In recent years, Israeli investors who ventured into the U.S. real estate market have encountered significant setbacks, especially in the consumer credit sector. This is evident from the asset freezes by Pagaya for its local investors, or the CCF credit fund of IBI, and the former P2P fund of Phoenix, which was dissolved. However, the challenges are not limited to credit investors.
Calcalist reveals that Proper (PROPER), a company that establishes and markets investment partnerships worth over $35.7 million, has not paid interest to its hundreds of investors for four years, putting their investments at risk.
More than 100 investors, each investing hundreds of thousands of dollars in Proper's U.S. real estate projects, saw their assets transferred to a receiver in Florida following internal complications within the company's management. Proper belongs to M.A.M Real Estate Investments Initiation in Jerusalem, owned by real estate businessman Moshe Friedman and his partner Moishy Mann. Proper served as the operational arm of M.A.M in the U.S., with the investors considered limited partners and Proper as the general partner.
According to a $357,000 lawsuit filed against Proper in April 2022 in the Petah Tikva Magistrate's Court by brothers Hillel and Yonatan Levy, Proper "was a partner as of January 2018 in about 350 active properties in the U.S. valued at approximately $35 million, yielding stable and secure returns for our 250 private investors." Proper continued to raise funds also in 2019 and likely raised more than $35 million (about 130 million shekels). According to the lawsuit, Proper acquired properties using 10% investor capital and 90% equity, with 60% of it raised from U.S. banks.
Moshe FriedmanScreenshot: VimeoFriedman and Mann offered investors a limited partnership agreement under which investors transferred their funds to an investment fund granting them rights in U.S. real estate. The investment focus was in Miami and Denver. In return, the Israeli investor was supposed to receive rental income at an annual rate of 8% quarterly. After the sale of each property, the general partner and the limited partner were to share the sale profits equally. The investment period was set for three years, with an option for investors to extend to six years. They could request to withdraw their funds 18 months after the investment within a three-month window. A contract obtained by Calcalist shows that Friedman and Mann charged entrance fees ranging from 3% to 4% of the investment.
The troubles for Proper's investors began in March 2020. Amid the COVID-19 crisis, Proper informed investors that it was halting the possibility of withdrawing investments, and rental payments would also cease. Friedman wrote to investors that this was to protect their money and explore opportunities in Denver. However, rental income was still not distributed in 2021, post the COVID-19 crisis.
In June 2021, the partnership informed investors of a disagreement with the U.S. partner regarding the return of rental payments. In December 2021, the partnership told investors it was dissolving and would subsequently seek to liquidate all assets in Miami.
In July last year, investors received an email from Proper stating that a "severe conflict had developed with the local partner and asset manager due to non-disclosure of information, unauthorized fund transfers between companies, refusal to transfer our share of rental payments, and more. This conflict led to legal actions we had to file in Florida, incurring high legal costs, as we updated throughout the period. Concurrently with the legal process in Florida, we had to endure and manage a legal lawsuit in Israel from an impatient group of investors. This lawsuit was filed against M.A.M and personally against Moshe Friedman and Moishy Mann. The lawyers for this group even sought to impose temporary seizures on our private property. Despite our pleas to the group's leaders, they chose a combative path and continue to pursue this costly and unjustified lawsuit."
Friedman and Mann added that unfortunately, "over the past two years, we have had to endure unacceptable behavior from some investors, including threats of violence and repeated harassment at our homes and even our law office, some of which required police involvement."
In conclusion, they stated that the exhausting struggles with the U.S. partner and Israeli investors "have drained the last of our strength, capability, and desire to continue managing the investments. Additionally, after signing the separation agreement and beginning to implement it, we realized its proper execution was in doubt, and we became pessimistic about its final outcomes.
"In this situation, wanting to protect the interests of all investors and fearing that Proper, which holds rights in Florida investments on your behalf and manages them, would not be able to meet its obligations, and after receiving legal advice, we concluded that Proper would cease handling asset liquidation and hand them over to a trustee."
One investor told Calcalist, "To tell you the truth, I don't think I'll get my money back. At most, I can warn others about the investment risks." Proper responded that the trustee operating in Florida continues to progress as expected for the investors. Recently, he announced that the sale of the investments is nearing completion and that he expects to finalize the distribution proposal and court approval for its execution in the coming months."