Sovereign At The Ballpark: Multifamily At 100 Crawford St.

[lockmat]

Still dead? Yikes

[hindesky]

13 hours ago, lockmat said:

Still dead? Yikes

Yeah I went by this weekend on my ride but nothing has changed in a while so no point taking pics.

[Urbannizer]

I knew from the beginning this one would have issues. Dolce Living is the worst MF developer here.

[RecoveryRadio]

Hey gang! Awoke a few days ago to the sound of activity! Yay! However, it was just a crew putting up fence. No gate, and the site is now completely sealed up.

 

Michelle pointed out that there has not been security on site for over a month.

[Luminare]

13 hours ago, Urbannizer said:

I knew from the beginning this one would have issues. Dolce Living is the worst MF developer here.

 

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.

[bobruss]

And to think they tore down an old warehouse that someone could have turned into an interesting collection of shops, studios, offices, or restaurants so these people could 

screw around and maybe never finish. What a waste of some history and a lot that could have been very useful to the neighborhood.

I wish these people would just stop trying because their results suck.

[thatguysly]

Are they a public company? It almost seems like they getting these projects set up and started to show they have an active portfolio and then cut funding and let it sit. At least the one on West Gray is all but wrapped up.

[Nate99]

14 hours ago, Urbannizer said:

I knew from the beginning this one would have issues. Dolce Living is the worst MF developer here.

 

I just want to know who gives them cash to start these things. I can come up with way less wasteful uses for their money that involve Italian sports cars and nice vacations for me and only me. 

[C List]

2 hours ago, Nate99 said:

 

I just want to know who gives them cash to start these things. I can come up with way less wasteful uses for their money that involve Italian sports cars and nice vacations for me and only me. 

 

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/

[Nate99]

11 minutes ago, 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/

 

I'd apply a risk premium to that, but I'd have to divide by zero.   

 

Never would have guessed they could have drummed up enough for the crane rental going that route. 

[ArtNsf]

17 hours ago, Urbannizer said:

I knew from the beginning this one would have issues. Dolce Living is the worst MF developer here.

yikes, such language my goodness...

[Luminare]

1 hour ago, 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/

 

For those who will hire an accountant to do these things in the future, and are a bit dumb when it comes to business things, but would also like to know a little bit about this stuff...what are we looking at here? What do you see here that reaches your conclusion? I really want to know because I have no clue what I'm looking at here. What is shady? Is this something that someone would bring them to court over?

 

Aren't these guys taking tax credits from the original downtown living initiative?

 

Maybe a little indepth but also in laymens terms.

Edited July 24, 2019 by Luminare

[kbates2]

The 32% IRR.

[Luminare]

1 hour ago, kbates2 said:

The 32% IRR.

 

But why? I really don't know what that is haha.

[kbates2]

Not too familiar with the industry averages but typically, if I see higher than 15%, it starts to raise questions.  32% is probably double what they can expect.

 

Internal rate of return btw.

Edited July 25, 2019 by kbates2

[Urbannizer]

6 hours ago, ArtNsf said:

yikes, such language my goodness...

 

MF-Multi-family 👻

[H-Town Man]

13 hours ago, Luminare said:

 

But why? I really don't know what that is haha.

 

It's the annual rate of increase between what an investor puts in and what he/she gets out at the end. So if someone invests a million for one year and expects a 32% IRR, they are projecting that they will get back $1,320,000 in a year. For comparison, people buy 30-year U.S. Treasuries at a 2.63% rate and mortgages are typically sold with around 4% interest, so why would anyone invest in those things if they thought they could make 32% annually on real estate? Most real estate investments are done expecting 7% to 12% return, this being higher than Treasuries or mortgages because the risk is higher.

 

Edited July 25, 2019 by H-Town Man

[Luminare]

8 minutes ago, H-Town Man said:

 

It's the annual rate of increase between what an investor puts in and what he/she gets out at the end. So if someone invests a million for one year and expects a 32% IRR, they are projecting that they will get back $1,320,000 in a year. For comparison, people buy 30-year U.S. Treasuries at a 2.63% rate and mortgages are typically sold with around 4% interest, so why would anyone invest in those things if they thought they could make 32% annually on real estate? Most real estate investments are done expecting 7% to 12% return, this being higher than Treasuries or mortgages because the risk is higher.

 

 

So they are either way in over their heads or something really fishy is going on. Yikes.

[Nate99]

21 minutes ago, Luminare said:

 

So they are either way in over their heads or something really fishy is going on. Yikes.

 

Agree with H-Town and others. It's not impossible, exactly, but anything that ever actually earned a 32% IRR had a gigantic speculative upside that no one could have predicted.  

 

I figured it was some other convention in the math that I am not familiar with, but it doesn't sound like it.  

[Vy65]

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

Edited July 25, 2019 by Vy65

[bobruss]

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.

[Luminare]

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 July 25, 2019 by Luminare

[kbates2]

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.

[Vy65]

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 July 25, 2019 by Vy65

[Luminare]

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.

[bobruss]

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.

[H-Town Man]

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 July 25, 2019 by H-Town Man

[C List]

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. 

 

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

 

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 July 25, 2019 by C List

[C List]

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

[lockmat]

Has anyone reached out to Nancy about this?