January 05, 2009

The Evergreen Scam

The Tenants-In-Common business has done it again. Much like the U.S Advisors/CBRE imbroglio, this new scandal involves a cheesy cast of characters, fraud, and senior citizens as targets.

This time around, the offender is Evergreen Realty, led by its huckster senior partner, Luke McCarthy. Good at marketing to the old and unsophisticated, Luke has failed miserably in the questionable purchase and management. The property currently under the microscope is the Campus Lodge Apartment complex in Tallahassee, Florida. Evergreen management has even admitted to fraudulent statements by the seller when they purchased the property for the unsuspecting investors?the same kind of gross lack of due-diligence that was so common during the heady days of the real-estate boom.

The appeal of TIC investments was the ability of retirees to sell personal existing properties and re-invest in another real estate situation with a fixed income. Without paying capital-gains tax, they could accomplish this tax-free investment under the current ruling of the 1031 law.

Campus Lodge was billed as “High Quality Collegiate Living” garden apartments in Tallahassee, Florida. The property prospectus claimed a 7.1% for the investors, a total return of 10% by year six, and a hands-free management for the investors.

What happened? Nothing!! Evergreen cut the dividend to 2% 18 months ago?way before the financial crisis. And then, discontinued any dividends after the sub-prime bust. The promised students didn?t materialize, and the incumbent property management team was fired for poor performance and cost overruns.

Presently, Evergreen is scrambling to fill the Campus Lodge rooms with anyone willing to pay the rent. With the questionable “student business” gone, Evergreen is taking anyone looking for a roof over their heads. Adding insult to injury for the senior investors, there’s a threat of foreclosure and a request for a capital call of a half million dollars. The latter for physical improvements, because Evergreen let the property go into disrepair. Where is this money going to come from? Many of these senior investors no longer have the earning capacity to generate these funds.

Luke McCarthy, the master of double-talk, has done nothing to relieve the investors of this horrific fraud and mismanagement. And, how could he when he’s three thousand miles away? In fact, he has stepped away from this calamity and relegated all of his recovery responsibilities to his subordinates. When asked what are they doing to accomplish results, they retort with, “We’re working very hard.” What does this mean? Luke and his crew have fleeced his well-intentioned senior investors once again.

Bernie Madoff has some good company.

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