Jerry Chu, Lofty’s CEO, received the following message from a reporter at the Akron Beacon on May 4, 2022, after Lofty responded to his original set of questions, which you can view here.
In the interest of transparency, we are providing the details of these messages from the reporter (italicized) as well as our own response (unitalicized).
Update (5 May 2022): We have made edits, including in the original text, to preserve the privacy of tenants and sellers.
Hello Jerry,
I appreciate the response. And I would have gladly provided more information upon request. In lieu of the requested interview, here are more details.
If any other issues arise, I will forward them along. For now, these are the issues I'm aware of.
809 Kenmore Boulevard
HUD sent Section 8 rent checks this month for its five tenants at 809 Kenmore to the former owner, because the LLC Lofty AI created has not filed the paperwork to receive the funds, according to the former owner. Two tenants want to pay in cash but don't know where to send the checks. They, like other tenants I spoke to, do not know who owns or manages their rental units.
In general, there is usually some friction in the first month after a new property is onboarded, as it takes time for the property manager to be fully onboarded and filings to be completed. This process is continuously being improved upon by our team as well as the property managers that owners choose to work with. It’s important to know that tenants are never penalized in anyway for these potential delays. If they were unable to contact the PM to pay initially, but are able to after the property has been properly onboarded, they would not be penalized for late payments.
This transaction was closed on April 11, 2022. The property manager for Kenmore was unable to reach the seller of the property, which made the process of transferring it particularly slow.
[redacted], owner of [redacted], bought 809 Kenmore in May for $195,000. He said he purchased the property fully intending to sell it, not keep it for rental income. He sold it less than a year later to Lofty AI for $266,000.
Kenmore was sourced from Roofstock, a platform that facilitates the purchase and sale of residential investment properties. The seller made a number of improvements to the property based on our records, updating 3 of the 5 units, and all units were occupied.
It’s also important to note that house prices increased substantially across the country, with the median home price in Akron increased by 15% during the time the seller held the property.
The tenant called the seller after the sale when an electrical breaker blew. The tenant lost power to his kitchen. The fuse box is behind a locked door to the basement. The seller told the tenant he no longer owned the property but passed along the concern to the buyer. Three days later, a man [the property manager] arrived but had no keys to get in. The tenant let the man in. They were able to access the basement and get the breaker turned on. The man told me he's "in the dark" because he doesn't know if his property management company is willing to manage 809 Kenmore.
The individual is a representative of DTS Property Management, which is the property manager for Kenmore.
The tenant had notified DTS regarding the blowout but as mentioned previously, the PM was unable to get access to the seller and hence the fuse box.
This property is currently being managed by DTS - so we don’t understand the comment from the DTS representative.
Is the property currently unmanaged?
No, the property is currently managed by DTS. As we stated above, it’s not abnormal that there might be small delays for some of the properties post closing to onboard to the intended property manager. However, these issues only have to a fraction of the properties that have transacted and for a small duration in time.
The tenant said the property is in need of electrical and plumbing repairs. None of the doorbells to any of the apartments work. Visitors, myself included, knock on his window to get anyone's attention.
The property manager has not provided any notice or raised concerns regarding the need for plumbing or electrical repairs. We are a technology company that has built a marketplace that connects buyers and sellers of investment properties. We never meet or speak with any of the tenants nor do the owners of the properties.
All communications from the tenants are first made to the 3rd party property managers hired by the owners. The PM would then send details and options to resolve any issues that the tenant is facing to Lofty. We would in turn create a governance survey to all the owners and collect their votes. Once the ownership has voted, the resulting decision is sent to the PM for execution. This process typically takes 2-3 business days. However, the PM has full authority to take action and make immediate repairs if the tenant is facing an emergency, such as a burst pipe or sewage back-flow etc.
There have been times in the past where some PMs have not executed their duties properly and in a timely manner. Once repeated evidence of this surfaced, the owners voted to replace the PM. Overall, our governance data shows that owners of these tokenized properties consistently voted to improve the property and the living condition of their tenants. Many of the owners are renters themselves, so they have a unique perspective when they are in the role of a landlord.
1258 Lily Street
The tenant rents 1258 Lily Street. She said she pays about $220. A HUD housing voucher covers the remainder of her rent, which she said is going up from $600 to $900 following the purchase on Lofty AI. The tenant said her landlord promised to cover the additional $300 in monthly rent for the next year, after which she doesn't know what will happen to her.
In the last three months, she said the city has threatened to disconnect her water because of the unpaid bill, which is the responsibility of the owner in the city of Akron.
We have an executed rental lease agreement between the tenant and the prior landlord, Akron Dream Homes (who is not the landlord you mentioned), dated Nov 1, 2021 for $900/month in rent. 1258 Lily Street was put under contract on March 18, 2022 between the seller and the current owners, several months after this lease was signed. Lofty always verifies that there is an accurate and up to date lease before allowing a seller to list a property on our marketplace. You can see it attached below. Anything negotiated under the table prior to a property’s sale would not be privy to Lofty unless the seller chose to disclose that information. We take the allegation here very seriously and will continue to investigate with the property manager of this property. Selling properties quickly and efficiently to a large audience on Lofty is a privilege for sellers. If we find any wrong doing from a seller, they can be black listed from ever selling through Lofty’s marketplace again.
You can also note that the fair rental estimate value for this property from House Canary is actually $931/month below and can possibly go up to $1,113/month at the high end.
We also take issue with you publishing the tenant’s full name and her corresponding address. As a company, we value transparency a great deal, which is why many of the documents for a transaction and property is publicly available. We believe that not only should the current owners see vital information about the property they own, but that prospective new owners should see the same set of information as well. However, as the information is exposed on the internet for anyone to access, it is of paramount importance to protect the privacy of renters. They did not sign up to have their personal information exposed on the internet and potentially get harassed. We have been working on publishing redacted copies of all the leases through feedback from our customers, which we expect to be complete by the end of Q2. You can see the redacted lease in question below. But we take issue with how you’ve exposed the tenant’s identity to the internet by directly publishing the above paragraph to Reddit. We find this to be irresponsible and potentially dangerous.
1258 Lily Street Lease - Redacted.pdf
We have not received any correspondence from the PM regarding this water issue. We have reached out and are waiting to hear back.
1321 Allendale
The tenant lives at 1321 Allendale. She too was told her rent would increase, from $700 to $1,100, and that her landlord would cover the difference for a year. After that, she said she'll have to find somewhere else to live because $1,100 a month, which is more than others pay in the neighborhood, would be unaffordable.
Similar to Lily Street, we have an executed lease agreement between this tenant and Akron Dream Homes, not the individual you claim is her landlord. This lease is date June 1, 2021 for $1100/month in rent. As with Lilly, this property was put under contract on March 18, 2022, months after the lease was signed. Again, any under the table dealings between the tenant and previous owner would not have been privy to Lofty or owners of the new property unless the seller chose to disclose it. As stated above, we will investigate this further and if evidence surfaces that the seller had any wrong doing, we would take actions to prevent them from listing through Lofty in the future.