In May 2016, Mirzam Venture Capital launched an offering on CrowdStreet’s Marketplace for a second-position loan on a to-be-constructed senior housing facility in Fellsmere, Florida. The business plan called for the development and construction of a 146,250 square foot, 126-unit (130-bed) assisted-living facility, and the secured second-position bondholders were to receive quarterly interest payments over a five-year term with an additional interest bonus paid upon maturity (based on the principal balance).
Capital Stack Not Fulfilled
In total, the project was projected to include $20 million of EB-5 funding, a government program designed to attract foreign money and stimulate the economy, in return providing the eligible foreign investors with immigrant visas and potentially permanent residency in the U.S. By the time the deal launched on the CrowdStreet Marketplace, only $8.9 million of the EB-5 funding had been funded. Little to no additional EB-5 funding was ever procured.
Interest Reserve Exhausted
The offering contemplated a second-position mortgage with a 5-year term, two additional 1-year extensions, 8% interest, and a pre-funded reserve. The mortgage was executed, but it was never recorded. The additional community bank loan was never funded. The interest reserve was escrowed and for three years interest payments were issued to the second-position loan investors on a quarterly basis. The interest reserve was exhausted in April 2019.
Website Deactivation and Deemed Exit
The website of Fountains of Fellsmere was deactivated and the primary principal at Mirzam was non-responsive to both CrowdStreet and CrowdStreet investors. Given the lack of execution by the sponsor, and the high likelihood of the remaining capital not being recovered, CrowdStreet deemed this offering as fully realized at a loss.
Mirzam Venture Capital never executed the original business plan and ultimately, investors lost approximately 84%* of their initial capital invested.
*Net of the most onerous fees charged to clients of CrowdStreet Advisors, LLC, our registered investment advisor subsidiary; an investor’s actual returns on a realized investment may differ.
This report contains explanations of a series of events associated with the Fountains of Fellsmere offering that resulted in an approximate -66.2% (net of most onerous fees) IRR to investors (including those from the CrowdStreet Marketplace). Certain aspects of the report such as dates of major events and the final outcome are easily verifiable while others, particularly underlying reasons behind the sponsor’s business plan execution, are not.
The report partially relies upon the sponsor’s explanations, the information contained within sponsor-produced quarterly reports, and conference calls. This analysis is not an assertion of independently verified facts but, rather, is for informational purposes only, to convey CrowdStreet’s understanding of what transpired.
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