Grant Cardone is entering The Winter of His Discontent after a second law firm filed a class action lawsuit this week against Cardone Capital Equity Funds V and VI. The same allegations are made as in the first class action lawsuit: Cardone Capital is not delivering on its promised rates of return.
New York, New York–(Newsfile Corp. – September 21, 2020) – Rosen Law Firm, a global investor rights law firm, announces the filing of a class action lawsuit on behalf of persons or entities who acquired interests in Cardone Equity Fund V, LLC and/or Cardone Equity Fund VI, LLC pursuant to their public offerings (the “Class”).
To join the Cardone class action, go to http://www.rosenlegal.com/cases-register-1951.html or call Phillip Kim, Esq. toll-free at 866-767-3653 or email email@example.com or firstname.lastname@example.org for information on the class action.
According to the lawsuit, defendants made materially false and misleading statements and omissions of material fact regarding, among other things, investors’ expected rates of return on their investment. The lawsuit seeks, among other things, an award of rescission or rescissory damages and prejudgment interest under the federal securities laws.
A class action lawsuit has already been filed. If you wish to serve as lead plaintiff, you must move the Court no later than November 20, 2020. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation. If you wish to join the litigation, go to http://www.rosenlegal.com/cases-register-1951.html or to discuss your rights or interests regarding this class action, please contact Phillip Kim, Esq. of Rosen Law Firm toll free at 866-767-3653 or via e-mail at email@example.com or firstname.lastname@example.org.
During his erratic “Quarantined in Clearwater” period a few months back, Grant Cardone let slip his high-risk business model of ten year loans with interest-only payments for the first five years. The loans balloon massively at year six when principal and interest are due.
Cardone Capital claims to have $1.8 billion assets under management on 8275 apartment units for an average purchase price of $217,522 per unit. If we assume that Cardone is 80% leveraged on $1.8 billion, then he owes $1,440,000,000 in debt.
Below is a ten-year loan schedule for $1.44 billion dollars @ 3.75% interest with the first five years being interest only payments. We used the Calculate Stuff website to create the schedule. The loan begins October 2020 and runs for ten years until September 2030.
In October 2025, Cardone’s yearly interest-only payments jump from $54 million ($4,500,000 per month) to $119 million ($9,916,666 monthly). This happens because principal and interest are now due.
In 2026, Cardone’s annual principal and interest payment screams up to $316.2 million. This is $26,333,333 per month.
How does Cardone bring in enough cash to make the jump from $4.5 million a month in payments to $26.3 million a month? One answer is to refinance using the same ten year loans with five years of interest-only payments.
[Update based upon the discussion in the comments section: Any refi Cardone does could require a substantial down payment if a given property does not have 20% equity or more. This could happen in a real estate crash where multifamily units lose value like everything else. In a real estate crash, Cardone could have to put money down if a given property appraised and left Cardone in a equity position less than 20%.
Cardone could use mezzanine debt or other subordinated second position financing methods that carry a much higher interest rates. The point we make in comments below is that Cardone paid likely overpaid for his deals during the heady real estate boom of 2014-2019 where there seemed to be no end in sight to the strength of the US economy. Cardone may have well boxed himself into an unsustainable situation due to his assumptions Indeed, no one saw the pandemic or eviction moratoriums coming]
Another answer is for Cardone to buy more apartments at 20% down using zero interest loans to bring in more cash flow from rents. To this point, Cardone Capital announced that it just acquired $350 million in apartments. Is Cardone caught in a trap in which he must buy more and more apartments — and therefore incur increasingly greater amounts of debts–in hopes of remaining solvent?
How does Cardone pay his increasing debt load while still paying his investors? The two class action lawsuits to date suggest Cardone is not paying his investors as he promised in his sales literature.
How badly the pandemic has affected Cardone Capital remains to be seen. Grant Cardone claimed in a video he made a few months ago that he was communicating with his tenants and was collecting 93% of his rents. But how are Cardone’s rents coming in now as the pandemic stretches towards winter and there is a spike in infections?
The ban on evictions in most US states that began last spring has been extended until the end of 2020 by the US Center for Disease Control. How hard this financially impacts Grant Cardone and every other landlord in the US remains to be seen. Much of the rental income will never be recovered and mass evictions are feared.
But even with mass evictions what guarantee is there of replacement tenants unless landlords lower their rent prices to compete for paying tenants? Erosion of apartment rent prices are a consequence of supply and demand in which there are more apartments than qualified paying tenants.
Grant Cardone is caught in the same situation as all other landlords. Worse, his investors are now beginning to sue him.
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