Author Topic: Thoughts On RealtyShares Closing Its Doors To New Investors  (Read 315607 times)

Dgilpin

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #700 on: June 13, 2019, 11:36:12 AM »
Yikes.  It definitely sounds like new ownership is cutting their losses as fast as possible instead of slugging it out with the bad actors.  This doesn’t bode well for the FG deals.  I’ll consider the payoff plan for the Taylor, MI deal pretty much null and void.  Especially since they can’t even seem to return our unused funds 6 months after interest payments stopped.

Dgilpin

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #701 on: June 13, 2019, 05:49:40 PM »
FG seemingly never intended to honor the Taylor, MI settlement agreement. It was another sucker play for delay that RS fell for. I believe we'll get the construction reserve back soon (about 55% of the original loan), but the remaining recovery will be negotiated based on the appraisals for the various FG loans. At least the entity owns a cleared plot of land. That has to be worth something meaningful.

It better not be a significantly lower payout in order to compensate for some of the deals that are even worse off.  IE loans that we’re fully disbursed and then the restaurant closed and is sitting boarded up.  It would defy the agreement investors signed if the properties aren’t being appraised for payout solely on their individual current values.

Mark

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #702 on: June 14, 2019, 09:19:47 AM »
Update on another FG deal today.  Sounds like IIRR is trying to prepare us for what will be a disappointing amount of principal returned...  (Also, still no return of the balance of the construction loan that remains in RealtyShares hands)



Church's Chicken Winston Salem Tranche 2 6/14/2019
06/14/2019
Since the last update IIRR Management Services, LLC (IRM) has taken over the asset management duties on behalf RealtyShares, Inc.

IRM has researched the investment status and has received an updated appraisal of the property. IRM is in the process of analyzing the appraisal; however, the preliminary finding indicates that your investment will incur a substantial loss.

After our analysis is complete, hopefully within two weeks, IRM will be in a position to provide an estimate of the potential loss. The borrower remains interested in buying out the loan and IRM will continue to pursue this possibility to see which option provides the highest return with minimal risk, to investors.

IRM is keeping investor’s interests in the forefront of our work to conclude this matter. We will continue to provide new information quickly, whether it is good or bad news.

ramesh

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #703 on: June 14, 2019, 09:53:00 AM »
Identical verbiage in the notification for my FG-sponsored Church's Chicken, Colorado. No word on why the construction reserve hasn't been returned to investors a month past their notice that they would release it.  I wonder if they are holding on to it  till such time as they figure out how much they are going to dip into it for legal and administrative costs associated with the final settlement.

Update on another FG deal today.  Sounds like IIRR is trying to prepare us for what will be a disappointing amount of principal returned...  (Also, still no return of the balance of the construction loan that remains in RealtyShares hands)
..
IRM is keeping investor’s interests in the forefront of our work to conclude this matter. We will continue to provide new information quickly, whether it is good or bad news.

kierra

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #704 on: June 14, 2019, 10:20:27 AM »
My latest notification on FG.......

American Family Care Largo FL Tranche 3 6/14/2019


Since the last update IIRR Management Services, LLC (IRM) has taken over the asset management duties on behalf RealtyShares, Inc.

IRM has researched the investment status and has received an updated appraisal of the property. IRM is in the process of analyzing the appraisal; however, the preliminary finding indicates that your investment will incur a substantial loss.

After our analysis is complete, hopefully within two weeks, IRM will be in a position to provide an estimate of the potential loss. The borrower remains interested in buying out the loan and IRM will continue to pursue this possibility to see which option provides the highest return with minimal risk, to investors.

IRM is keeping investor’s interests in the forefront of our work to conclude this matter. We will continue to provide new information quickly, whether it is good or bad news.

Hindsight2020

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #705 on: June 14, 2019, 10:51:51 AM »
I hate to say this but we are being Donald Trump'd here. This is his business model. Sign a deal. Other side does their part, he fails to do his part. He says if you want me to do what I said I would do in the contract, then sue me. Other side likely can't afford to fight and throws in towel, accepts a fraction of what's owed. He pockets as profits the other side's losses.
« Last Edit: June 14, 2019, 10:59:55 AM by Hindsight2020 »

Dgilpin

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #706 on: June 14, 2019, 11:16:46 AM »
Same exact message for Long Island Family care in West islip NY.  Somehow this is an even bigger disaster than we expected.  I sure hope new management has some ace in he hole leverage for recovery,  but it sounds like they’re just setting us up for terrible news.

JD

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #707 on: June 14, 2019, 11:19:08 AM »
Just signed up to this forum and so glad to see others working with the same RS issues I am.

At the moment, I have 2 FG Church's Chicken deals that have gone into default and 2 Chicago Retail Portfolio deals that are also problematic. I see that you guys have discussed them here already so I'm chiming in to ask if there's anything I can do to voice my concerns as well. Or maybe we just need to straight out sue these guys.

I haven't read through this whole thread yet but I will stay on top of all posts from here on out. Please feel free to reach out if I can help in any way.

Hindsight2020

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #708 on: June 14, 2019, 11:35:56 AM »
Same exact message for Long Island Family care in West islip NY.  Somehow this is an even bigger disaster than we expected.  I sure hope new management has some ace in he hole leverage for recovery,  but it sounds like they’re just setting us up for terrible news.

Is the franchisee of Long Island Family Care in West Islip, NY affiliated with FG at all?  Is that business still operating? Do you have a link to the initial investment page?

Hindsight2020

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #709 on: June 14, 2019, 11:44:21 AM »
Same or similar notice for Decatur, IL Dog Haus, which was fully completed and operated for a year before closing earlier this year.

Of course FG wants to buy this loan at a discount. FG apparently shut this restaurant without attempting to negotiate lower rent, even though I understand the franchisee wanted to keep operating it with a lower rent. If FG is allowed to now buy the loan at a "failed restaurant" discount—creating substantial losses for investors--they will basically be buying a completed new restaurant for a very small fraction of its value as an operating asset. The loan on Decatur is $2.256 million. The rent was $270K. They used a 7.83% cap rate in the initial investment presentation to value it at $3.45 million, but said the cap rate comp was more like 6.5%. Now, for kicks, let's say they pay 40 cents for the loan, or about $900K. Then they re-open the restaurant or find another operator to pay them $150K in rent. Even using a 9% cap rate the building's worth $1.7 million. In the process, we lock in a loss of $1.35 million, and they basically double their money on the loan buyout.

What’s to stop FG from doing this? I assume that’s what’s going to happen.

What about the franchisee’s rent guarantees? What are those worth? These are all things RS has kept investors in the dark on.

I encourage everyone in these FG deals to ask about it. Email priority@iirrms.com and demand answers.

I wonder if the AFC facility in West Islip, NY falls into this category. Has anyone actually confirmed with the franchisee that it has stopped paying rent? I bet you could reach them.

Look at page 6 in here. I'm not in the deal. If I was I'd do it myself. http://images4.loopnet.com/d2/mgsFp-6EPPx_QtC4MHmB7UgSwkbMKmdC-Nqipi_Y3sw/document.pdf

The franchisees are on the webpage for the business.  https://www.afcurgentcare.com/west-islip/about/meet-the-team/

Have to contemplate worst-case scenarios here in order to defend against them. If they buy the loan on an unfinished restaurant for 30 or 40 cents on the dollar, and another another 10-20 cents on the dollar of invested capital makes it an operating restaurant, it's a home run for them. Is this the intent across the board?
« Last Edit: June 14, 2019, 11:54:29 AM by Hindsight2020 »

mspringer

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #710 on: June 14, 2019, 11:48:05 AM »
Church's Chicken in Orlando just received identical update.  This location was near completion in January, and I'm guessing there was very little left in reserve on this one. 

Could IIR go to someone like Goalz and just eliminate the FG portion at this point?

Hindsight2020

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #711 on: June 14, 2019, 11:56:45 AM »
Church's Chicken in Orlando just received identical update.  This location was near completion in January, and I'm guessing there was very little left in reserve on this one. 

Could IIR go to someone like Goalz and just eliminate the FG portion at this point?

At a minimum, RS should be speaking with Goalz about these loans and/or the outright sale of the buildings to them (post-foreclosure).

Frankly, if the FG bids for these loans are bad, we should organize, get together with Goalz and work on a deal.
« Last Edit: June 14, 2019, 12:15:20 PM by Hindsight2020 »

groovydude

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #712 on: June 14, 2019, 02:13:01 PM »
Just signed up to this forum and so glad to see others working with the same RS issues I am.

At the moment, I have 2 FG Church's Chicken deals that have gone into default and 2 Chicago Retail Portfolio deals that are also problematic. I see that you guys have discussed them here already so I'm chiming in to ask if there's anything I can do to voice my concerns as well. Or maybe we just need to straight out sue these guys.

I haven't read through this whole thread yet but I will stay on top of all posts from here on out. Please feel free to reach out if I can help in any way.

JD, welcome! I think the best bet at this point is to hope that RREAF can get the deals you mentioned straightened out. They seem to be professional, although it seems to be in their interest to get the really bad deals off the books as quickly as possible. The FG deals sound like the whole thing was a ponsi scheme to me (I think a separate thread for these deals might be in order at this point), or at the very least investors got Trumped. Yuk.

DECA

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #713 on: June 14, 2019, 02:44:05 PM »
Same or similar notice for Decatur, IL Dog Haus, which was fully completed and operated for a year before closing earlier this year.

Of course FG wants to buy this loan at a discount. FG apparently shut this restaurant without attempting to negotiate lower rent, even though I understand the franchisee wanted to keep operating it with a lower rent. If FG is allowed to now buy the loan at a "failed restaurant" discount—creating substantial losses for investors--they will basically be buying a completed new restaurant for a very small fraction of its value as an operating asset. The loan on Decatur is $2.256 million. The rent was $270K. They used a 7.83% cap rate in the initial investment presentation to value it at $3.45 million, but said the cap rate comp was more like 6.5%. Now, for kicks, let's say they pay 40 cents for the loan, or about $900K. Then they re-open the restaurant or find another operator to pay them $150K in rent. Even using a 9% cap rate the building's worth $1.7 million. In the process, we lock in a loss of $1.35 million, and they basically double their money on the loan buyout.

What’s to stop FG from doing this? I assume that’s what’s going to happen.

What about the franchisee’s rent guarantees? What are those worth? These are all things RS has kept investors in the dark on.

I encourage everyone in these FG deals to ask about it. Email priority@iirrms.com and demand answers.

I wonder if the AFC facility in West Islip, NY falls into this category. Has anyone actually confirmed with the franchisee that it has stopped paying rent? I bet you could reach them.

Look at page 6 in here. I'm not in the deal. If I was I'd do it myself. http://images4.loopnet.com/d2/mgsFp-6EPPx_QtC4MHmB7UgSwkbMKmdC-Nqipi_Y3sw/document.pdf

The franchisees are on the webpage for the business.  https://www.afcurgentcare.com/west-islip/about/meet-the-team/

Have to contemplate worst-case scenarios here in order to defend against them. If they buy the loan on an unfinished restaurant for 30 or 40 cents on the dollar, and another another 10-20 cents on the dollar of invested capital makes it an operating restaurant, it's a home run for them. Is this the intent across the board?

I reached the franchisee on AFC West Islip in April. He said he had made a partial rent payment for April after missing the previous four months.  The business seems to be doing fine.

Today, I received the same "cut and paste" update for AFC West Islip and for Louisville MSA Captain D's.  Both of these deals were supposed to be short term senior debt deals.  I don't understand how senior debt would incur such a "substantial loss" in a foreclosure since it should be ahead of the junior debt and equity. To me, IIRM doesn't seem any more responsive than RS was.  They should be providing details in their updates, specific to each deal.  Vague cookie cutter language doesn't cut it.

Further, who should take on pursuing RS for the FG deals?  I suspect that it will have to be the investors (i.e., us). RS touted FG's "extensive experience" in restaurant franchise deals.  RS' interest was in doing as many loans as possible using our money.  They don't seem to believe that they had any duty to protect our interests or even to do any due diligence on FG.

Hindsight2020

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #714 on: June 14, 2019, 06:06:47 PM »
The loans to construct FG restaurants were generally 90% of totally committed capital, with the other 10% or so being equity from FG. The loans are senior to the slim equity tranche but bear significant downside risk if something goes bad before the restaurants are completed and operating successfully. They say FG is still interested in buying the loans, but I presume at a predatory price that values them at some percentage of the invested PP&E. That would provide FG with massive option value to finish construction on incomplete restaurants or re-open the closed Decatur, IL Dog Haus, and then dispose of them for huge profits as a percentage of the loan purchase prices. I have made it clear to RS and the JV that it would be unacceptable to hit a stink bid from the (possibly intentional?) defaulter and transfer our losses to their pockets as profits.

How the JV companies handle this will determine whether I ever invest a nickel in any investment offered by either of them.

« Last Edit: July 10, 2019, 10:27:35 AM by Hindsight2020 »

Chicago81

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #715 on: June 14, 2019, 07:08:31 PM »
Over the past six months, I have been asking RS, then Iintoo and RREAF, if there is any evidence that the FG deals were not a complete fraud from the onset, given the strong circumstantial evidence.  I have received no response from anyone.  That is shocking.

The latest string of communications proves that we should no longer trust anything that the supposedly new management says, they could care less about our best interest, and their plan is to conceal the true nature of the deals hoping they do not get sued.  For what it's worth, I think now is the time for a group of FG investors to hire a lawyer to sue FG, RS, and potentially the new companies (if law permits; e.g., de facto merger doctrine).  The alternative is to wait for a distribution to determine the extent of our damages.  (Spoiler alert: your senior secured notes for a development deal are now worth pennies on the dollar even though the borrower never broke ground.  And by coincidence, the same thing happened on 10 of our other deals at the same time.)  Now that we know the damages will be "substantial," and there may be criminal referrals as a result of this, along with the ongoing string of broken promises and a refusal to speak with investors (i.e. ongoing breaches), I'm in favor of finding a good plaintiff's lawyer to take this on a contingency.  We will all feel better, and we will have some assurance that our interests are finally being protected.

As an aside, I am shocked that others are even contemplating ever investing with these companies ever again.  Crowdfunded real estate should not be a thing.

DECA

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #716 on: June 14, 2019, 08:44:25 PM »
Hindsight2020 an Chicago81, I agree with both of you.  Perhaps by getting an attorney now, we can prevent any low-ball sale of the loan to FG and also prepare for suits against FG and RS.  Does anyone have an attorney that they recommend? RS is San Francisco-based, so perhaps a California firm that does plaintiff securities fraud actions?

Another thought is whether to try to spark a criminal investigation of FG.  Their default on all of their deals at the same time  makes me think Ponzi scheme.  If each deal had its own problems, one would think the defaults would be staggered.

gabe

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #717 on: June 15, 2019, 07:33:17 AM »
I just registered for the forum and am in a few FG investments. I'd be delighted to contribute to legal costs for any lawsuits against RS, FG, etc. I'll continue to follow the thread for any next steps.

Dgilpin

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #718 on: June 15, 2019, 07:50:15 AM »
The loans to construct FG restaurants were generally 90% of totally committed capital, with the other 10% or so being equity from FG. The loans are senior to the slim equity tranche but bear significant downside risk if something goes bad before the restaurants are completed and operating successfully. They say FG is still interested in buying the loans, but I presume at a predatory price that values them at some percentage of the invested PP&E. That would provide FG with massive option value to finish construction on incomplete restaurants or re-open the closed Decatur, IL Dog Haus, and then dispose of them for huge profits as a percentage of the loan purchase prices. I have made it clear to RS and the JV that it would be unacceptable to hit a stink bid from the (possibly intentional?) defaulter and transfer our losses to their pockets as profits. 

How the JV companies handle this will determine whether I ever invest a nickel in any investment offered by either of them.

If the JV companies are serious about helping RS clients work out bad investments, they should be assembling a structure/framework for investors to counter stink bids from FG. That would involve foreclosing on these properties, working with Goalz to ensure rents are set at sustainable levels, obtaining mortgage/construction financing to finish incomplete restaurants, getting them valued properly as operating entities, and repaying a bigger portion of our loans than would a predatory FG bid. There is a bargaining zone here that would result in superior outcomes for the franchisee and us, and it would also stop FG from profiting from our losses. I just don't know if the JV is on the same page.

I would be willing to get behind legal representation as well.  I can’t speak For other FG deals but the west islip AFC is a complete and operating business.  There’s no excuse that we should expect “significant losses”.   At face value this situation sounds like RS is just throwing up their hands and trying to unload these deals to get them off the docket.  Which doesn’t meet their obligation to investors.  Here is the original listing for that deal as requested.

https://www.realtyshares.com/investments/long-island-american-family-care-tranche-1

gabe

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Re: Thoughts On RealtyShares Closing Its Doors To New Investors
« Reply #719 on: June 15, 2019, 09:25:48 AM »
Thanks for that contact email, I just sent something there with messaging along the same lines as what you posted.