Thorough Analysis and Rating
What's Prodigy Network?
MAJOR CORONAVIRUS DISCLAIMER: This information was written before anyone realized we would face the coronavirus this year (2020). And the key details needed to make an successful investment today may be missing. Any of the details may be outdated, no longer correct and unimportant.
The Prodigy Network deals with NYC commercial real estate. Past agreements included short-term lux rentals and mixed-use projects including co-working and community spaces, condos and retail.
DISCLAIMER: Since the update below, investors have registered a 40 percent loss on the deal named AKA Wall Street and registered missing distributions on some other deal. The principals are now throwing accusation between one another for the faulty handling of $2.5 million of investor capital. This business was then amended to have the low "challenged" ranking of 1/10.
The original analysis is held here for transparency reasons:
In what way does the Prodigy Network operates?
Prodigy Network does not provide third-party offers, which sets it apart from other crowdfunding rivals. but only offers deals that prodigious affiliate companies offer. So the network and the sponsor can be seen as basically the same thing. As a result, the site does not make an extra effort in the verification of the deals as other platforms do (or pretend to do). You would think that this arrangement should have the benefit of better (lower) investor costs. In reality, however, it seems to be the same thing.
Which are the ADVANTAGES and DISADVANTAGES of this business?
- Pros: five to ten percent co-investment. Insolvency claims cover.
- Cons: There is a lack of key details on the transaction information page to measure risk and appreciate costs that could make many knowledgeable investors wary. Little to no volume at all.
- Awards: None of them
In recent years, the Prodigy Network appeared to me a little like a wild beast. First it looked like a newcomer with heaps of money, taking out lavish full-page advertisements in big publications such as The Economist. But I couldn't reach a human being to answer my inquiries concerning the site or the contract. Within a few years, they were going to be indefinitely downgraded due to lack of accountability.
A few months ago, the Prodigy Network actually called me back and told me that they will provide responses to me. (UPDATE: at the end of the day, they never completely replied).
In my view, Prodigy Network has several strengths that have been proven true.
They claim to co-invest with investors with five to ten percent in each transaction.
It also seeks immunity from bankruptcy if Prodigy Network goes bust. They argue that any transaction is a special purpose remote bankruptcy tool, so it isn't dragged into bankruptcy proceedings that could put investors' money in limbo and potentially in danger. And they appoint a backup administrator (NES Financial) to deal with it if they are unable to manage the fund. It is a more costly tactic to deal with the issue, by asking shareholders to cast a vote, and it's good because it makes for a more smooth and less exhausting transition.
Minimums are average - $10,000.
The platform seems to have an issue with scale. Recentlu, it had a modest volume with 4-5 opportunities open. But the last few times we reviewed that there were only 1 or no offerings available.
Much of that may has to do with their area of expertise. After years of rising rents and increasing costs, most of NYC's CRE does not look healthy relative to other parts around the globe. The Wall Street Journal, the New York Post, and others have written stories on empty homes, distressed apartments and increasingly prominent empty retail areas, including in previously ultra-prime locations such as Fifth Avenue.
If this creates volume problems on the network, then it might be time for the Prodigy Network to begin to broaden its regional scope. Whatever the basis for this is, such absence of substantial volume is what partially causes the site to stay on the "on probation" stage until another inspection arrives, which reassesses it.
In fact, many valuable data that is displayed on rival sites is absent from the individual deal pages. Without it, it is not manageable to fully grasp the risks or costs of the transactions. To many savvy investors, this could be a problem. And this consideration is also a big reason of Prodigy Network's low site ranking and "on probation" status.
Is it legal to invest in Prodigy Network?
Prodigy Network caters for investors under 506C, which means that they are only open to approved investors. As 506B is not used, novices can access investments straight away and there is no waiting time of 30 days. Because it is 506c, it obliges clients to prove (and regularly update) their approved status, too.
What does the Prodigy Network contract look like?
Below is my due diligence on a randomly picked investment in phases (so this maybe isn't a typical investment - or it is?). I'm also a really cautious investor, but anything too uncertain for me may just be the ideal match for a person that's more adventurous. I am not a financial planner, a lawyer or an accountant, so I am just voicing my own opinion and please check with your financial advisors before coming to financial decisions you will put into operation.
The investment is named Assemblage/Park and is investing in a Park Ave S. Manhattan commercial building. Prodigy will carry out an comprehensive renovation/construction to remodel the infrastructure in question into 35.000 square feet of shared co-working rooms, as well as 7,000 sq.ft. of prime retail property. This is an average three to four year holding with an 8 percent desired return and an average 10 to 22 percent IRR. The minimum amount of investment is ten thousand dollars.
First you have to be certain that the asset class and the approach make sense for your portfolio.
Next is to look at the contract. Prodigy has the courage to reveal the percentage of the product funded by the investors. Most of the competitors began with this openness a few years earlier, but it was withdrawn (after it had undoubtedly seen some offerings gain negative feedback). In my view, if someone else considers an investment unfavorable, other investors need to be aware of this. In this scenario, 93% of the contract is financed from a $78 million offer.
The website itself is very exciting, spectacular and stands out from rivals. When the deal is loaded, the info gradually shows along with an animation that looks pretty good. There is also a pretty cool interactive 3D map displaying the real estate in question along with the others. They're obviously not skimping on the web presentation.
There's plenty of flashy stuff on the deal tab, but alas, nearly all of the core things seems to be lacking. There is so much lacking that it is not even possible to write a clear review of the uncertainties and the price of this agreement.
1) Experience: At this point of the process, I really want a sponsor with experience. In a mainstream deal such as this one, I want the sponsor to have full experience of the real estate process and not risk any cash. If not, that's an issue in my opinion, so I'm going to switch to another company. (More adventurous investors may not care as much or at all).
There is no data available on the contract tab to provide information to these problems. It is very common on most pages that the data is lacking and needs further searching. But this deal could set a new record for the absence of details.
If I wanted to dig deeper into the deal, I would ask the company about their full transaction-level track record (realized and unrealized alike) as well as the Shorewood Real Estate Group (which is co-developing the contract) and the rest of the big names involved in parts of this (there are a lot more businesses to investigate than in a traditional deal).
2) Debt: When at this point of the process, I just want a conservative debt of 65 percent LTV or less. The capital stack shown here reveals that the debt is 42 percent of the overall stack. Nonetheless, considering that this includes substantial investment, it tends to represent a percent of the purchase and maintenance costs and not a percent of the actual value of the real estate (or the future value of the property after the improvement). If I were interested in this deal, I would have contacted Prodigy Network to get additional info.
During the previous financial crisis, several transactions that needed refinancing in an unfortunate time did not get a bank loan. Thus I am not aiming for a short-term or medium-term debt. I want to see a 7 to 10 year term or I won't be venturing into this. (A more proactive investor may not have a problem with all of this). Seeing how there is only a three to four year retention span, this may be a deal breaker for me. There is not enough detail to determine the rest at the moment, without further contacting them.
3) Company's Risk: As a cautious client, I would like to see the sponsor have a minimum of five to ten percent input in the investment to account for the issue that the promoter/profit share encourages them to risk a bit. Sadly, I can't inform now such details of this deal. (A more adventurous user may want less or no skin in the game to allow the sponsor to move up the risk level).
4) Structure: Conservative deals can have basic contract structures since they are underwritten in an easy way. A more complex contract structure might be an indication that the sponsor was having difficulty making numbers work - this is a possible yellow flag. And it might be a indication that they are engaging in a more risky approach (... which I believe may be the situation since it definitely includes a big rehab. Although no statistics can be found to give you the information you need to be certain).
The inclusion of a large amount of mezzanine debt ($15 million) is a possible warning sign and a thing I'd do if I were involved in this contract.
5) Fees/Promote: I've seen an offer pitch that doesn't say anything about payments or the promotion structure and this might be the very first time I am faced with this. Once again, this is vital knowledge that has to be released.
6) Strategy: As described above, the deal concerns Manhattan real estate, which is now having issues in some parts of NYC. It also requires a complex number of partners doing this, and any additional complexity is something that might possibly go wrong. Also, there's so little detail here, but it is giving the impression of being a relatively high risk technique. If so, I would view this as a warning sign, but it may be all right for a risk-prone investor.
7) Conclusion: This deal is strikingly lacking in basic transparency expected by a minimally sophisticated investor. It looks like it targets unsophisticated investors. These kinds of offers are generally packed with stuff I can't handle.
Assuming that Prodigy Network does not include the above details, the investor can not properly examine the uncertainties that await them. And investing cash into this deal isn't really investing, it's almost like gambling and hoping for the best.
As a cautious investor, I have more issues than I can write down. But a more proactive investor who trusts in the deal and the sponsor may be comfortable with such risks.
If the investment passed all of my initial tests, I may have gone deeper to test the investor, the real estate listing itself, the forecasts, etc.
Where can I see other Prodigy Network deals?
You can do so with thousands of other investors in the private investor community. Although the club is open, membership is limited to contributors who do not have business ties to sponsors or networks. In addition, all members must promise to keep all club details private by signing a non-disclosure agreement.
Prodigy Network main features and highlights
- Real Estate Investment
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