Attractive returns but big risks
A Henderson real estate attorney is trying to raise $25 million by selling unsecured notes to affluent investors so that he can buy distressed real estate and real estate loans in Nevada.
Craig Burr, president of Strategic Real Estate Opportunities, acknowledged that he is offering a "risky investment with a high reward."
Investors can get double-digit interest rates, but notes from Strategic Real Estate are not backed by collateral.
"The risk is larger than the reward to me," said Jag Mehta, adjunct professor of finance at the University of Nevada, Las Vegas, and a chartered financial analyst. "The upside is limited."
Mehta said he did not know Burr or have details about the particular offering. However, Mehta said generally he would not invest in unsecured notes like these unless he knew the real estate investor well and had confidence in the investor's abilities and knowledge of real estate markets.
In the last few years, many Southern Nevada investors have lost money on hard-money loans, which are short-term real estate loans made typically to developers. These loans are secured with real estate but the value of real estate has plunged.
Strategic Real Estate ratchets up the risk level because it is asking investors to buy notes backed only by the startup company, which has $50,000 in capital. In addition, the prospectus said the notes may be subordinated to other loans that Strategic Real Estate obtains later.
The smallest investment that Burr will accept in the notes is $25,000.
The company offers 17 percent for four-year loans with the interest and principal due at maturity. Alternatively, Strategic Real Estate quotes 13 percent for loans that pay interest monthly and repay the principal at maturity.
Only affluent investors who make $200,000 yearly or have $1 million in net worth may buy the notes, under the terms of a prospectus filed with the Nevada Secretary of State.
In an e-mail, Burr acknowledged that he has represented Mike Shustek, chief executive of Vestin Mortgage, which makes hard-money loans through Vestin Realty Mortgage I and II, two real estate investment trusts. Burr also relied on LL Bradford & Co. LLC, the accounting firm for Vestin, and Stern and Co., the public relations firm representing Vestin. However, Shustek has no involvement in the unsecured note offering, Burr said.
While Burr said his company could buy distressed real estate from anyone, he added that there has been no discussion with any asset-based lender. He intends to focus on FDIC property auctions and sales.
Burr said that he has 16 years of experience as a real estate attorney representing local lenders but has never before put together a syndication like the unsecured note offering.
"However, I've owned apartments, ministorages, raw land, office buildings and developed land," he said. "Moreover, my companies have bought commercial and residential foreclosures since 1997. I have a background and experience in buying, working out, resolving and selling distressed property both as an attorney and personally."
Burr's company gets to keep $1.5 million for sale of the notes, leaving $23.5 million for him to invest.
Burr said he believes the Nevada real estate values will increase within a few years, giving him an opportunity to profit and subordinated note holders to get high rates.
Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.
