Troubled crowdfunding firm Prodigy Network has contacted investors for the first time in months — and the news is not what they wanted to hear.
In a letter obtained by The Real Deal, the firm asked investors in a commercial building at 84 William Street to come up with $40 million to keep the property afloat. Otherwise, the letter warned, they could lose their investments in full.
The other option would be to sell the building by March 10, the letter said, though that would also spell doom for investors because the proceeds would be used to pay back debt, rather than refund them.
The letter included a report from brokerage Eastdil Secured, showing that Prodigy has received at least five offers for the property. The top bid of $105 million came from Niido, whose parent company and CEO were recently sued by Airbnb over an ill-fated branding partnership.
It’s the second time in less than a year that Prodigy has asked for capital for the building, and comes after months of radio silence from the firm, which stopped paying investor distributions last year across its portfolio, blaming poor performance. The firm has also battled a string of legal and financial issues that culminated in October with the departure of founder and CEO Rodrigo Niño, who is undergoing treatment for cancer.
But the update has done little to assuage the fears of Prodigy’s investors, who have millions of dollars hanging in the balance and are mostly based abroad, making it difficult to navigate what’s going on with their investments — and the company in general.
“There’s a lot of doubt,” said an investor from Argentina who did not wish to be identified. “I cannot put money there, especially [because] there’s no confidence at all.”
Prodigy said the money will be used to pay off the property’s mezzanine and senior debt, and possibly to convert the 19-story building into a residential condominium. At the moment, it is operated as an extended-stay hotel under the AKA hospitality brand.
A source close to the matter said Eastdil was not involved with the building after producing its report, dated early October 2019.
The letter to investors also warned of trouble if Prodigy is unable to refinance or extend the maturity dates on its debt. One sentence — highlighted in bold and underlined capital letters — said there was a “significant likelihood that your investment will be lost in full.” The message reveals the conundrum facing many investors who might be reluctant to put more money into the company, but could feel they have no choice if they want to save their initial investment.
Niño, a former real estate broker, launched Prodigy as a crowdfunding firm in 2013 with a pitch of making real estate investment accessible to all. He ended up raising some $690 million from investors around the world to fund commercial real estate developments in New York, Chicago and his native Colombia.
But the firm’s ambitious vision had not paid off as it hoped: In addition to suffering losses on the William Street building and other New York projects — falling far short of the high estimates pitched to investors — Prodigy is currently facing two investor lawsuits that in part allege mismanagement of funds at a hotel development in Chicago.
Compounding confusion for investors, it’s not clear who is running the company in the wake of Niño’s departure. Carey Fieldcamp, Prodigy’s chief financial officer, referred TRD’s questions to Niño and to Larry Davis of Shorewood Real Estate Group, Prodigy’s development partner. Davis directed the questions to his attorney, who, through a spokesperson, said Shorewood was involved in a development capacity, but was not an operator.
“The hospitality and co-work sectors have seen an explosion of competition, which has led to oversupply and decreased profit potential,” the spokesperson said, referring several other questions related to Prodigy, its operations and investor communications back to Niño.
Niño did not respond to requests for comment.
Another Prodigy partner, Korman Communities, which runs the AKA brand, also did not respond to requests for comment.
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It won’t be clear until March if the offer from Niido — the top bidder — is accepted, or if the offer is still active. Airbnb’s recent lawsuit against Niido’s parent company, NGD, and CEO, Harvey Hernandez, claimed the developer stole funds, made unauthorized loans and fraudulently backdated documents after Airbnb invested $11 million in NGD. In a countersuit, Hernandez accused Airbnb of breach of contract. Hernandez did not respond to requests for comment. Airbnb declined to comment while the litigation is ongoing.
Eastdil noted in its report about the William Street property that it was difficult for prospective buyers to underwrite a targeted $120 million sale price, “without having been provided historical financials.”
If a sale is to materialize, the $105 million price offered by Niido is a far cry from prior projections for the building, which opened in 2016. An appraisal report from Cushman & Wakefield that year, obtained by TRD, said the building was worth $170 million, which was expected to jump to $190 million once the property was stabilized. Another analysis from Newmark Knight Frank in August 2019 pegged the value to about $80 million. Cushman declined to comment, and Newmark did not respond to messages seeking comment.
The building was purchased by a Prodigy joint venture in 2013 for $58 million, according to property records. Separate financial records show that as of June, the venture raised over $100 million in equity for the building.
The venture took on about $75.1 million in financing from Canadian Imperial Bank of Commerce — a price that does not include the building’s $20 million mezzanine loan. The senior debt was consolidated and refinanced in 2016, upping the loan to $90 million. CIBC declined to comment.
Investors are still digesting what the latest developments mean, and they have until the end of the month to let Prodigy know if they want to contribute more. Those who choose not to contribute will have their investments diluted, according to the letter.
The investor from Argentina said he suspected that he might lose some of his investment, but never thought there was a chance he would lose all of it.
“I am shocked,” he said.
Write to Mary Diduch at md@therealdeal.com and Sylvia Varnham O’Regan at so@therealdeal.com