This little nugget was in Saturday’s Arizona Republic:
Last week, Phoenix-based real-estate investment firm Right Place Properties spent investors’ money to purchase multifamily housing units, promising a healthy return on their cash.
Then on Monday, the company and its designated broker, Red Door Commercial, shut down their Web sites, disconnected the phones, laid off the bulk of their employees and told investors and others that their money was all but gone.
Company officials say they were blindsided by rapid property-value declines in October and a lending-capital freeze that made it impossible to continue executing their business plan of buying run-down apartment buildings, renovating them and selling the units as condominiums.
(my emphasis in bold)
WTF? Have these people been living in a cave the past two years?
How in the name of heaven could a “real estate investment firm” and a real estate brokerage be “blindsided” by property value declines and lending issues?
Knock knock knock. Anyone home?
“It’s true that through last week we were continuing to close escrows,” Right Place principal owner Earl Ricker said Thursday. “It really didn’t sink in until the weekend that continuing operations would put our ability to manage our existing properties in jeopardy.”
So let me get this straight. You’re closing escrows one week using OPM (Other Peoples Money) and then the next week you’re practically out of business, shutting down web sites, laying people off and telling investors that they won’t be getting any money back.
And the fact that you can’t stay afloat in this market “really didn’t sink in until the weekend”???
You were “blindsided” by rapid property value declines. In Phoenix Arizona.
You’ve got to be kidding me.
There are an abundance of home price indexes out there. Have you heard of the S&P Case-Shiller Index? (Well, evidently not given the stunning ephinany you had over the weekend.) Here’s a chart of it I made for the Phoenix metro area. Similar charts are available in about a half a bazillion other places:
Blindsided — by a steady and precipitous drop in home values over the past 2+ years.
Don’t like the Case-Shiller Index? Fine. Here is a chart from a recent Wall Street Journal article showing trends from six popular home price sources. The measurements are different, hence the actual numbers don’t match up, but note the shape of the curves — they are all very similar.
A third grader can read these charts. All show a peak in roughly mid-2006 and declining values since then. Yes, real estate is local, and even in the Phoenix market there are isolated instances that have bucked against these trends. But how a real estate investment company and their designated broker can just wake up one morning and realize their business is in the toilet and their model is fundamentally flawed is beyond me.
These investors have apparently been making administrative, marketing and renovation payments — “hefty” payments according to the article. No renovation has occurred, and there are now no plans to sell the units.
“We do not have the cash to refund to investors” said Right Place principal owner Earl Ricker.
Really. Then what did you do with the money?
If I were an investor in Right Place Properties, I sure would have a whole lot of questions right about now….
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{ 33 comments… read them below or add one }
Definitely sounds like a scam to me. I hope that the investors can do something to partially recoup some of their losses.
John´s last blog post..Baltimore Real Estate
Well when your not paying attention to anything except getting more “Investor” money it might feel like a “blindside” to all of a sudden realize the business that you were running was a joke. (read scam) There was a TON of this going on in both Tucson and Phoenix and it always seemed there were people willing to give up money in hopes of being led to the goldmine.
WOW. That like standing in the middle of a busy street and being blindsided by a car. Somehow I’m betting the principals of the firm are OK though. Seems like an investigation is in order to find out exactly what was going.
Doesn’t surprise me…I’m pretty disappointed in all executives in nearly every industry throughout America. It seems that nearly every executive had their head up their arse throughout the last decade (except Jamie Dimon at J.P. Morgan).
What ever happened to managing risk?
Jay, this is a brilliant article. I had a booth at Azreia representing Oklahoma real estate investments this year and Red Door was across from me. I recognized them from meetings I had attended in California. I have seen too much of too good to be true real estate investments. In fact I have followed your blog since you spoke at Inman News in January, and you have been very honest about Phoenix real estate values for a long time. Maybe these investors should have subscribed to your blog. It takes a foolish investor to match up with a pie in the sky real estate shill. These are not really investors, they are speculators. Keep up with the great blogs. http://www.joepryor.com/blog for Oklahoma real estate investments.
Joe Pryor´s last blog post..With Real Estate, All of Washington is Elitist
There needs to be something done about the irresponsibility of corporate executives across the country. People are getting golden parachutes for being irresponsible and flushing away others hard earned money.
Wow, this stuff is criminal… and the guys at the top float away gently in their golden parachutes. You’re right though, where did the money go?
Wow! That deal smells of fish to me! The lawyers are going to do well from this one. I’d be interested to see what was happening with this companies other investment properties
Somebody was blindsided. It wasn’t the real estate firm, it was the investors. I’m pretty sure the investors will get their money back. It seems shady and there are always justice to shady people.
I don’t know how large a company this was that went belly up. But, I won’t be crying too much for those “investors” who didn’t do any home work on real estate.
Aren’t these “investors” the ones that help create this mess? Those fast flippers buying up the housing inventory to just re-sell it at a big profit?
Where did the money go? Well, Jay! I’ve been wondering how my neighbors were able to live such a high flying lifestyle to begin with. Now we all know how they did it.
Enron, Savings and Loan, dot com, and all the other “fast” money shemes. All of it is now going to effect the rest of us that tried to live within our means and provide and honest day’s work for an honest day’s pay.
I didn’t get to have any of the fun, but now I going to pay the bill. Sign me “savingsalmostallgonenow” or “wheresmybailout”
WTF is right! If I were any of those investors, I’d be getting a lawyer and checking into where my money had gone. 2 plus years of steady home decline and they were blindsided? Over the weekend? Sounds a little like fraud that got out of hand to me…I’d be interested to know if the CEO and company president are still making a “severance” salary.
Lenda Goulding-Cary Area Real Estate Expert´s last blog post..Tax-Free Appliance Weekend Coming Up
I can’t believe that. Over a weekend? That is crazy! What kind of “investors” were they too? How could no one realize the market was slowly declining with 2 years of data to prove it? Amazing.
I agree with Gregory Bain too-we didn’t get to screw off with our money; however, we will be footing the bill for this “bailout plan” and saving the ones that did.
Martin Bouma-Ann Arbor Real Estate Expert´s last blog post..Ann Arbor Homes - Who’s Buying Them?
Sounds like a classic Ponzi scheme to me. The con artist gets investors to buy in with the promise of unreal return. The first ones in are paid a huge return with the new investors money, not on real profit generated. The buzz is created and more and more investors buy in. When the pool of money is big enough the scammer disappears with the cash and the “investments” all go into foreclosure.
Dan Connolly - Atlanta Real Estate Guide´s last blog post..Disclosure: What the seller DOESN’T have to tell you in Georgia
Hi Jay,
“Blindsided” is the operative word and literally living in a cave is the only way this excuse could have any bit of credence (even then, it’s a tough sell).
We’ve been renovating single-family homes in the general Phoenix, AZ area over the past seven months. Our premise. There’s good buys and enough buyers to buy the right product at the right price.
So far, we’ve had moderate success, as we continue to turn a fair profit averaging the outcome of all of our projects. With that being said, we’ve definitely had an increasingly more difficult time moving our projects this month. One of our Tempe, AZ homes just fell out of escrow yesterday (buyers stringing us along with a we don’t want to buy this house anymore excuse for breaking the contract, backup offer just found another home) and a waterfront home in Glendale that we’re struggling to sell at an already ridiculously below market value price in consideration of real comps.
My point, we are surprised by many of our experiences in the Phoenix, AZ market. Our waterfront home in Glendale AZ is fully renovated, shows well, is fully staged, and aggressively priced. It should have already moved. Nothing we do, including dumping the price is moving this home. Our Tempe project is a nice starter home, renovated too, fully staged, and we’ve had four solid opportunities fall through for varying reasons (as noted above, the last buyer walking away, another buyer lost their job, another couldn’t qualify for a mortgage, and the original buyer rejected our counter with no counter back).
Disappointing yes. The outcome unexpected? Absolutely not. It’s impossible to be spot on predicting human nature and day to day occurrences of these cycles but, as you’ve clearly stated by your graphs, we’ve had pretty good knowledge, for quite some time, on endless fronts, that all is not well in housing (deathly sick in fact). Furthermore, Phoenix has been one of THEEEE places on the radar for the immense overnight skyrocketing of prices during the boom followed by prices falling like a rock faster than what’s permitted by the laws of gravity. One could argue that the extent to which all of this is happening (the speed and the magnitude) may be a bit surprising (or perhaps overwhelming is a better choice of words) as there seems to be no end nor solution to fixing this dire mess.
Again, we can’t predict all of the day to day nuances of these cycles and will always, to some extent, continue to be surprised by the minutia behind our failures but we’d be fools not to understand that we’re taking on considerable risk in this type of market. Failures that normally wouldn’t occur will occur simply because of the extenuating economic conditions.
It’s a job in itself to be successful knowing this, fooling yourself into believing otherwise, perhaps a lottery ticket would be a better investment.
Have a Happy Thanksgiving!
Property Qwest Blog´s last blog post..ING DIRECT - Suspending Foreclosures Through the End of March 2009
Don’t you love it when the bad guy tries to take on the role of being the victim!
Tina Fountain´s last blog post..Now is the time to buy your new Atlanta Dreamhome
Wow, what an analysis!
I’m not sure I understand where people forgot the rule of real estate being an illiquid asset. It’s sad to see people get ripped off in this manner.
David - Marketing Management Strategy´s last blog post..ifbyphone Raises $4.6 Million in New Round of Venture Capital Funding
never thought I would see the day when Lawyers,and the colon cleanse dude, lost their first place position of most evil villans in America, to “Realestate dude”. I find this news is the best christmas gift ever, thank you republicans for your “less government interventions” rehab starts at 4:20 on the upper deck.
Comment by Great News -
How in the world do people without a basic understanding of economics start investment firms? Apparently all you need is a $100 a suit and bright smile and you can get people to invest in anything.
Jay,
This company was making overstated promises for a long time. My wife and I and many others got invited to their events with lavish promises that just did not seem to add up. In the end, greed from both sides created the problem.
It seems like there is a pattern forming here with companys who make big promises?
What gets me the most is how investors - whether they’re individual investors or investing companies - keep getting the whole “buy low, sell high” thing wrong, over and over again. It’s crazy to me how few “Investors” I’m hearing from these days, even though this is precisely the time to be snapping up cheap property. But once the prices get ratcheted up again, they’ll ring your phone off the hook trying to buy high again. That’s what I don’t get.
Jay Austin Real Estate Agent´s last blog post..Should You Sell Your Austin Real Estate During the Holidays?
Some people have no business owning or being in charge of making business decisions. I compare this to the U S automakers who saw the decline of big trucks and suv’s but waited until their businesses were on the verge of bankruptcy before changing strategies to the changing marketplace.
Some people are knuckleheads. Some people are knuckleheads who create financial trouble for other people with their bone headed decisions. This is one of those times.
I believe Drew Grunwald of the Red Door Group had a one-hour real estate radio show… 5 days a week!
They erased most of their web presence but I found this in the Google cache. http://74.125.95.132/search?q=.....&gl=us
It seems from a quick reading of that web page that they (Red Door and Right Place) sold the properties and then Right Place signed a triple net lease with the new owners and Right Place then sub-leased the properties to regular renters. The investors had an easy to manage investments with the triple net arrangement.
Apparently, now Right Place isn’t pay their landlords/investors.
To me, one of the worst parts of the story was their selling properties the week before they shut ‘er all down.
I’m going to go out on a limb here and guess that they didn’t make full disclosure of all material facts to those buyers.
I’m guessing they are going the “blindsided” route to try to deflect the (lack of) disclosure issue.
John Wake´s last blog post..Phoenix short sale Realtor
A scam probably? Or just to cover up their mistakes? Hope those who lost their money can recoup some of them..
Hello, that’s a good post, I agree with most of what you are saying. Do you think that this will have a postive effect on our marketplace over the next few months?
Thanks again and all the best!
Mark
Mark Argentino´s last blog post..November 2006 Mississauga Real Estate Market, Prices UP and Volume of Sales UP
I’ll keep this short. I know for a fact they were not blind-sided; that little tidbit in the AZ Republic made me sick to my stomach. My former association with that company is, unfortunately, something I have to deal with, but on a bright note, I know that sticking to my guns is what got me laid off. I did everything short of a jig to let them know what the market is doing, where it is going- and they simply chose to not listen. It wasn’t so much greed as it was an unbelievably self-important sense of self that was rampant in that company!
Jay–you’ll love this item I’ve cut ‘n pasted below–it’s from them, as seen at an online job board (Monster.com) earlier this year…
Note the “Christian-faith based organization” part.
Like the pun about drunken sailors bothered by talk that Congress and some CEO’s are acting like them, I, as a Chrisitian, take offense at RDG’s assertion that they conducted themselves in a WWJD fashion.
I always wondered how they could continue to “guarantee” 12% returns. I guess it was because they caught the beginning of the turnaround from the last housing slump and never weathered a major r.e. market downturn of any significance before.
Like the investors with Mortgages Ltd. or with Mark Bosworth, those
who fall for the seductively & slickly packaged ultimately get hurt.
http://www.JimZirbes.com
“Real Estate Investment Sales Consultant
Company:Red Door Group, IncLocation:Phoenix, AZ 85015
Salary/Wage:75,000.00 - 150,000.00 USD /year
CommissionsStatus:Full Time, Employee
Job Category:Accounting/Finance/Investment Management
Relevant Work Experience:1+ to 2 Years
Career Level:Experienced
Education Level: Master’s Degree
Job Description:
Red Door Group is a Christian-faith based organization and is proud to be the exclusive broker for Right Place Properties and markets Right Place investment opportunities including 1031 exchange opportunities and trust deeds. Red Door Group represents Right Place Properties in a very worthy mission. The Right Place mission is simple- renovate existing real estate to create quality, affordable residential properties that provide mutually profitable opportunities for buyers, employees, associates, investors and owners. Red Door Group is committed to the investors of Right Place Properties. Red Door Group takes the hassles out of real estate investing.
The Investment Salesperson is responsible for identifying and generating new business for the Red Door Group. This individual will research and solicit potential new contacts for real estate investment business in a professional and ethical business environment.
Job Duties Include:
“Warm” calling clients for new business as well as taking inquiry calls from exciting advertising campaigns.
Selling structured real estate investments on properties in Arizona and Texas
Required Skills/Experience:
MBA, preferred with concentration in finance or real estate. Recent College Graduates are encouraged to apply.
Arizona real estate license required.
Understanding of investment math
Someone with a history of achievement, tenacity and strong work ethic.
Must be intelligent, self-driven, proactive and motivated to succeed.
We offer an excellent compensation package, an exciting opportunity, and the chance to make a difference.
This is a commission based position with a 150K income potential, first year average income is 100K.
Join the team that is setting the pace in the industry.
Approximately 25% travel may be required. Medical, dental, life insurance, PTO and 401K benefits available.
Contact:
Company:Red Door Group, Inc
Contact:Jessica Pierce
Email:Apply by Email
Address:Phoenix, AZ 85015
Jim Zirbes´s last blog post..Educating Buyers About Listing Agents
this is even more applicable today dec-02-2008
How wrong can you idiots be???
by Bill in Portland Maine
Wed Jun 15, 2005 at 03:10:30 PM PST
A brief message to the Knuckledragger wing of the Republican party:
You guys are idiots. Total, blazing idiots. In fact, I’ve never seen such a collection of morons in my life, and that includes the Nixon guys.
When I say idiots and morons, I don’t mean walking into walls or sticking your hands into vats of bubbling tomato sauce. I mean, you guys are wrong. And you’re wrong so often and on such a massive scale that science should come up with a new term for your species: homo stupidus.
Bill in Portland Maine’s diary :: ::
The catalyst for this reality-based rant is the Terri Schiavo autopsy. But this isn’t about the Schaivos or the ethical and moral questions that arose during that awful episode. It’s about looking into the rear-view mirror and seeing that you Bible-thumping lunkheads and your attack poodles in the media got it all wrong. Again.
Terri wasn’t following that balloon with her eyes, Dr. Bill “Bootlicker” Frist, because she was blind. She didn’t say “Mommy,” Sean “Hack” Hannity, because her cognitive abilities were gone. She wasn’t strangled, Dr. William “Igor” Hammesfahr, but thanks for proving just how pathetically wrong you “experts” on the rabid right were in this case. You screwed up big-time because you idiots dove into what you thought was a “hot button issue” without a clue what you were doing. You couldn’t have been more wrong.
But the Schaivo embarrassment is just one more stinking turd on your Republican “Dungheap of Wrong.”
You were all wrong on Iraq. Completely, utterly, insanely wrong on everything. The list has gotten too long to print.
You’re wrong on global warming. And now we know you’ll resort to doctoring scientific documents to hide your wrongness.
You’re wrong on homeland security because we know that our ports, borders and infrastructure still aren’t adequately protected. You’re so wrong that we’ve been at terror threat “Yellow” for 1,204 days now, and at “Blue” or “Green” for zero.
You’re wrong on those idiotic tax cuts. They haven’t stimulated job growth in the slightest, nor have they helped the middle or lower class. Any idiot could see that, and I’m surprised you don’t because you are such an extra-special class of idiots.
You’re wrong for plunging our country $7.7 trillion into debt. What in God’s name were you thinking? Have any of you ever balanced a checkbook in your life?
You’re wrong for trying to fool us into thinking that throwing Social Security into the gnashing jaws of Wall Street will solve the (minor) problem we’ll face 35 years down the stinking road.
You’re so wrong—oh God, how you’re just lame-brained here—for ignoring the massive health care crisis in this country. A grade of F- to you…and my extended middle finger, too.
You’re wrong on stem cell research. You’re wrong on “intelligent design.” You’re wrong on this crazy missile defense shield. You’re wrong to ignore the genocide in Africa. You’re wrong to force a cookie-cutter education “plan” on states without paying for it. You’re wrong to send an abusive hothead to be our ambassador to the United Nations even though he openly despises it. You’re wrong to embrace a radical, hateful religious faction of your party while—wink, wink—you claim to welcome all religions. And you’re damn well wrong to suck up to residents of another country (Israel) because you think their destruction is your key to salvation. “Jerusalem’s gone! Pack yer bags, Ma!”
There isn’t a duncecap big enough to fit your big fat arrogant heads. There isn’t a corner big enough for you to take a time-out in. You guys have been so absolutely, positively wrong about everything that it boggles the reality-based mind. And not just wrong—but willfully wrong.
I just wanted you to know that, you incompetent radical Republican nincompoops. Hope I didn’t spoil your golf game.
since that was written we have had a complete collapse of the Investment banking system, (no more all gone)(( hope you get your $5 million from LEH bro)),insurance system (ponzi),american automotive bussiness, a rape of America with highly leveraged oil, the list goes on and on …… please add to the list of wepublican wrongs, lets see how bad it really is. P.S. $ 10,000,000,000.00 deficit as of 11-08 I expect the real figure of around $60,000,000,000.00 is more accurate after these homo stupiduses leave in jan 09
I just shake my head at this kind of sad news. This is a criminal act, and they should be held accountable. I have to say though, none of this would be happening if it weren’t for greed on BOTH sides-investors and home builders. When a promised payout sounds too goo to be true, that usually means it is. What a shame so many got scammed and my even be facing identity theft.
Leon Belenky-One Bal Harbour Condo Expert´s last blog post..Sayan Sunny Isles - Proximity to Wonder
We need to organize the investors as a group and establish communications. Contact me if you’re an investor.
Excellent Post, thanx for sharing the same.. Will keep on reading the post
Stumbled your post .. cheers
I’m a Right Place investor looking for others and advice.