I went into my investment with Dave Zook / Real Asset Investor (RAI) having high expectations. Unfortunately, they were not met. One of the key things I wasn't expecting was how little control RAI has over its deals. RAI is fully dependent on his operators for all decisions and there does not appear to be any way to replace them if they fail to perform as expected. Poor performance has certainly been the case with the storage fund I am in (Reliant Storage Fund 3). Even though we entered into the deal in 2022 and many purchase decisions were made even later (after interest rates had already started to rise) we continue to hear how high interest rates are a primary driver for the funds lackluster performance (distributions paused, NOI well below projections). At some point, we learnt that this fund is invested in other funds, including at least one that is having cash flow issues. And now, looking at a portfolio where a large percentage of the properties are under 60% occupied (in a couple cases under 50%) and all are performing well under projections, the blame is on the competition. At some point, the problem is the operator and the decisions that they made - not external factors. I don't know that switching operators would make a difference in this fund's performance. I do believe that having the option to replace under performing operators is important. Otherwise, you are completely stuck, which is the case here. I clearly didn't do enough DD on how Dave organizes his deals to understand that he is the least important person in delivering the expected performance and that this responsibility rests entirely on the operators he chose initially and cannot change or influence. It isn't clear what value Dave is providing other than acting as a capital raiser. These deals weren't marketed as fund-of-funds / feeder funds, but that is effectively what they are. At the very least, I would have expected clear information about better terms, the DD he did, etc. But if he did get better terms and do great due diligence, I don't think we would be in the position we are in now. As a result, it isn't clear why, if you wanted to invest with the operators, you wouldn't do it directly instead of going through RAI. There is still hope that we will at least get our money back from the deals we are in, but that is definitely not certain. What is clear is that it will take longer and almost certain have significantly lower returns than anticipated. The one plus in all of this is that Dave does continue to give us regular updates on where things stand. I do have to give him credit for that. Unlike many sponsors, he is not hiding from the investors.

If I were grading The Real Asset Investor / Dave Zook on his response to one of his deals going south, or on managing attorneys/litigation to recover investors’ money, I’d give him 5 stars. But I’m not. I’m grading him as a promoter/syndicator of the Prestige ATM Funds (on here as Prestige Investment Group). I’m grading him on his ability to choose deals and principals to raise money for and on doing the necessary due diligence to keep his investors’ money safe. In this capacity, he’s shown that he can’t be counted on. He raised tens of millions of dollars for a deal that I invested in which has recently been revealed to be a Ponzi scheme.

While he claims to have done extensive due diligence on the deal and its principal, Daryl Heller, his own admissions appear to contradict this. For example, he sold investors on the funds purchasing and owning portfolios of ATM machines that Paramount Management Group managed. As part of his extensive due diligence, Dave claims to have chosen a simple random sample of ATMs from the portfolio, visited the physical ATMs and confirmed their existence and operation, among other steps. However, since suing Daryl Heller, it’s been discovered that the actual size of the owned and operational ATM network was less than 1/3 of investors were told. 

One would think that any competent audit of a portfolio that is 2/3 non-existent would yield a clear discrepancy. 

 Additionally, it seems careless on its face for Dave to have agreed to raise money into an investment structure where the principal (Daryl) had controlling interest in the management company that managed the assets as well as the funds that owned the assets, effectively putting transparency into the finances of the venture in Daryl’s sole discretion until we sued for it. At the very least, if he was going to agree to a structure with an inherent conflict of interest, there should have been significantly more access (to data) negotiated into it. Finally, once this deal went south, he tried to align himself with the investors as a victim by telling us that Daryl was a compulsive liar who could not be trusted (yet he raised money for Daryl for 10 years before realizing?) and reminding us that he has millions of his own money in the deal. It’s the old “skin in the game” argument. But that argument only holds up if the money Dave invested into the deal as an LP exceeds the money he made as a promoter/syndicator, raising tens or hundreds of millions of dollars - and I’m skeptical at best on this. 

 Promoters love to say to LPs, “Do your own due diligence” after they’ve sold you on the claim that they’ve done extensive due diligence on it, but LPs investing $50,000-$100,000 are rarely, if ever, given adequate access to key information to do it. Instead, we’re fed the scarcity routine (“We’re oversubscribed. If you want in…”). The reality is that we have to count on the people selling the deal, who have direct relationships with the principals and inner circle, to do it. 

Intermediaries (promoters/syndicators/FOFs) need to be trustworthy in that capacity. 
 
 Dave appears to not be.