In 2019, Grant Cardone told his followers to never invest in a Real Estate Investment Trust or what is commonly called a REIT (pronounced as “reet”).
In his 2019 video, Cardone trash-talked the REIT’s offered by Rich Uncles (now known as Modiv) and Fundrise. He said these REITs were pieces of paper — securities — which were not backed by real property.
In this 2019 video, Cardone cautions against investing in REIT’s. At 6:18 into the video, Cardone also claims that over 35 years of investing in real estate his average rate of return is 25%. Mr. Pino and his legal team should take note of this claim. So should all Cardone investors who are getting 4% and 6% rates of return during those periods when Cardone Capital has not cut or suspended distributions:
Grant Cardone took back everything he said in 2019 and formed Cardone REIT I, LLC on July 22, 2021 in Delaware. Scroll down to see the SEC Form 1-K annual report.
To repeat Cardone’s own words in his YT video, REIT’s are pieces of paper — securities — and are not back by real property. Cardone has now changed his mind on REIT’s. Indeed, after its formation, Cardone’s REIT began acquiring ownership percentages in Cardone Capital’s holdings:
The Company [Cardone REIT 1, LLC] intends on investing in real estate through limited liability corporations (“Cardone Member LLC’s”) (treated as partnerships) that own a single multifamily property (through single purpose entities “SPE’s”). The Cardone Member LLC’s are each co-owned by the Company, an affiliated entity for accredited investors with common management (a “Cardone Equity Fund” or “CEF”), and Grant Cardone, manager of Cardone Capital, LLC. Grant Cardone typically owns from 1% to 2.5% of the LLC’s. The Manager has parallel invested the funds raised from the Company’s offering in the Cardone Member LLCs alongside funds raised from different CEF offerings and funds from Grant Cardone. (See Annual Report Item 7. Financial Statements, Note 3 Investments in Unconsolidated Investees and Note 5 Related Party Transactions for further information.)
As of April 22, 2022, the Company currently holds the following real estate investments:
A 20% ownership interest in Cardone Las Olas LP, LLC which owns Las Olas Walk Owner, LP and Cardone Las Olas GP, LLC (dba 10X Living at Las Olas), which owns and operates a 456-unit, Class A luxury apartment community located in Fort Lauderdale, Florida. This newly built property is located in downtown Fort Lauderdale’s only midrise community and features direct access to Fort Lauderdale’s New River. The property was built in 2020 with an average unit size of 916 sq. ft. The Company paid $12,580,000 for this 20% ownership interest in December 2021, which is 20% of the total capital invested in Cardone Las Olas LP, LLC.
A 20% ownership interest in Cardone Riverwalk Member, LLC which owns Elevate One River LLC (dba 10X Living at Riverwalk), which owns and operates a 260-unit luxury high-rise apartment complex located in Fort Lauderdale, Florida. This property was built in 2020 with an average unit size of 904 sq. ft. The Company paid $7,040,000 for this 20% ownership interest in December 2021, which is 20% of the total capital invested in Cardone Riverwalk Member, LLC.
A 20% ownership interest in Cardone Sunrise Member, LLC which owns Sunrise 390, LLC and Sunrise 390 Annex, LLC (dba 10X Living at Sunrise), which owns and operates a 387-unit garden-style apartment complex located in Sunrise, FL. This property was built in 1996 with an average unit size of 967 sq. ft. and is considered a value-add property which the manager plans on improvements to both the units and common area components. The Company paid $4,930,000 for this 20% ownership interest in December 2021, which is 20% of the total capital invested in Cardone Sunrise Member, LLC at that time. As of April 22, 2022, the Company has made additional capital contributions of $450,000 to fund value-add projects, which is 20% of the total additional capital contributions made to Cardone Sunrise Member, LLC. This brings the Company’s total capital invested to $5,380,000 as of April 22, 2022.
A 15% ownership interest in Cardone Miami River Member, LLC, which owns M-VIII South River P1 Owner, LLC (d/b/a 10X Living Miami River), which owns and operates a 346-unit, Class A luxury apartment community located in Miami, Florida. This property was built in 2020 with an average unit size of 815 sq. ft. The Company paid $7,088,250 for this 15% ownership interest, which is 15% of the total capital invested in Cardone Miami River Member, LLC in March 2022 .
There is more to know about Cardone’s REIT as we read in the 1-K. For example, like the Church of Scientology, Cardone’s REIT does not have any employees and is run by one man and that would be Grant Cardone — which makes Grant Cardone the David Miscavige of the Cardone REIT.
The Company does not have any employees but relies on services provided by the Manager and its affiliates. The Company’s Manager is Cardone Capital LLC (“Manager”). The Cardone Equity Funds which parallel invest with the Company in the Cardone Member LLCs are also managed by the Company’s Manager. The Company and the CEFs, and the Cardone Member LLCs operate under the direction of Mr. Grant Cardone, who is the Managing Member of Cardone Capital, LLC.
Mr. Cardone is also the Managing Member of Cardone Real Estate Acquisitions, LLC, (“CREA”). CREA, under the direction of Mr. Cardone, is responsible for the day-to-day operations of the properties, including overseeing the third-party property managers who supervise the day-to-day operations at each property and the eventual decision regarding each property’s disposal. (See Annual Report Item 3. Directors and Officer for further information.) Further information about the rights and obligations of the Manager, including certain limitations on its liability and rights to indemnification, can be found in our Offering Circular, SUMMARY OF AMENDED OPERATING AGREEMENT beginning on page 85, which is incorporated by reference herein as if fully set forth herein.
Now hold on thar you varmint! Doesn’t Grant Cardone’s management of the whole enchilada set the stage for a lot of self-dealing, bad faith, and conflicts of interest? Well shit howdy cowboy, it sure does and that’s why Cardone’s lawyers add in all the fine print. This is directly from Cardone REIT 1’s Form 1-K and it is inherent bad faith and self-dealing:
Our Manager and its affiliates experience conflicts of interest in connection with the management of our business. Potential conflicts of interest include, but are not limited to, the following:
· Our Manager and its affiliates originates, offers, and manages other investment opportunities and funds outside of the Company including those that have similar investment objectives as the Company, and also may make investments in real estate assets for their own respective accounts, whether or not competitive with our business.
· The Manager has enlisted the services of a third-party in order to manage the Company’s assets. The compensation for that third-party is at market rates.
· The acquisitions of investments at higher purchase prices would entitle our Manager to higher acquisition fees and asset management fees regardless of the quality or performance of the investment and, in the case of acquisitions of investments from other entities, might also entitle our Manager or its affiliates or assigns to disposition fees in connection with services for the seller.
· We may borrow money from the Manager or affiliates of the Manager at prevailing market rates, or engage the Manager or affiliate of the Manager to perform services at prevailing market rates. Prevailing market rates are determined by the Manager based on industry standards and expectations of what the Manager would be able to negotiate with a third-party on an arm’s length basis.
· The Manager and its affiliates are not required to devote all of their time and efforts to our affairs.
· The terms of our operating agreement (including the Manager’s rights and obligations and the compensation payable to our Manager and its affiliates) were not negotiated at arm’s length.
· The Members may not remove the Manager.
Anyone who would invest in this is either an idiot or has not run the contract by a good lawyer. For example, it would be downright stupid to sign any contract containing a clause prohibiting the members from removing the manager. And yet Grant Cardone has this clause in his contract. He cannot be removed for any reason.
There is no mechanism to remove Grant Cardone if he has a stroke, develops Alzheimer’s, or is criminally indicted.
Who would agree to those terms? Never invest your money with a Dictator-for-Life who cannot be removed even due to insanity or a criminal conviction. This same situation exists in the Church of Scientology. This is why Scientologists have been stuck with a madman who has run L. Ron Hubbard’s fake Navy since 1986:
Captain David Miscavige in his Scientology War Room
It gets worse. Grant Cardone loaned $10.9 million of his own money to his companies at 6% interest. Cardone also has variable interest rate loans with caps of 5.58% to 6.25%:
As of December 31, 2021, the Company owed $10,949,810 to an affiliate of the Manager which was borrowed to “pre-fund” the purchase of the three investments. These loans accrued interest at 6% and were repaid on or before March 1, 2022 from the issuance of Class A units.
The SPE’s in which the Company invested have leveraged their individual assets with non-recourse debt of up to 75%-82% of the cost of the acquisition price. As of December 31, 2021, the debt financing for our entire portfolio of SPE’s is less than 76% of the cost of our tangible assets (before deducting depreciation or other non-cash reserves). These variable interest rate loans mature in three years and have two one-year options to renew. The interest rate paid the month of December ranged from 2.63-% to 3.30% and have interest rate caps with a maximum interest rate of 5.58% to 6.25%.
The non-recourse debt Cardone uses fits his modus operandi to avoid personal liability:
Non-recourse debt is a type of loan secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount. This is one instance where the borrower does not have personal liability for the loan.
The non-recourse loans Cardone has no doubt have the “Bad Boy Carve-Outs” in order to protect the lenders — particularly when due diligence shows Grant Cardone may not be removed as the manager by his investors. The lenders want to be in a position to have leverage over Cardone even if the investors do not. An excerpt from Much Law:
What Are “Bad-Boy Carve-Outs”?
Most non-recourse loans include exceptions (or “carve-outs”) within the loan documents that result in full-recourse liability to the borrower and the guarantor when certain “bad-boy” behaviors exist. Examples of these “bad-boy” behaviors are (i) fraud or intentional misrepresentation by the borrower; (ii) waste occurring to or on the mortgaged property; (iii) gross negligence or criminal acts of the borrower that result in the forfeiture, seizure or loss of any portion of the mortgaged property; (iv) misapplication or misappropriation of rents, insurance proceeds or condemnation awards received by the borrower after the occurrence and during the continuance of an event of default; and (v) any sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment or transfer of the mortgaged property, or any part thereof, without the prior written consent of the lender.
The financials for the Cardone REIT 1 are presented as follows in the 1-K. There is some red ink here:
As with all things Cardone, the warnings are clear:
1. Your investment is illiquid for 10 years.
2. Grant Cardone has all of the power.
3. The investors have no power, no voting rights, and cannot withdraw their money.
4. Your distributions are subject to being reduced or stopped at any time and for any reason deemed necessary solely by Grant Cardone.
5. You may lose some, or all, of your investment.
6. Read the prospectus carefully and have a lawyer review it for you. Be sure you understand what rights you are signing away.
We will be watching Cardone REIT I LLC because Grant Cardone has become what Scientology calls a “flip flopper.” This is a very bad thing to be in Scientology. A flip flopper is a person who changes course and becomes the opposite of what he or she once stood for.
Grant Cardone shit-talked REIT’s in 2019 and now he is promoting his own REIT and raising money.
Shenanigans, bad faith, and self-dealing are inherent in Cardone REIT 1 LLC.
Below is the recent SEC filing for Cardone REIT I LLC:Cardone.REIT.1.LLC
Categories: Church of Scientology, Grant Cardone
It is amazing how far some people can get in life by being handsome … and completely AMORAL!
Made 25% per year for years, without inflation being a significant factor. Sounds like someone really liked you Grant and gave you deals. Why am I really starting to call BS on the cocaine addict, impoverished roots and saved by Scientology story? Now Grant is possibly going to return the favor to society by raising the rent on his slum lord managed apartments to be far more than their worth. Recently, Dave Ramsey, who generally speaking a proponent of NOT using debt and generally speaking belittled by Grant, signed an agreement with PODS Moving and Storage. For Grant’s tenants, this offers the perfect solution, since Grant’s apartments have parking lots, unlike those on city blocks, the pod can be delivered and sit while the resident packs the pod at their convenience, and then have it picked up for delivery to the new residence or to go into storage.
The Growing Up In Scientology channel on Youtube has posted the hearing for the Pino vs Cardone appeal. The plaintiff alleges that Cardone’s claim to buy properties for below market value is untrue. To which Grant’s attorney responds that the defendant only represented to have that “intention.” So in effect it is immaterial whether he does or doesn’t as long as he has the intent. (Sort of like hubbarf having the intent to provide workable solutions to everything that ails individuals and society).
In that light, here’s one of today’s nuggets:
“The acquisitions of investments at higher purchase prices would entitle our Manager to higher acquisition fees and asset management fees regardless of the quality or performance of the investment and, in the case of acquisitions of investments from other entities, might also entitle our Manager or its affiliates or assigns to disposition fees in connection with services for the seller.”
The way I parse this is, the higher the purchase price for a property, the better for Grant on all fronts, acquisition, management and disposition. Of course, a higher price, made worse by Grant’s increased take, is detrimental to asset performance. But fortunately for Grant and unfortunately for the investors, the latter declare that they are OK with getting bent over by their manager.
Conflict of interest? More like diametrically opposed interests.
Another morsel: “We may borrow money from the Manager or affiliates of the Manager at prevailing market rates, or engage the Manager or affiliate of the Manager to perform services at prevailing market rates. Prevailing market rates are determined by the Manager based on industry standards and expectations of what the Manager would be able to negotiate with a third-party on an arm’s length basis.”
In other words, the manager gets the opportunity to provide additional loans and services. And as he is the manager he gets to decide when and shouldn’t have to worry about any competitive bidding processes. In fact, he gets to write his own ticket when it comes to his compensation.
Now if Grant could only think of a way to take his racket and re-incorporate is as a religion…