.  I called him at the time, and he had never even heard of FG and was surprised that they were raising money for some of the locations that he was going to be part of.  I just spoke with him recently and he said that whatever they did was a total joke.  They had line items listed in their renovation reports showing inflated numbers and the rents that they were trying to charge were astronomical (and not viable which is why the locations are closing at a high rate and franchisees are behind on lease payments).  He gave me one example where they claimed to have spent $xx for roof repairs, but the roof was still leaking so he was pretty confident that they had not spent what they claimed.

Unfortunately, I was not lucky enough to avoid investing in the SFR Package II deal.  Total disaster of a deal with possible fraud committed by a now bankrupt Ingersoll Financial, LLC out of Florida.  RS is trying to enforce a personal guarantee by the owner of the company ( Keith Ingersoll ), but I'm pretty confident that he magically will have lost all of his assets.  A terrible sponsor and an incompetent crowdfunding platform is not a good combination.

folsomsri5f

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1297 on: June 13, 2020, 09:51:50 PM »
Anyone participated in this lawsuit? I just found the below information. I will be reaching out to the attorney to see if i have any options. There was personal guarantee on this loan, not sure why they did not collect from his personal fortune.

I am an attorney who represents investors who have been defrauded. My firm recently filed a case against RealtyShares and affiliated entities and individuals, particularly arising out of the investments with Franchise Growth and the “Nationwide SFR Package”: http://www.shulaw.com/About-Us/Active-Cases/shapiro-haber-urmy-llp-announces-filing-of-a-class-action-lawsuit-against-realtyshares-inc-rs-lending-inc-and-others/.  Please call or e-mail me if you have relevant information and would be interested in discussing further.

Thanks,

Ian J. McLoughlin
SHAPIRO HABER & URMY LLP
Seaport East
Two Seaport Lane
Boston, MA 02210
Tel: 617-439-3939, ext. 315 
Fax: 617-439-0134
imcloughlin@shulaw.com
www.shulaw.com
http://lawyermcloughlin.com/

stingray

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1298 on: June 14, 2020, 04:53:52 AM »
@John_PVF: The situation you describe with your K-1 does sound like a problem.  I have seen similar problems before where they incorrectly classify principal payments from the sponsor as income, then propagate the error to investors.  Can you tell us a little more?  Was the entire amount of your principal investment returned?  What does your online account history say about how much principal and income you received?  Do your updates state that the sponsor repaid in full, or did the sponsor default?

My view: 1)  if, during or before 2019, you received one or more lump sum(s) that neatly correspond to your entire principal investment and 2) RS now labels the investment as closed (and not in default), then your capital account should be zero.

Of course, this can make a big difference for your taxes.  You should not be paying income tax on money that is return of principal.  If you post a little more information here, we can comment, or you can check with your accountant.

As soon as you have analyzed the situation with confidence, you or your accountant can contact IIRM.  If there is a problem, I think they will be willing to fix it.  If they don't correct it, you can file a letter with your tax return explaining why the K-1 is incorrect, and you can file based on the correct figures.

Good luck

John_PVF

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #1299 on: June 15, 2020, 05:39:34 PM »
@John_PVF: The situation you describe with your K-1 does sound like a problem.  I have seen similar problems before where they incorrectly classify principal payments from the sponsor as income, then propagate the error to investors.  Can you tell us a little more?  Was the entire amount of your principal investment returned?  What does your online account history say about how much principal and income you received?  Do your updates state that the sponsor repaid in full, or did the sponsor default?

My view: 1)  if, during or before 2019, you received one or more lump sum(s) that neatly correspond to your entire principal investment and 2) RS now labels the investment as closed (and not in default), then your capital account should be zero.

Of course, this can make a big difference for your taxes.  You should not be paying income tax on money that is return of principal.  If you post a little more information here, we can comment, or you can check with your accountant.

As soon as you have analyzed the situation with confidence, you or your accountant can contact IIRM.  If there is a problem, I think they will be willing to fix it.  If they don't correct it, you can file a letter with your tax return explaining why the K-1 is incorrect, and you can file based on the correct figures.

Good luck

This is for the Plaza Apartments.  It was an equity deal that was successfully exited and returned more than what I originally contributed.  Looking on the dashboard they show $0 as returned capital and all distributions as "realized earnings."  It doesn't show up this way on my K-1, but the gain showing on the K-1 is much bigger than the gain implied by the distribution.  Coincidentally, the "extra" amount is pretty close to the ending balance still showing in my capital account.

I'm going to email them to at least have them verify.  If I still have capital in this deal as they seem to indicate, but no way to recover it since this deal is closed, they I'm gonna write that capital off as a loss.