Fractional Ownership Startup Landa Loses Portfolio

Another fractional real estate startup is running into trouble.

A New York State Supreme Court judge ordered real estate startup Landa to relinquish control of 119 properties to an independent manager following allegations of loan defaults and mismanagement, Bisnow reported. The company, which aimed to democratize real estate investment through fractional ownership shares starting at $5, faces a lawsuit over $35 million in loans from lenders Viola Credit and L Finance.

Landa allegedly violated a December injunction last month by diverting $724,000 from property accounts and attempting to redirect tenant rent payments. CEO Yishai Cohen has agreed to appear in court next month following threats of contempt charges; Cohen is not a defendant in the lawsuit.

Founded in 2019, the startup owns more than 200 single-family rentals in the Atlanta area and several Brooklyn apartment buildings. Recent financial disclosures show mounting losses, with the company’s largest fund reporting a $1.8 million loss in the first half of 2024 — more than quadruple the loss from the same period in 2023.

Independent manager Anna Phillips, who also oversees assets in the Nightingale Properties/Crowdstreet scandal, has been appointed to manage the properties. Under a recent agreement, B. Riley Financial will serve as the new property manager and has the authority to sell the properties to satisfy outstanding debt.

The situation has left investors concerned about their investments. Dane Moreton, who invested $7,000 across 13 Landa properties starting in 2023, expressed doubt about recovering his investment, citing inconsistent dividend payments and communication difficulties.

Adding to the company’s troubles, three independent board members resigned in December. A partner at a private real estate group was added to the board the following month but declined to comment on the legal proceedings.

The case highlights growing concerns about the risks of fractional real estate investment platforms and raises questions about oversight in the “democratized” real estate investment sector.

— Holden Walter-Warner