Reg D Multifamily Case Study: What did Bam Capital do with the $80 mil?

By Barry Minkow

In the Bam Capital Fund III summary, the company boasts:

“The BAM Multifamily Growth & Income Fund III has fully deployed $80,770,000 of equity. This Fund contains five Class A assets in the Indianapolis, IN MSA and Des Moines, IA MSA. Congratulations to all Fund III partners on earning a targeted 15-20%+ IRR over the life of this offering!” (https://bamcapital.com/fund-iii-summary/)

According to Bam Capital’s offering materials, Fund III purchased five properties throughout 2022:

1. Autumn Ridge?– 434 units
2. Hamilton Station?– 192 units
3. Gateway Crossing?– 160 units
4. Watermark at Jordan Creek?– 176 units
5. The Bristol?– 211 units

This totals 1,173 units. The language implies that Bam Capital raised just over $80 million (the initial raise was for $100 mil), in equity and “fully deployed” it into these five apartment buildings, thereby explaining the use of proceeds to LP investors.

However, a closer look reveals a troubling twist: three of these properties—Gateway Crossing (160 units in Indianapolis), Hamilton Station (192 units in Indianapolis), and The Bristol (211 units in Camby, Indiana)—were “repurchases” by Bam Capital. That is, the Reg D multifamily “buzz” word is these properties were “recapitalized.”? In other words, Bam Capital purchased a particular apartment building and then sold that building and once again purchased or “repurchased” it and placed it in a later fund.? In the case of Fund 3, the properties were taken out of Fund 1, sold and repurchased for Fund 3 while the company simultaneously raised by their own admission $80,077,000.? I have argued that when an entity acts as both buyer and seller in a transaction, even if it is disclosed, it is tantamount to the accounting fraud known as “roundtripping,” a crafty way to control the historical IRR narrative while encumbering the assets in debt.

Now, below are the five properties with their current subcategory cap rates, book values, and mortgage debt details:

1. The Watermark at Jordan Creek (176 units) Cap Rate:?7.82% Book Value:?$17,802,614 Loans: First TD: $21,365,000 (Merchants Bank) Second TD: $2,742,000 (Merchants Bank)Total Debt:?$24,089,000 LTV:?135.31%
2. Hamilton Station (192 units) Cap Rate:?6.73% Book Value:?$24,306,045 Loans:?Four mortgages: Loan 1: $16,000,000 (August 2020) Loan 2: $900,000 (August 2020) Loan 3: $21,630,000 (June 2022, Merchants Bank) Loan 4: $3,232,000 (June 2022, Merchants Bank) Total Debt:?$41,762,000 LTV:?171.82%
3. Autumn Ridge (434 units) Cap Rate:?7.82% Book Value:?$42,729,261 Loan:?First mortgage of $50,055,000 (Merchants Bank) LTV:?117.14%
4. Gateway Crossing (160 units) Cap Rate:?6.35% Book Value:?$22,754,513 Mortgage Debt:?$17,419,000 LTV:?76.55%
5. The Bristol (211 units) Cap Rate:?6.24% Book Value:?$45,009,779 Loans:?Three loans: Loan 1: $19,500,000 (August 2020, Merchants Bank) Loan 2: $5,652,000 (June 2022, Merchants Bank) Loan 3: $21,508,000 (June 2022, Merchants Bank) Total Debt:?$46,660,000 LTV:?103.67%

Collectively, the five properties have a total book value of $152,602,218 and total debt of $179,985,000, resulting in a cumulative Fund III LTV of 117%.

The unanswerable question based on these public data is:?What did Bam Capital do with the $80 million raised from LPs??They certainly did not deploy $80 million in equity toward these five properties, as all but one are significantly over-encumbered. Equally important is the question of what underwriting due diligence Merchants Bank performed on these loans. The Fannie Mae Selling Guide—specifically section 5105.1 (Down Payment Requirements)—requires lenders to verify the source of the down payment to ensure it is not borrowed funds. In these Merchants Bank loans, where Bam Capital borrowed tens of millions on five assets from them (many of which have LTVs so high they are practically unsecured lines of credit), the bank must have been aware of the Fund III marketing materials that initially sought to raise $100 million but ultimately secured $80 million in alleged “deployed equity”—a figure that, based on the public record, never materialized.

If you were an investor in Fund III and knew before you invested that the total debt encumbering the assets you were partnering in exceeded their value by a lot, would you have still invested in Bam Capital Fund III?? Merchant’s Bank knew.? They had to by policy. As student of the industry where apparent continual criminal behavior is ignored by regulators and the Reg D media as a manner of practice, I expect a missing $80 million from a syndicator like Bam Capital. But a public company like Merchants Bank with a Board and an outside independent auditor and the FDIC.? Tell me, who should the LPs see about this?

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