Scalable Real Estate Investing
Scalable Real Estate Investing
#15 Winding Down RealtyShares' $2.0 Billion Portfolio with Jeff Holzmann
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Jeff Holzmann is CEO of IRM, a company formed solely to acquire and wind down nearly $2.0 billion in real estate assets invested through the now defunct crowdfunding platform RealtyShares. After the failure of RealtyShares, IRM struck a deal to take over their portfolio and has been able to fix many deals, provide clear and accurate communications to thousands of investors that were left in the dark when RealtyShares ceased operations. In this episode we go in depth on what happens when you invest with a bad sponsor, and the not so sexy reality of operating assets after they’re acquired, even if they’re not making any money.
Helpful Links:
https://rreaf.com/team-collection/jeff-holzman
Episode Highlights:
- Two of the biggest risks with investing in syndications is (1) execution risk and (2) how the deal is structured. From an execution standpoint, the sponsor may lack experience and a successful track record. While she or he might have had success using their own money on a smaller scale, when tasked with deploying millions of dollars into the same asset class it often requires an entirely different business plan. For how the deal is structured, do not invest in second lien debt. If the deal goes sideways and the sponsor loses interest because they’re not making any money on the deal, the first lien debtholders will begin to foreclose and the second lien debt (and equity) will be severely impaired and out of the money.
- A lot of risks associated with syndications can be effectively mitigated with the right sponsor. Speak with investors that have been investing with the sponsor for multiple years. Look at the results of properties that the sponsor has completed full cycle. You also need to understand if the syndicator is a professional operator with a validated, tested business plan and a lot of experience, and not going to simply apply a “mom and pop” approach and hope for the best. You should also consider the net worth of the sponsor. If the sponsor doesn’t have any assets, then there won’t be anything to collect if they are sued for doing a poor job on a bad deal.
- IRM categorizes their deals into 3 tiers with tier 1 being the best and tier 3 being the worst. Approximately 50% of the total deals are tier 1, while 25% are tier 2 and the remaining 25% tier 3. The tier 3 deals are often single family sponsors that were not able to effectively scale their business or execute their business plan.
- Before suing the sponsor for losing investors’ money, IRM must balance that with the cost to litigate. Even if you win a lawsuit, you may still lose in the end if the defendant doesn’t have any value for you to collect.
Best way to contact your host, Mason Klement:
mason@masonklement.com
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