ProudLiving Project Has Been Terminated
- My second preferred equity investment in a commercial real estate project has been terminated.
- It was 36 days from the time of capital commitment to the return of subscription.
- The estimated opportunity loss was $3,330.
Funding
In September 2016, iFunding announced a $1.4 million, 2-year preferred equity investment in an apartment portfolio acquisition and renovation project in New Jersey. The investment offered an estimated 25% preferred return: 9% current return paid monthly and 16% accrual paid at maturity. The timing was perfect as I needed to find short-term fixed-income investments for the extra cash from balance transfers. I made a $250,000 commitment, which was debited from my bank account on October 18, 2016. iFunding never completed the $1,400,000 raise and terminated the offering on November 21, 2016.
Real Estate Closing Delays
I maintained close communication with them regarding the project timeline to minimize cash drag. Real estate investment deals typically take about a month to close. Below is what they communicated to me:
- 9/22/16. New one should be up later today or early tomorrow. 2 year term 25% IRR
- 9/29/16. Closing ASAP – 1st week in October – October 4 if we can, maybe October 14
- 10/13/16. Target date is October 21. This is officially a Best Efforts Raise. They will accept whatever amount we raise. We are hoping to make it tomorrow but may extend as we still have lots of investors circling.
- 10/18/16 – $250,000 invested.
- 11/2/16. We are closing ASAP based on the amount raised. We need countersignatures on all the documents – getting all closing items resolved. Friday is realistic, but with multiple lawyers involved it may slip to early next week.
- 11/15/16. Fighting to get resolved ASAP
- 11/21/16. We are planning to do a reissue – was taking too long and we were trying to use a 3rd party broker dealer. We are in process of becoming our own broker dealer and/or registering as investment adviser that is going to make our process easier and more efficient. Unfortunately, this project got caught in the middle. You will be receiving formal notification and return of funds has been initiated.
Termination
They repeatedly pushed back the closing date of the project. After waiting for over a month, the project was suddenly terminated.
The Impact of Cash Drag
My subscription was returned without interest. The estimated opportunity loss was $3,330.
| Month | Cash Drag | DLI Fund Return | Opportunity Loss |
|---|---|---|---|
| October | $150,000 | 0.83% | $1,245 |
| November | $251,245 | 0.83% | $2,085 |
Cash drag significantly impacts portfolio performance over the long term. Fortunately, I was able to move the remaining funds to DLIF shortly after this incident. The fund accepted my last-minute subscription for a December investment.
What’s Next
While the situation was quite frustrating, it may ultimately work out for the best. With mortgage rates surging following the election, I will maintain a cautious approach until the market stabilizes.
