Comprehensive Review and Ranking
Challenged (1 out of 10 stars)
What is Prodigy Network?
IMPORTANT 2021 COVID-19 UPDATE: The investment repercussions of the global pandemic continue to change and evolve with unusual speed. As such, this review might be dated, no longer accurate, irrelevant and/or missing crucial information necessary to making an effective investment. For the latest and greatest information on analyzing investments in this new era, see the latest article in the series: "How will Covid-19 / Coronavirus Affect my Alternative Investment Portfolio?"
Prodigy Network specializes in New York City commercial real estate. Previous deals involved short-term luxury rentals and mixed used developments involving co-working, community spaces, apartments and retail. (More on these in the "pros and cons" section).
IMPORTANT UPDATE: since the below update, investors have reported a 40% loss on the AKA Wall Street deal, and the lack of all distributions on another. Additionally, the principals are pointing at each other and blaming the other for misappropriating $2.5 million of investor money. As such, this has been downgraded to the lowest rating of "challenged" with a 1/10 rating. Click here for more information on all of these things.
(The original review is being kept here for historical purposes, below).
How does Prodigy Network work?
Unlike most crowdfunding platforms, Prodigy Network does not offer third-party deals, but only deals that prodigy affiliate companies are offering. So the platform and the sponsor are essentially the same. So the site doesn't do an additional step of arm's-length due diligence vetting the deals as other sites do (or claim to do). In theory you might think this structure would have the advantage of lower costs for the investor. But in practice it all appears to be about the same.
What are Prodigy Network Pros and Cons?
Advantages: Co-investment at 5 to 10%. Claims bankruptcy protection.
Disadvantages: Deal information page is missing much key information to evaluate risk and understand cost which may be a red flag for many sophisticated investors. Little or no volume.
In past years, Prodigy Network seemed a bit like a strange beast to me. On one hand, it appeared like a major player with deep pockets, running expensive full-page ads in major magazines like The Economist. On the other, I couldn't get a human being to respond to specific questions about the platform or deals. After a few years of this, they were going to be permanently downgraded for lack of transparency.
Then, several months ago Prodigy Network finally reached out to me to say they would respond to questions. (UPDATE: Ultimately they never fully answered them).
In my opinion, the platform has some claimed strengths.
First, they say they co-invest alongside investors with 5 - 10% in every deal.
It also claims bankrutcy protection if the platform should go broke. They say that each deal is in a bankruptcy remote special purpose vehicle, so it won't get sucked into bankruptcy hearings that would otherwise put the investors' money in limbo and possibly in jeopardy. And they specify a backup administrator (NES Financial) to take over if they are incapable of running the fund. This is a more expensive way to handle the problem, thea simply allowing shareholders to vote, and is nice because it allows for a much more seamless, and less stressful transition.
Minimums are typical at $10,000.
The site appears to be struggling with volume. In past years it had moderate volume with 4-5 opportunities available. But the last several times we checked they had only 1 or no offerings available.
Part of this may be due to their specialty. After years of soaring rents and soaring prices, much of New York City commercial real estate is not looking healthy in comparison to the rest of the country. The Wall Street Journal, New York Post, and others have run articles on vacant buildings, struggling apartments and unusually conspicuous vacant retail space even on formerly ultra-prime spots like Fifth Avenue. ("More than 500 buildings across NYC are likely vacant")
If this is causing the volume issues on the platform, then maybe it's time for Prodigy Network to start expanding its geographic focus. Whatever the reason, this lack of volume is part of what's causing the site to remain in the "on probation" tier, until the next review when it will be reevaluated.
Additionally, the individual deal pages are missing a lot of important information that are shown on competing sites. Without it, it's not possible to truly understand the risks of the deals or their costs. (More details are under "What does a Prodigy Network deal look like?") For many sophisticated investors this may be a red flag. So this factor also is a big to part of their poor rating and "on probation" status of the site.
Is Investing in Prodigy Network Legal?
Prodigy Network markets to investors under 506C, meaning that it's only available to accredited investors. Since it is not using 506B, new investors are able to view investments immediately and there's no 30-day waiting period. Since it is 506c, it also requires investors to prove their accredited status (and update it periodically).
What does a Prodigy Network deal look like?
Here is my step-by-step due-diligence on a random Prodigy Network investment (so it may or may not be a typical investment). Also I'm a very conservative investor, so something that's way too risky for me might be the perfect fit for someone else who is more aggressive. Finally, I'm not a financial advisor, attorney or accountant. So this is just my personal opinion and always consult your own financial professionals before making any financial decisions.
The investment is called Assemblage/Park and is investing in a commercial building on Park Ave. S. in Manhattan. Prodigy will do an extensive rehab/construction to reconfigure the building into 35,000 ft.² of co-working social and co-working space as well as 7,000 square-foot of prime retail space. It is a 3 to 4 year estimated holding with an 8% preferred return and 10 - 22% estimated IRR. The minimum investment is $10,000.
The first step is to make sure that the asset class and strategy even make sense for my portfolio. (If you don't know how to do this, please see The Conservative Investor's Guide to Due Diligence). Let's pretend it does and continue.
Next is looking at the deal. I give the Prodigy network kudos, because they have the guts to show the % of the offering that's been funded by investors. Most competitors started out with this transparency several years ago, but removed it (after it presumably showed some offerings in an unfavorable light). In my opinion, if everyone else considering an investment thinks it's a dog, other investors have a right to know. In this case, the deal is 93% funded on a $78 million offering.
The website itself is very dramatic and impressive looking and very different from competitors. When the deal is loaded, the information slowly reveals itself with an animation, which does look very cool. There is also a very impressive looking interactive 3D map showing this property and all their others. Clearly they did not skimp on web development.
The deal page has a lot of "sizzle", but unfortunately almost all of the "steak" appears to be missing. So much is missing that it's not possible to even do a basic analysis of this risks and costs of this deal.
1) Experience: at this stage of the cycle, I only want an experienced sponsor. In a mainstream deal like this, I want to see the sponsor has full real estate cycle experience, and didn't lose any money. If not, it's a red flag for me and I move on. (More aggressive investors might not care as much or at all).
There is no information on the deal page to answer any of these questions. It's pretty typical on most sites that the information is incomplete and requires additional digging. But this deal may be setting a new record for lack of information.
If I were interested in this deal, I would follow up and ask Prodigy for their complete deal-level track record (both realized and unrealized) as well as Shorewood Real Estate Group (who co-develops the deal) and the other major players involved in individual pieces (there are a lot more companies to vet than in a typical deal).
2) debt: at this stage of the cycle, I only want conservative debt at 65% LTV or less. There is a capital stack presented here that shows that the debt is 42% of the total stack. However since this involves significant construction, this is apparently a percent of the acquisition and construction cost and not a percent of the current appraised value of the property (nor the projected appraised value after the improvements). If I were interested in this deal, I would contact them to find out more.
Also, in the last recession some deals that required refinancing at the wrong time couldn't get a loan from a bank. So I don't want short or medium term debt. I want to see a 7 to 10 year term or it's a "no go" for me. (A more aggressive investor might not have an issue with any of this). Based on the fact that is just a 3 to 4 year holding period, this might be an deal breaker issue for me. There is not enough information here to assess currently, without contacting them further.
3) Skin in the game: as a conservative investor, I want the sponsor to have at least 5 to 10% skin in the game to offset the fact that the promote/profit share incentivizes them to push the risk envelope. Unfortunately, I can't tell what the skin in the game is on this deal. (A more aggressive investor may want less or no skin in the game to incentivize the sponsor to push the risk envelope).
4) Structure: conservative deals tend to have simple deal structures because they are easily underwritten. A more sophisticated deal structure may be a sign that the sponsor had trouble making the numbers work, which is a potential yellow flag. Or it may be a sign that they are engaging in a riskier strategy (...which I suspect could be the case here because it probably involves significant rehab. But there are no numbers to provide any details to know for sure).
The presence of a significant amount of mezzanine debt ($15 million) is a potential yellow flag and something I would dig into if I were interested in this deal.
5) Fees/promote: this may be the first time I've seen a deal pitch page that doesn't explain a single thing about the fees or the promote structure. Again crucial information that needs to be revealed.
6) Strategy: as mentioned previously, this is in Manhattan real estate, which is currently experiencing problems in some areas of the city. It also involves a very complicated number of partners to make this work, and every extra complication is something that could potentially go wrong. Again there is very little information here, but just from what I see it gives the appearance of being a fairly high risk strategy. If so, this would be a red flag for me but it might be fine for a more aggressive investor.
7) Conclusion: As is, this deal is remarkably lacking of even the most basic transparency required by even a slightly sophisticated investor. It gives the impression of being targeted to unsophisticated investors. If so, then in my experience these kind of deals are usually filled with things I can't stomach.
Assuming Prodigy Network will not provide the above information, then an investor cannot properly gauge the risks they are taking. Thus putting money into this deal is not really investing but more like taking a leap of faith.
As a conservative investor, there are almost more deal breakers here for me than I can count. On the other hand a more aggressive investor who believes in the deal and the sponsor, might be fine with pulling the trigger.
If the investment passed all my initial checks, I would have dived in further to check out the sponsor, the property itself, the projections, etc. To learn how I do those things, check out The Conservative Investors Guide to Due Diligence.
Where can I discuss other Prodigy Network deals?
You can do this with thousands of other investors in the private investor club. While the club is free, membership is restricted to investors who have no business connections to sponsors or platforms. Also, all members must agree to keep all club info confidential by signing a nondisclosure agreement. Click here to join or get more info.
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Code of Ethics: To maintain objectivity, I do not accept any money from any sponsor or platform for publicity nor for referral of investors (including but not limited to affiliate ads, advertising etc.). See code of ethics for more.
Personal opinion only: All info is my personal opinion only as an investor. I am not an attorney or accountant or your financial advisor. Always do your own due diligence and consult with your own licensed professionals before making any investment decision. Information is believed to be correct but may have errors, so use at your own risk. If you find an error, please let me know.
Rankings/rating are general: In my opinion, every investor comes from a different risk tolerance and financial situation, so there's no such thing as a single investment or platform that's great for everyone. There are many deals that aggressive investors love, which I won't touch, and vice versa. And every investor has their own way of doing due diligence. I believe there's no one right way to do it.
So, the site ratings are based on criteria which I feel are important to the broadest range of investors (transparency, volume, bankruptcy protection, etc). And even though I have my own personal, conservative, due diligence method (and talk about how the site's deals measure up in the "deep dive section"), I don't use my personal criteria as a factor in the ratings. So for example, a high ranking/rating doesn't mean that I would personally invest in a site (and vice versa). Click here to see what's in my own portfolio.
About Ian Ippolito
Ian Ippolito is an investor and serial entrepreneur. He has been interviewed by the Wall Street Journal, Business Week, Forbes, TIME, Fast Company, TechCrunch, CBS News, FOX News, USA Today, Bloomberg News, Realtor.com, CoStar News, Curbed and more.
Ian was impressed by the potential of real estate crowdfunding, but frustrated by the lack of quality site reviews and investment analysis. He created The Real Estate Crowdfunding Review to fill that gap.
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This site has been ranked and reviewed as part of our in-depth, 100+ site industry review. All data is believed to be correct, but may have mistakes. Please contact us if you notice one. All non-data (including rankings, investor comment summaries, etc.) are my opinion only. I'm just an investor and not an attorney, accountant, or certified financial advisor. To maintain neutrality: I do not own a portion of any of the companies reviewed.