RAD Diversified is losing money. Some tenants aren’t happy. It calls itself “an incredible company.” Some of the rents that RAD Diversified REIT says in SEC filings that it’s expecting appear to be overstated, in light of the buildings’ conditions. This boarded-up rowhouse at 4243 Leidy Ave., for example, is said to be earning the company $14,400 a year in rent — even though it has no rental license and its most recent license was as a vacant property.Read more When Tylisha Slaughter learned that the West Philadelphia rowhouse she rented was going to be auctioned off in a sheriff’s sale , she sensed opportunity.
Slaughter, now 30, aimed to buy the home near Cobbs Creek Park on the cheap and restore it from the “slumlord”-like conditions she, her boyfriend, and her two young children had been living in.
But on the day of the sale, she said, she found herself up against an out-of-towner with lots of money to spend: Brandon “Dutch” Mendenhall.
“He outbid me,” said Slaughter, whose rent has risen from $700 to $900 since Mendenhall’s RAD Diversified REIT became her new landlord in late 2019, even as she says her complaints to RAD’s property managers about pests and leaky pipes have gone unanswered.
Slaughter’s home is part of a five-state empire of real estate bought through sheriff’s sales and “We Buy Houses” signs that Mendenhall, RAD’s chief executive, has been selling to investors on Facebook, YouTube, and other social media, touting what he portrays as the venture’s market-beating performance.
Mendenhall, who is based in Southern California, has described Philadelphia as the biggest market for RAD, a firm founded in Florida that specializes in buying distressed real estate then renting it out. The company and others that he runs own nearly 100 properties across the city’s low-income neighborhoods, records show. RAD’s real estate holdings nationwide were worth some $24 million as of last fall, the company has reported.
According to one of the 81 ads for RAD running earlier this week on Facebook and its sibling social-media sites, RAD shares surged from $14.23 in January 2021 to $18.52 in January 2022, an increase of 30%.
“Our returns are so good right now, it makes it hard for people to even believe in them,” Mendenhall boasts in another ad . “That’s frustrating.”
But RAD’s official disclosures tell a more doleful story than its online ads.
During the first six months of last year, the most recent period covered in RAD’s latest investors’ circular , filed with the U.S. Securities and Exchange Commission in January, the company’s real estate business lost $1.12 million, although the firm had relatively little debt compared with the stated value of its assets.
The company also disclosed that it may use new investors’ money to pay dividends to existing ones. Experts say it can be risky for an investment fund to operate this way, since it may require ever more participants to be brought on board, rather than making money from its business.
More than 60% of RAD’s operating expenses in 2020, the most recent period for which the company has released audited financial information, consisted of asset-management fees and other payments to a separate company owned by Mendenhall and other RAD executives called RAD Management LLC, according to an analysis of the financial data.Those fees and payments amounted to more than $730,000 that year, RAD said.
“We have limited operating capital, few significant assets and limited revenue from operations,” RAD wrote in the January document, which sought to raise up to about $58 million in new funds, for a total of $75 million of company shares. “If we are unable to continue to raise sufficient capital through this offering, there is a strong likelihood our business will fail and you may lose your entire investment.”
RAD declined to directly answer detailed lists of questions from The Inquirer, saying in a statement that they contain “various inaccuracies.”
The firm did say it works to “comply with all securities, licensing, landlord-tenant, and other applicable laws and regulations.”
Now, the SEC wants to tell federal prosecutors about allegations concerning the divergence between RAD’s online pitches and its more downbeat official self-descriptions.
The allegations are contained in a complaint sent to the SEC by a fraudster-turned-self-styled whistle-blower named Barry Minkow, who said he gathered material from RAD for his report by pretending to be a potential investor in the company.
Late last month, the SEC asked Minkow for his consent to share the document with the Office of the U.S. Attorney for the Central District of California. Minkow gave his approval, according to […]
Protected by Patchstack