S2 Capital is dissolving its $400M first multifamily fund with no return of capital

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This guy went around with his catchphrase “fixed-rate is for suckers,” which is pretty ironic now, because that strategy completely blew up when rates went higher.

S2 Capital's strategy was to buy a lot of alleged 'value-add' apartment deals during the boom. By 'value-add' they told investors that they could raise rental rates over time with repairs, remodels, etc. so this made the future projections look stronger but it was all hypothetical. When rates were low, variable-rate debt made the deals look better. Lower debt costs, better projected cash flow, higher returns on paper. But once rates jumped, the debt service got way more expensive. At the same time, cap rates expanded, property values came down, expenses went up, rents softened in some markets, and refinancing became a nightmare.

Now he is letting some of these deals go into foreclosure, but the real kicker is that he is saving some deals from foreclosure for himself/S2 while telling investors their $400 million is gone. Not sure how that can be seen as anything other than theft.

I am not sure who is dumber, Scott for buying properties during peak rental rates and thinking a decline in rents and an increase in variable rates wasn't possible, or the people who gave him $400 million to blow even after hearing his “fixed-rate is for suckers” catchphrase. He wasn't investing. He was gambling. Would have been better off taking that money and betting on Banker at Baccarat.

Not only is Scott saving some of the deals for S2 while dissolving the fund, but S2 is still around chasing bubbles and is now plowing money into low-cap-rate industrial properties. The stink on this deal is that he might be using S2 funds to cash out a personal friend at max value.








I get that REITs are easy for a lot of investors, but I have never trusted them because of the fees with no skin in the game model many of them use. They simply don't care if they light your money on fire as long as they get their fees.