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Five years ago, on the BiggerPockets forums, the name Western Wealth Capital (WWC) started to appear. With offices in North Vancouver, Canada, and Phoenix, they were well-known syndicators with a solid reputation, doing deals nationwide. 

A competitor, Sam Grooms of White Haven Capital, stated: “They’re solid underwriters and performers. Janet [LePage] (Western Wealth Capital CEO) is known to not budge on her criteria and price. I doubt she’d overpay for a property. We’ve competed against them on properties here in Phoenix. Their model is similar to most syndicators right now, underwriting a cash-out refi.”

Western Wealth Capital’s fees were discussed on the forum, and the consensus was that they fell in the ballpark of their competition. The even-keeled Sam Grooms advised: “The more track record a sponsor has, the more they can command. Don’t spend too much time comparing a seasoned sponsor with a decade or more of experience to a newer operator. I would spend more time making sure that your sponsor is properly incentivized and that their goals are properly aligned with the investor’s goals.” 

Other investors spoke on Western Wealth Capital in the forums, adding statements like:

• “They certainly display an impressive track record and have a deep bench when it comes to industry experience.” – Erik Zamboni.
• “Feel pretty comfortable, after meeting some of the employees, and meeting Janet, all are very genuine and are appreciative, not pompous.” – Hrant A. 

Hrant A. continued: “All the projects that I visited, three so far in Dallas this year, have been redone as projected, and proformas are in line with expectations. Hopefully, I will be elated after a few years, as I expect to be so far. Their return profiles on average are 30% IRR on the average deal.”

Fast-forward three years, and the dormant thread sparked back to life with a post from Chris Campeau. This time, however, the take on Western Wealth Capital had changed. 

Chris said: “I have been to several meetups lately, and there have been several comments about several deals with them running into trouble recently, but no one could give me any specifics.” 

How Kevin Hoover Lost $85,000 in One Western Wealth Capital Syndication

Investor Kevin Hoover responded six months later, saying, “My experience with them was good, until it wasn’t.“

In an interview with BiggerPockets, Hoover described his six deals, two of which went bad in 2021. The last deal he did with them, Heather Ridge in Irving, Texas, in November 2021, was a complete loss, wiping out all investor cash, with Hoover investing $85,000 himself. 

At the time of purchase, Western Wealth Capital stated on its website: “WWC and its investment partners closed on the 262-unit multifamily apartment community of Heather Ridge Apartment Homes, originally constructed in 1983. This Dallas-area deal further solidifies WWC’s footprint in the U.S. multifamily housing market and follows WWC’s disciplined investment criteria.” 

The press release continued: 

“This property is a prime candidate for WWC’s repeatable value-add program, including exterior and interior renovations; most units have washer/dryer connections ready to be activated with machines. ‘With multifamily sales breaking records in the industry this past quarter, we are thrilled to have acquired Heather Ridge for its value-add potential,’ says Jay O’Connor WWC’s Senior Director of Acquisitions at WWC. ‘With almost all unit interiors in ‘classic condition’ and amenities that have not been upgraded recently, we are projecting a significant increase in value for investors in this property.’”

The risk of banking on low rates

So what went wrong? 

The prime cause for the investment collapse was the rapid rise in interest rates as inflation escalated post-pandemic. With the success of the deal contingent on low interest rates, Heather Ridge, with slim margins to begin with, soon found itself in trouble. 

“I stumbled across Buck Geoffrey [a member of the LLC who was the General Partner on the Heather Ridge project], who served as the point person on the deal] podcast in 2019/2020, and listened to him for about a year,” Hoover explains. “Had a good reference about him from another syndicator I had done quite a few deals with.” 

Hoover’s experiences with Western Wealth Capital echo the cycle many investors go through—hearing about deals on podcasts, doing as much research as they are able, and then taking a leap of faith and hoping things will work out. 

“In October 2022, I got to thinking how this might not work with higher interest,” Hoover admits. I sent an email, and Tim McLeary [VP of investor relations, Western Wealth Capital] responded that they have rate caps for one to three years.”

Sensing problems, Hoover pressed the company for reassurance, but “they just said interest rates can’t go up much because the government has so much debt.” However, Hoover acknowledges, “The PPM always says your entire money can be at risk.” 

Lessons learned

Today, Hoover looks at his experience with Western Wealth Capital with a certain amount of equanimity.

“They were not in business before 2008, so they were new,” Hoover says. “They were swimming buck naked with other people’s money, scaled to the moon, and the tide went out. They didn’t see the writing on the wall with interest rates because they had always been in an environment with declining interest rates. Their model is a proxy for betting on lowering interest rates.”

He adds: “Recently, they said their model doesn’t work with fixed-rate debt. This is true because they are essentially apartment flippers. If valuations go down, they are sunk. Also, they were buying on really skinny margins. Looking back, I wish I had asked how much general partners had put in each deal. It would be fascinating to know. If they would return their fees, it would feel a little better.”

Western Wealth Capital Says It Was Blindsided by Interest Rates

BiggerPockets was able to get in touch with Western Wealth Capital. Janet LePage, CEO of Western Wealth Capital, echoed Hoover’s assessment of the Heather Ridge deal after the Company raised approximately $12 million from private and accredited investors. 

“Our challenges at Heather Ridge centered on cost increases due to aggressive interest rate hikes, a resulting dramatic property devaluation, and our inability to continue leveraging budgeted lender funds to complete our business plan that involved remodeling and repositioning an asset we very much believed in,” she said in an emailed response to BiggerPockets with questions about the deal. “Per our business plan, we began repositioning the asset, focusing on upgrades to the clubhouse, pool, and other amenity areas.” 

A 30% Loss in Value

However, there was a 30% loss in value after interest rate increases scuppered valuations and the ability to fund repairs. “This became a major challenge, as we were not able to spend approximately one-third of what was allocated through our loan to follow the business plan,” LePage says. “At the point of the capex freeze, the cash needs we modeled to cover our debt service and complete the business plan amount to another 26.3% of the original equity.” 

High resident turnover compounded Western Wealth Capital’s capital on hand. “Residents moved in excited about the upgrades and were understandably disappointed when funding was frozen and renovations stalled,” LePage admits.

“Fixed Rates Didn’t Work for the Plan”

LePage also concedes that Heather Ridge’s syndication model depends on short-term financing: “Our business strategy was short-term repositioning of an asset. That meant fixed rates didn’t work for the plan, given the high prepayment penalty costs associated with fixed-rate debt.”

Despite the crushing blow to investors, LePage is adamant that Western Wealth Capital was open and honest throughout the short-lived investment and never misrepresented or misled those who had given them money.

LePage said: “We prioritize transparent and regular communication with our investors, with monthly financial statements and at least quarterly communications updating on operational details. As challenges mounted, we communicated through a number of channels in an effort to address any and all investor concerns and questions, including:

• Multiple email communications.
• Hosted multiple webinars, including open-mic Q&A sessions available to all investors, and distributed the recordings of those sessions to all investors.
• We discussed the options with investors and polled them to get their input on the options and which they preferred.”

Failure Leads Western Wealth Capital to a More Conservative Investment Strategy

The Heather Ridge deal taught LePage some invaluable lessons, and while that won’t heal the wounds of investors who lost money, it might provide solace to those who are still involved with the company on other projects. 

“We and others would likely have taken advantage of the fixed-rate financing available at that time, even at the extreme cost of prepayment penalties and likely with longer-term business plans,” LePage says. “Overall, we capitalized on the strong multifamily market in 2021, adopted a more reserved stance in 2022, and have maintained an ongoing conservative approach throughout 2023 and 2024 in response to the forecasted Federal Reserve’s continued hawkish approach to interest rates and softening valuations in some markets.”

So What Happened?

Once stimulus checks started arriving during the pandemic, the writing was on the wall. As the government printed cash, inflation and the subsequent high interest rates that ultimately sunk the Heather Ridge project were predicated by the media and economists before the interest rate surge.

Playing musical chairs with short-term financing and expecting the music to play indefinitely was risky in any market. However, 14 million homeowners decided to refinance when COVID hit, fearing the worst. Why didn’t Western Wealth Capital do the same? If they were unable, they operated on a very high-risk financial model.

That said??, to any investor on the BiggerPockets Forums, WWC looked like a safe bet. They had a sterling reputation and even received glowing testimonials from their competitors. Their investors were in the syndication trenches, listening to podcasts, talking to other investors, and checking all the boxes you’d expect to before parting with a large amount of money. 

The story of WWC is immediately familiar to investors who have experienced Black Swan events in the past. It’s one of giddy financial exuberance based on historical strength and stability, leverage, and the expectation of high returns.

However, this was all pre-pandemic, and the reason we talked to this CEO was because the deal was given back to the bank. Other syndicators/GPs made capital calls that Janet LePage did not. Ultimately, this could have been to WWC and their investor’s credit—throwing good money after bad by doubling down only loses more investor capital.

As with the crash in 2008, the market had been so good for so long that a sense of invincibility started to creep in. Making money was addictive—so much so that investors of all stripes disregarded potential storm clouds, which, in this case, started to amass when the severity of the pandemic became apparent. 

Investors have to shoulder the blame for their losses, too. No one went into this syndication blindfolded or with a gun to their heads. While Western Wealth Capital may not have been completely forthcoming regarding its financing, investors had the right to ask for detailed loan documents to know precisely what they were getting into. If WWC refused to furnish them, that would have been a red flag.  

Syndications are perceived as murky investment vehicles because investors often cede control of their cash, handing it over to a third party, hoping the stars align and the deal does what the sales reps say it will. Whether the syndicator is Western Wealth Capital or any of the other large companies doing deals around the country, despite the glossy brochures, track record, and smooth-talking salespeople, once an investor’s money has been handed over, they are entirely at the mercy of the GP/sponsor. Sure, the rewards can be high, but then again, so can the risks.

If there’s a lesson to be learned from investors, it’s that meticulous research, references, and referrals are a must. The size of a company’s social media following doesn’t drown out risk. Handing over money without proper due diligence is a bad habit many investors fall into when the economy is good. Don’t believe the hype despite the upside of tax breaks and a hands-off investing experience. There are always other deals.

In theory, a syndication mitigates risk through diversification. However, syndications that take money from both credited and non-accredited investors can have a whiff of desperation. 

Because of the great unknown with large syndications, many investors prefer smaller, close-knit operations run by small teams who all know one another and discuss every aspect of the deal before moving forward. 

Whatever your risk appetite, as the Heather Ridge project demonstrates, preparing for the worst-case scenario through sensible financing is a prudent, if unglamorous, move. For investors, doing due diligence and asking probing questions with supporting documents is essential. If you are denied that, walk away.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.