I had previously posted this on the psa thread where these things were discussed, but seems this is the new water cooler
https://www.theyeshivaworld.com/news/general/2199063/mailbag-ponzi-schemes-and-investors-in-our-community-a-warning-to-all-involved.html
2) my two cents in the discussion above, as someone in the industry -
A. The law requires accredited investors for a reason. That is circumvented one way or another in many cases and shouldn't be.
B. Even the most honest syndicator will mess up a lot of people if they don't have proper precautions in place. Anyone who financed or refinanced with a floating IO loan in 2021 is having a major cash flow issue now in the best case scenario, or selling at a loss / foreclosure. I see those deals hitting the market every day. Forget paying returns.
C. Those who have lived through previous cycles were generally more cautious and survived BezH. At the ecore 2021 conference, (I didn't go but watched the headliners) this was the direct warning given by sternlicht and Slone and others.
D. The setups and projections in those years had the same problem, assumptions that 3% interest rates are here to stay, and instead of locking rates and paying down principal, they went for max cash flow and instant gratification.
That might have been. 04
I’ve seen hundreds of OMs in the last few years. In early 2021, When I saw folks using floating bridge debt, I knew it was high risk, but I knew some people wanted that. Projecting that rates would move up slightly was a reasonable expectation. But I saw the same in 2022, even as the Fed was starting to hike! I saw syndicators underwriting that rates would rise 100bps, while Wall St was expecting 200-300bps. (And now we got 500bps!)
I also saw many predicting 10%+ rent growth year over year, even in the face of a lot of new supply.
In summary, nobody can predict the future, but if you underwrote realistically, nobody can have complaints.
But if you underwrote egregiously, and now you are doing capital calls or giving back the keys (and screwing your unpaid vendors), you should never be taking OPM.