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Sovereign at the Ballpark: 100 Crawford

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Thanks for the education. All of those terms and percentages and returns make me dizzy. It's nice to have experts in so many areas on HAIF.

By the way for all that followed Swamplot, there is a nice article in this months Texas Architect about the history and growth, and closing.

Also the focus this issue is on galleries featuring a not to flattering article about the new Menil Drawing Institute, the new gallery on West Alabama across from the Menil,

and the new San Antonio gallery Ruby, from the Pace Collection.

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29 minutes ago, Vy65 said:

Luxe's President/CEO/Owner/Whatever is under a criminal indictment in Illinois for bank fraud. USA v. Krivoruchko, 1:19-cr-00080

I should add - that indictment relates to one of Luxe's condo projects in Chicago

 

I'm sure this is a crime that requires motive to prosecute, right? This is why even with all this great info you guys have provided the essential point of the argument would be; did they initially inflate numbers to *potentially and allegedly* fraud investors, or are they just that stupid.

EDIT: words like potentially and allegedly to cover my butt

Edited by Luminare

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I don't think that this would be anything constituting a crime.  The 32% return seems to be based on a 5 year investment, so we are really talking about 6%+ returns a year.  Still, my understanding is that the real estate market is based on full project returns, which this would seem to be, and cursory internet searches tell me that 18%+ returns on projects are opportunistic and thus a gamble if that is what you are banking on. 

 

Telling somebody that you are shooting for super high returns usually isn't a crime.  Ponzi schemes and the like are a result of people covering up for these promises by using others monies to pay that gain while continuing to make absurd promises.  If they showed investors false financials claiming that they regularly receive those type of returns, that would be where the crime comes in.  

 

My assumption is that 32% IRR does happen, it just is an exception - not the rule.  If I was going to invest in this, I would want to see how they expected to achieve that based on prior performance.

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10 minutes ago, Luminare said:

 

I'm sure this is a crime that requires motive to prosecute, right? This is why even with all this great info you guys have provided the essential point of the argument would be; did they initially inflate numbers to *potentially and allegedly* fraud investors, or are they just that stupid.

EDIT: words like potentially and allegedly to cover my butt

 

I don't do criminal law, but my understanding is that bank fraud, like any form of fraud, requires intent. I skimmed through the indictment, but it sounds like misrepresentations were made regarding the lender's priority, secured status, repayment schedules, etc ... and not about overall return values. But like I said, I skimmed it. 

 

I'm curious to find out if any of the crowdfunded investors have made any complaints regarding the Houston property. I spent the morning searching but couldn't find anything on the internet. 

 

2 minutes ago, kbates2 said:

I don't think that this would be anything constituting a crime.  The 32% return seems to be based on a 5 year investment, so we are really talking about 6%+ returns a year.  Still, my understanding is that the real estate market is based on full project returns, which this would seem to be, and cursory internet searches tell me that 18%+ returns on projects are opportunistic and thus a gamble if that is what you are banking on. 

 

Telling somebody that you are shooting for super high returns usually isn't a crime.  Ponzi schemes and the like are a result of people covering up for these promises by using others monies to pay that gain while continuing to make absurd promises.  If they showed investors false financials claiming that they regularly receive those type of returns, that would be where the crime comes in.  

 

My assumption is that 32% IRR does happen, it just is an exception - not the rule.  If I was going to invest in this, I would want to see how they expected to achieve that based on prior performance.

 

To clarify, the indictment is brought by the US Attorney concerning what a couple of Illinois banks were told regarding what they were told about the status of their loans. It's not about the return numbers. I'm sure the prospectus has all kinds of disclaimer language that would foreclose a civil, let alone criminal, complaint on that score. 

Edited by Vy65
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2 minutes ago, kbates2 said:

I don't think that this would be anything constituting a crime.  The 32% return seems to be based on a 5 year investment, so we are really talking about 6%+ returns a year.  Still, my understanding is that the real estate market is based on full project returns, which this would seem to be, and cursory internet searches tell me that 18%+ returns on projects are opportunistic and thus a gamble if that is what you are banking on. 

 

Telling somebody that you are shooting for super high returns usually isn't a crime.  Ponzi schemes and the like are a result of people covering up for these promises by using others monies to pay that gain while continuing to make absurd promises.  If they showed investors false financials claiming that they regularly receive those type of returns, that would be where the crime comes in.  

 

My assumption is that 32% IRR does happen, it just is an exception - not the rule.  If I was going to invest in this, I would want to see how they expected to achieve that based on prior performance.

 

Which is all the stranger because one wouldn't look at this development and say...jackpot, or Dolce Living and say...jackpot. The Allen or Regent Square or Buffalo Bayou Place seem like examples of developments that would warrant that high risk not a 5-6 story nothing that is plain as Mary-Jane.

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39 minutes ago, Luminare said:

 

Which is all the stranger because one wouldn't look at this development and say...jackpot, or Dolce Living and say...jackpot. The Allen or Regent Square or Buffalo Bayou Place seem like examples of developments that would warrant that high risk not a 5-6 story nothing that is plain as Mary-Jane.

Now don't be casting aspersions on Mary-Jane.

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1 hour ago, kbates2 said:

I don't think that this would be anything constituting a crime.  The 32% return seems to be based on a 5 year investment, so we are really talking about 6%+ returns a year.  Still, my understanding is that the real estate market is based on full project returns, which this would seem to be, and cursory internet searches tell me that 18%+ returns on projects are opportunistic and thus a gamble if that is what you are banking on. 

 

Telling somebody that you are shooting for super high returns usually isn't a crime.  Ponzi schemes and the like are a result of people covering up for these promises by using others monies to pay that gain while continuing to make absurd promises.  If they showed investors false financials claiming that they regularly receive those type of returns, that would be where the crime comes in.  

 

My assumption is that 32% IRR does happen, it just is an exception - not the rule.  If I was going to invest in this, I would want to see how they expected to achieve that based on prior performance.

 

But an IRR is a rate of return, which means annual rate, not total % return. Unless they are using their terminology loosely.

 

Another thing - it looks like this might be the leveraged IRR, which is the rate of return after debt payments are deducted, and is a higher percentage than unleveraged IRR to make up for the cost of debt. 15% is a more typical number, like kbates said.

 

Edited by H-Town Man
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1 hour ago, kbates2 said:

I don't think that this would be anything constituting a crime.  The 32% return seems to be based on a 5 year investment, so we are really talking about 6%+ returns a year.  Still, my understanding is that the real estate market is based on full project returns, which this would seem to be, and cursory internet searches tell me that 18%+ returns on projects are opportunistic and thus a gamble if that is what you are banking on. 

 

Telling somebody that you are shooting for super high returns usually isn't a crime.  Ponzi schemes and the like are a result of people covering up for these promises by using others monies to pay that gain while continuing to make absurd promises.  If they showed investors false financials claiming that they regularly receive those type of returns, that would be where the crime comes in.  

 

My assumption is that 32% IRR does happen, it just is an exception - not the rule.  If I was going to invest in this, I would want to see how they expected to achieve that based on prior performance.

Earning 6% a year does not equal a 32% rate of return, it equals 6%. That is why a bond with a coupon rate of 6% gives you a return of 6%, see below. 

image.png.4de3a734233555375d915043aa7218ae.png

 

To achieve a 32% return as a developer you have to create a tremendous amount of value at exit.

image.png.17204140bbe914501b4897c57c36287a.png

 

Leveraging a property with two loans, a senior and mezz note, is one way to help you achieve this return. The downside is,  when one thing does not go as planned then you can't cover your interest and the banks foreclose on your property (Banks do not like to foreclose on a property that is not complete, so they will work with developers but they will take 99% of the investor's money). Which it sounds like is happening below, they probably misrepresented to the two lenders who was a priority to foreclose on a property that was underwater, which is fraud.

 

The 32% is not fraud it is just deceitful (edit). Returns on real assets (properties) over the past 10-years have come way down. Real estate is very competitive and asset prices are high. With 10-year treasuries so low investors are looking for anything with yield and are willing to pay higher prices which lowers overall returns. If you are not familiar with real assets than it is easy for you to see a 32% and say holy S$%t I want it, but in the current environment, there is almost no way you can achieve that return. 

1 hour ago, Vy65 said:

 

I don't do criminal law, but my understanding is that bank fraud, like any form of fraud, requires intent. I skimmed through the indictment, but it sounds like misrepresentations were made regarding the lender's priority, secured status, repayment schedules, etc ... and not about overall return values. But like I said, I skimmed it. 

 

I'm curious to find out if any of the crowdfunded investors have made any complaints regarding the Houston property. I spent the morning searching but couldn't find anything on the internet. 

 

 

To clarify, the indictment is brought by the US Attorney concerning what a couple of Illinois banks were told regarding what they were told about the status of their loans. It's not about the return numbers. I'm sure the prospectus has all kinds of disclaimer language that would foreclose a civil, let alone criminal, complaint on that score. 

 

Edited by C List
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On 7/24/2019 at 11:50 AM, Luminare said:

 

Absolutely! They definitely aren't the sharpest knives in the drawer. They always seem to have contractor issues, and at this point its not just a one time thing, but a pattern. Now this is merely an allegation, as I definitely don't know whats going on, but I know from knowledge and a little experience that when contractor problems arise it often times is the case when a project isn't properly bidded and instead is given to a contractor that is a "friend" of the client who wants a project to be built. This almost always hurts a project because often times the "friend" that is hired isnt one that can actually do the job. Once again this is just an allegation and speculative at best, but with multiple failed projects or delayed projects this is an allegation that I'm feel confident in making. This is organization that needs to clean house and restructure their team that approaches these kinds of projects.

 

Even better than giving the GC work to a friend is to keep it in house! The conflict of interest within this firm it out of this world

image.png.ec0d88dbef53f38dd21ea39a9b6bac8b.png

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Has anyone reached out to Nancy about this?

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On 8/2/2019 at 5:19 PM, lockmat said:

Has anyone reached out to Nancy about this?

You'd think there would be a story here with the principal being indicted in Chicago. 

 

A lawsuit was filed in settled in Florida concerning this project. One of the limited partners alleged Luxe was misappropriating funds. 

 

I wonder if any of the crowdfunded investors have grumbled about that lawsuit or the project's overall lack of progress. 

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Damn so what happens to the development? Does it just sit and rot till someone picks up the land? And hell we were all complaining about how this stuck out like a sore thumb in the middle of old brick warehouses. Maybe this is a blessing in disguise. 

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Assuming the contractor gets a judgment authorizing foreclosure, it'll be sold at public auction. God knows who'd buy it considering there's been on-site construction. Could another developer come in and pick up where RATP left off? Are they going to have to scrape everything and put something else in? It'll be interesting to see if the baton gets passed and who ends up buying this assuming the foreclosure goes forward (which is not a given).

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I know it's always good to have infill, but like I said before it is somewhat of a relief that this development isn't going forward. Considering how much trouble they had getting this together, it's likely the final product would've turned out to be cheap and sub-par along with being a bad design.

 

It will be an issue going forward for any developer wishing to purchase that site, to either continue with something else or tear it all down.

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This will probably get settled prior to foreclosure.

 

$2.9M isn't a ton of money relative to the project size.

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To clarify, what got filed was a suit asking to foreclose the mechanic's lien.  The filing looks very routine.

 

These projects are frequently structured using single purpose entities.  What often happens when they go underwater is that the single purpose entity files for bankruptcy.

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They dug a nice hole and filled it in about half way with new structure.  Unless someone was of a mind to buy it up and continue on with the bones of the "Regalia" design, this is going to be a blighty mess for a while, but at least it's a different blighty mess than what was there previously.  One cheer for variety.

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Kind of sounds like the last guy tried the GoFundMe approach to capitalizing this project already.  

 

I'm in for a fiver if one of y'all renders up the 1836' helixed oil derrick design with Columbia blue and red LED's. 

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On 7/24/2019 at 3:49 PM, C List said:

 

There is definitely something fishy with how they conduct business and it starts with funding. They crowdfund their equity using unrealistically high returns with no mention of a hold period, not to mention they have a senior note and a mezzanine note to pay off. Their team is incredibly small and it doesn't look like they have any dedicated team members that work in Houston, so no developer on site. This group screams incompetence and I would love to get my hands on their prospectus, no doubt there are some upset people that saw their money vanish (Dolce Midtown). 

 

https://www.luxecrowdfunding.com/regalia-at-the-park-2/

image.png.f0d975e214e2656d5ba0d007197656ce.png

 

Me thinks this group is in even more trouble..crowd funding website no longer exist.

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On 8/15/2019 at 1:26 PM, mollusk said:

To clarify, what got filed was a suit asking to foreclose the mechanic's lien.  The filing looks very routine.

 

These projects are frequently structured using single purpose entities.  What often happens when they go underwater is that the single purpose entity files for bankruptcy.


There is a very structured process for contractors and subs to file suit for foreclosure.  This means that cemex has sent several notices to the project owner “fund trapping noticed” and gotten no satisfaction.  You foreclose on a property, not a company or owner.  If the suit goes forward, this property could very well be auctioned in a foreclosure process.  But that won’t be quick unfortunately 

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15 hours ago, ekdrm2d1 said:

ibL6TTl.jpg

 

Wow, if this is the project location, there sure is a lot going on and that has been done already.  I would really hate if it were to be completely stopped for good and nothing be built here for a long time.  Such a waste of resources, time, effort, and valuable land space in downtown !

 

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2 minutes ago, kbates2 said:

Apparently this project is back on.

 

"Sovereign Properties will resume construction on a mid-rise apartment project near Minute Maid Park in downtown Houston after securing new financing. Acres Capital Corp., a commercial real estate lender based in New York, provided a $49 million construction loan to fund completion of the project, now called Sovereign at the Ballpark, a 229-unit complex at the northeast corner of Crawford and Commerce."

 

https://www.houstonchronicle.com/business/real-estate/article/Stalled-downtown-apartment-project-to-resume-15018116.php

 

Excellent. Looks like in the render the Chron posted, Sovereign Properties updated the materials as well. Seeing more Wood and Metal Panel and less Stucco.

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6 minutes ago, Luminare said:

 

Excellent. Looks like in the render the Chron posted, Sovereign Properties updated the materials as well. Seeing more Wood and Metal Panel and less Stucco.

 

I hope you are right.. the trendy stained wood thing will look dated almost immediately unless they do it right. seems to be some brick too..

 

happy this isn't going to just decay.

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8 minutes ago, Avossos said:

 

I hope you are right.. the trendy stained wood thing will look dated almost immediately unless they do it right. seems to be some brick too..

 

happy this isn't going to just decay.

 

That cornice detail and stucco finish already makes it pretty dated. At this point they just need to build it. Compared to other developments downtown, if its already dated looking then it will fetch a lower price than the others which will be good for getting a slightly different income person into downtown. That will be the silver lining for this project.

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12 hours ago, Moore713 said:

Did we know about this one? If so go ahead a delete 

Screenshot_20200209-183230_Samsung Internet.jpg

 

That's good news. As suboptimal as the particular design may have been, it was going to be awful if left to decay 10% complete as it has sat for the last few months. 

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What a time to reboot a dead project. Sat idle throughout a historic growth spurt, now its going up during a crisis, lol.

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17 hours ago, zaphod said:

What a time to reboot a dead project. Sat idle throughout a historic growth spurt, now its going up during a crisis, lol.

 

Will probably be done when things are back on an upswing?

 

That is why trying to time the markets is difficult / near impossible. Funding is obviously easier when things are on the up.

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On 4/19/2018 at 3:30 PM, H-Town Man said:

Looks like they do mid-rise apartments. They've done the Dolce Living communities around town, which is kind of scary. They did do a nice urban midrise in Minneapolis.

 

All there projects are disasters Dolce midtown was 6 years Minneapolis was a lawsuit for using the wrong materials.  Nothing they build is good

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