The Ugly...

We've posted two transparency reports thus far. One average, one good, and now one that falls at the other end of the spectrum and is not what we consider, transparent. The deal is another multifamily in Texas that is a recapitalization to take out a pref equity investor. Although, the reasoning on why they're taking them out is unclear. While we can't recommend our LP following invests in such a deal, it serves as an educational tool on what to look for (or not look for), when evaluating a CRE investment opportunity. As always, let us know if you have any questions.

Documents Provided:

Investment Summary
Offering Memorandum (OM)	X
Private Placement Memorandum (PPM)	X
Partnership Agreement/Operating Agreement (PA/OA)
Subscription Agreement
Excel Proforma (proforma)

Due Diligence:

Yes = Info provided with answer of “yes”

No = Info provided with answer of “no”

NA = The info was not provided and we cannot answer.  “Not Available”

Question and (where information can be sourced from)	Yes/No/Not Available
1.        Is the address of the deal listed in any of the documents? (Investment Summary, OM, PPM)	Yes
2.        Is the GP forming a legal entity, e.g. LLC, LLP, SPV? (OM, PPM, Operating Agreement)	Yes
3.        Did the GP provide an organization chart? (PPM)	NA (upon request)
4.        A) Has the GP exited deal/s in this state before? (Investment Summary, OM, PPM)	Yes (0.5 see comments)
B) Has the GP exited deal/s in this MSA before? (Investment Summary, OM, PPM)	Yes (0.5 see comments)
C) Does the GP have ongoing deal/s in this state? (Investment          Summary, OM, PPM)	Yes (0.5 see comments)
D) Does the GP have ongoing deal/s in this MSA? (Investment Summary, OM, PPM)	Yes (0.5 see comments)
5.        For value-add, new developments, has the GP provided a list of competing new developments in the area? (OM, PPM)	NA
6.        Was a data or sensitivity table provided? (OM, PPM)	NA
7.        Is the GP putting cash equity into this deal? (OM, PPM)	NA
8.        Is there a fee structure disclosure in any of the docs? (OM, PPM, PA/Operating Agreement)	NA
9.        A) Is there an acquisition fee? (OM, PPM, PA/Operating Agreement, Proforma)	NA
B) Is there a development fee? (OM, PPM, PA/Operating Agreement, Proforma)	NA
C) Is there an asset management fee? (OM, PPM, PA/Operating Agreement, Proforma)	NA
D) Are there any other fees? (OM, PPM, PA/Operating Agreement, Proforma)	NA
10.  A) Net of GP fees on day 1, is the GP (excluding any co-GPs) putting in more than 5% of the total equity in the form of cash? (OM, PPM, PA/Operating Agreement, Proforma)	NA
B) “”… >2% of the total equity in the form of cash?  (OM, PPM, PA/Operating Agreement, Proforma)	NA
C) “”…>0% of the total equity in the form of cash? (OM, PPM, PA/Operating Agreement, Proforma)	NA
11.  Has the GP provided their source and terms of the debt? (OM, PPM)	Yes (0.5)
12.  Did the GP provide access to a model in excel format with formulas? (Proforma)	NA
13.  Is there a rollover feature in the waterfall to add any shortfall in a pref hurdle from one year to the next? (Proforma)	NA
14.  A) Is the pref hurdle calculation based on the initial LP capital contribution? (Proforma)	NA
B) Is the pref hurdle calc based on the LP’s unrecovered capital? (Proforma)	NA
15.  Is the GP able to earn a promote prior to LPs getting a full return of their capital and an initial pref hurdle? (OM, PPM, Proforma)	NA
16.  Are there any disclosures regarding construction budget provisions – such as guaranteed maximum price contracts, contingency reserves, and responsibility for cost overruns, and how these could impact the LP? (OM, PPM)	Not applicable
17.  A) Is there a mandatory capital call provision? (PPM, PA/Operating Agreement)	NA
B) Is there a voluntary capital call provision? (PPM, PA/Operating Agreement)	NA
18.  Is there a limit on the indemnification clause for fraud, negligence, mismanagement, willful misconduct, or any kind of action in bad faith breaching the agreement? (PPM, PA/Operating Agreement)	No
19.  Will the GP have a third-party accountant doing taxes for the company and the entity holding the deal? (OM, PPM, PA/Operating Agreement)	NA
Total number of questions answered	5.5

Executive Summary:Out of 18 key questions, 5.5 were answered, while 12.5 were marked “Not Available” (NA). Despite being provided with both an OM and a PPM, this offering leaves many essential questions unanswered and raises material concerns that merit further diligence.

Partial Credit Questions:Question 4 – Track Record: We awarded partial credit as the materials listed property names and markets, but did not clearly state whether the properties had been sold, refinanced, or are still owned. Additionally, it remains unclear whether the GP participated as the sole sponsor, a co-GP, or as an LP.

Question 11 – Debt Terms: While the terms of the debt were disclosed, the lender was not named. In an atypical step, we ran a public title search but could not identify any debt recorded with the stated terms. Instead, we found a land lease document, which warrants deeper scrutiny of the deal’s capital structure. Notably, no individual from the GP team appears on record for the transaction—only an individual named John Salcilito is listed.

Areas Needing More Transparency:The PPM includes vague and insufficient language regarding several critical areas, including fee structure, indemnification, and GP capital contribution:

• Fee Structure: The PPM includes the following statement:

  
  

  “The Manager could be paid substantial Distributions and may also be paid substantial Fees for its services. The payment of Fees or Distributions will reduce the amount of cash available for investment or Distributions to the Members.”

  
  

  This blanket disclosure offers no specificity around types, timing, or size of fees. Such ambiguity may leave LPs exposed to excessive or poorly aligned compensation structures and reflects a level of disorganization rarely seen in professional PPMs.

• Indemnification: The indemnification clause reads:

  
  

  “The Company will indemnify, defend, and hold the Manager harmless from and against any losses, damages, and costs that relate to the operations of the Company to the fullest extent permitted by law.”

  
  

  This language is concerning because it lacks any carveouts for fraud, gross negligence, willful misconduct, or bad faith. While certain actions may not be indemnifiable under applicable law, the absence of limiting language is highly unusual and unfavorable to LPs.

• Deal History and GP Commitment: The offering fails to disclose the background or status of the existing preferred equity. It is unclear why the pref equity group is being taken out, who initiated the process, or whether that group has remedies that could impact the deal. The documents also do not disclose how much capital the GP has contributed to date, what they intend to contribute going forward, or how fees may offset that contribution.

If we were personally evaluating this opportunity, we would request the following before proceeding:

1. A full explanation of the deal history and the rationale behind the pref equity buyout.

2. A complete SREO (Schedule of Real Estate Owned) for verification of the track record.

3. A breakdown of all capital contributed by the GP to date and future commitments.

4. Clear legal language outlining all fees and compensation.

5. Revisions to the indemnification clause that explicitly exclude bad faith, fraud, and gross negligence.

Please remember: We strongly encourage you to conduct your own due diligence, ask additional questions, and ensure any investment aligns with your risk profile and portfolio goals.

Transparency Score:5.5 out of 18 — Poor. Despite the presence of both a PPM and OM, this offering is one of the least transparent we’ve reviewed. Several disclosures are vague or missing entirely, and key legal protections for LPs appear to be absent.

Key Takeaway / Major Risks:The lack of clarity on GP economics, legal protections, and deal history—especially given the nature of the preferred equity replacement—raises serious concerns. Transparency is a leading indicator of sponsor alignment and professionalism, and in this case, it falls well below industry norms.