Here are the latest updates on things that I have learned over the last few weeks.
1. There’s a clause that banks are putting in some of their lending documents that is called cognovit clause - it gives them the right to skip the judicial process, I was told that it means that the bank can take your property back at anytime and it waives all due process rights. It is allegedly allowed in 17 states today.
A google search explains that a cognovit is a type of confession of judgment, it refers to an acknowledgment or confession made by a defendant that the plaintiff's cause is legitimate. It permits judgment to be entered without a trial for the purpose of saving costs.
2. Warren Buffet famously said "Only when the tide goes out do you learn who has been swimming naked". The tide is out right now and we are starting to spot the naked swimmers.
There are more ponzi schemes coming to the surface, it feels like it's almost one a week. Here are the most recent ones:
- Real estate developer Robert Matthews has been sentenced to over five years in prison for multimillion-dollar frauds spanning multiple states, including Connecticut, Massachusetts, and Florida. The 65-year-old faced charges related to real estate scams that caused losses of over $30M to banks and investors, with fraudulent activities dating back to 2007.- The fraudulent activities involved resort hotel projects in Nantucket, West Palm Beach, and a luxury home in Washington Depot, Litchfield County.- Matthews employed a scheme that raised funds under a state department visa program, enticing foreign nationals to invest in U.S. development projects.
- Matthews admitted to collecting $500,000 each from 61 foreign investors under pretenses, promising to redevelop the Palm House Hotel in Palm Beach, an endeavor that has yet to materialize.
- Real estate investor Sean Tissue was sentenced to six-and-half years in prison for fraud involving a $3M investment and bankruptcy.- As per court documents, Sean Tissue, also known as Sean Ryan, was the mastermind behind a substantial real estate investment fraud scheme between 2015 and 2021.
- Tissue and his accomplices made several fraudulent representations to potential investors from various countries, convincing them to invest in supposed real estate in Michigan, Texas, and other locations.- In order to maintain a continuous flow of funds, Tissue provided investors with fabricated documents, including fake deeds, forged wiring instructions, fake bank statements, and fake inspection reports.- He was also engaged in bankruptcy fraud by intentionally withholding information about his assets and financial affairs from the Bankruptcy Trustee after filing for Chapter 7 bankruptcy in 2017.
- This next one happened a few months ago and I tried to have an attorney come talk about it but he was very busy and couldn’t come. This is currently being investigated by the SEC, it’s a carbon capture ponzi scheme promising returns of around 40% yearly. They raised anywhere between 150-250M. This person was being a lead speaker at some real estate groups and he was the “carbon capture” go to person. What I want to highlight here is that when someone is being highlighted in any conference it doesn’t mean anything whatsoever. Anyone can be a crook!
I highly encourage you to watch the Madoff documentary on Netflix, the main thing that I learned there is that even though the investors were the victims, and some of them were victims over decades, when everything came to the surface, the government made them return every dollar they had received from the ponzi scheme, because they were not actual distributions, but they were in fact other investor's money. It's a tough one to swallow, but I can see how it makes sense.
In the news:
Clutter, a storage and moving startup once valued at ~$600M in 2019, is being forced to sell at a steep discount in an auction of its assets. The premise for Clutter was that they would come pick up your items, they’d take pictures, and they would move it all for you into a warehouse far from your main city to avoid high real estate costs, and store it for you. If you needed something, you would request the item that was stored inside a specific bag and they would deliver it to you, or they would drive to another warehouse near where you lived. I’ve a friend that actually used them, and several of her items were broken. My guess on what possibly happened was that it ended up being very costly because they had to find great movers and that is very expensive in major cities, especially in large cities like San Francisco, Los Angeles and New York. Even though you may save on the real estate itself, you still need to not only have a lot of employees to move things around, but you also need to maintain these trucks. They actually had 500 employees, nearly 2 million square feet of warehouse space and a fleet of over 200 trucks. To maintain all of this is very difficult, especially if you want to grow super fast. They could possibly have outsourced that by hiring contractors but my guess is that the issue was the quality of the service, and the fact that their costs were very high.
WeWork casted substantial doubt over its ability to continue operating amid liquidity and profitability challenges. WeWork told investors that the next year would be a make or break for the company. I believe Sam Zell was the one that said in the early days of WeWork, when they were raising hundreds of millions of dollars at tens of billions in valuation, that in his entire real estate investing career he had never seen a model like WeWork's work. This is because WeWork had to sign long term leases, and their customers were on month to month leases. WeWork's customers can decide to cancel their membership at anytime, and because of that WeWork can be in deep trouble if customers leave during bad economic times.
Positive news:
Office leasing in Manhattan increased by 20% MoM in July to reach 2.3 million sq. ft.
Manhattan's retail market is showing signs of improvement, with a growing number of tenants signing new deals.
Asking rents in Miami grew 12% YoY to reach $65.03. Availability of Class A properties in Miami declined 20.6% YoY.
The Mortgage Bankers Association predicted that commercial and multifamily mortgage lending would decline by 38% YoY. What do I see here? So many opportunities! There are 40% less transactions being made this year, less competition, better deals, time to buy!
What’s happening to office?
I’m hearing more and more companies are requiring 3 days in the office, some are requiring 5 days in the office such as Jeff Bezos’s Blue Origin, calling themselves a work from work company. Elon Musk is also known for demanding employees being in the office 5 days a week. Facebook and Google right now are demanding 3 days a week in the office and Google announced that it will consider attendance as part of performance reviews.
Steff Updates:
A few episodes ago I recommended a VA staffing company, Virtual Staff Finder and promised to give you an update on the VA’s they sent: it didn’t work out, I believe I’ve had over 10 VA’s from the Philippines and what is lacking is common sense. I found a couple of excellent VA's that are working on some very specific tasks. I will keep you updated as I find a good firm that can recruit excellent VA's.
I recently started using this excellent tool, tango.us, for creating SOP’s (standard operating procedures). As your company scales, it's extremely important to create SOP's from the get go, so that anyone can come in at anytime and pick up any job. This is how a fantastic company is run.