A crowdfunding company that raised hundreds of millions of dollars from thousands of investors appears to have fallen into a black hole. Prodigy Network was already on shaky ground financially when founder Rodrigo Niño died a few months ago. And now, it’s not clear who’s running the company. The website is still blazing a message of prosperity, but calls and emails are going unanswered. (1)
Niño had stepped down from his CEO position last September due to a recurrence of cancer. He didn’t name a successor, although one report says he left a group of investors in charge. The company was already dealing with revenue shortfalls, delayed distributions for investors, and lawsuits. As the company faltered, Niño turned his attention to his spiritual self and held daily group meditations on Zoom. He died on May 16th, with no word of a solid continuity plan.
Final Message to investors
Before he died, he sent a final message to investors in the form of a video where he admitted failure. He said, “It felt like the implosion of my identity, and who I really was, so much more than a business daily, because I was the business.”
Niño founded the company in 2003, and was an early adopter of the crowdfunding strategy when it was approved as part of the JOBS Act in 2013. Since then, he has raised almost $700 million dollars for several projects in New York. He also had a few projects in Chicago that were still being funded. The New York projects include three AKA-branded hotels, two coworking properties and a live-work hotel in Manhattan.
He also founded a community called The Assemblage for people seeking to elevate their consciousness. That was apparently the result of a spiritual trip to Peru after his second cancer diagnosis, where he experimented with a hallucinogenic herb. His last few years were heavily influenced by thoughts of “the expanded self.” The co-working properties and the live-work hotel are also the result of that mindset. You’ll see those properties listed on The Assemblage website, although the community was reportedly shut down in June. (2)
Niño as High-Flying Real Estate Professional
Niño had lots of real estate experience before he launched Prodigy. He did his first real estate deal in college with the flip of a four-story rental in his native Columbia. A few years later, he dove into real estate full time selling luxury condos in Miami, mostly to foreign buyers. In 2007, he was hired by a pre-presidential Donald Trump to sell condos at the newly finished Trump Soho in New York.
By the time he founded Prodigy, he had a long track record in real estate, mostly as a broker. But Niño had ambitious plans for Prodigy. From 2013 to 2017, the company crowdfunded six New York projects. Estimated returns on those projects was 23% with a turnaround time of about five years. The two hotels opened up first, and with them in operation, Prodigy had no trouble attracting more investors. There were no signs yet of any financial problems.
The First Diagnosis
Niño’s world began to crack in 2011 when he was diagnosed with stage 3 metastatic melanoma. He was just 41 years old and a father of two. Doctors told him he had a 33% chance of living another five years. He wasn’t happy with traditional treatments so he went to the Peruvian jungle to find some answers with the help of that hallucinogenic herb.
By 2016, he was combining his real estate ventures with his efforts to create a “consciousness community.” That’s when The Assemblage came into play. The company also promoted a flexible lifestyle with residential extended stay options at the hotels and the co-working environment. The Commercial Observer says that Prodigy assumed that the higher margins from this flexible model would also result in higher appreciation for the properties. (3)
By mid 2019, it was becoming more obvious that Prodigy financials were not doing well. His projects were not hitting their numbers. Notices went out to investors that payments would be suspended. There were assurances however that the first project was on its way to financial stability, and the budget would then move to another project to help stabilize those financials.
The Second Diagnosis
In September of 2019, the 48-year-old Niño was told his cancer had returned. He decided to step down from his job as CEO and told investors that the company was in good hands. He also expressed optimism about The Assemblage saying, “It’s a perfectly winning concept. All we need is time and capital.”
His house of cards started tumbling in 2020. A senior loan became due and a property with $41 million in debt and $81 million in equity from investors sold for $41 million. The same went for another property. The money went to pay off the debt and not the investors who were not told ahead of time the properties were being sold.
Investors trying to get their money back have filed six lawsuits since last fall, citing poor returns and unpaid distributions. Niño told The Real Deal in interviews last year, that returns weren’t doing as well as he had anticipated, but he was also convinced that things would get better. (4)
The Real Deal says he had signed a memorandum of understanding with a group of investors who would assume control of the company. But investors and lawyers trying to get in touch with the company say it’s impossible. Phone numbers listed on the website don’t work and there’s reportedly no response to emails.
Access for Small-Time Investors
Prodigy catered to the small-time investor who had been traditionally left out of bigger deals. And there were many of them — 6,500 investors from 40 different countries poured their money into Prodigy. As part of his farewell, Niño said, “My identity was based on this paradigm of access for all, the decentralized network of capital to fund the future.” He said he stands behind the idea. It’s just a question of time.
Unfortunately for him, time was not on his side, and his investors may have gone down with the ship. It’s still not clear what will happen, but there are a few basic lessons here.
Lessons for Investors
- Prodigy doesn’t appear to have had a solid continuity plan in place. It seems as if Niño, as he said in part of his farewell address, that he was the business. There was no one to take over when he had to step down from his job as CEO, although he did say he was handing control to a group of investors. But that’s not the way it should happen. A well-run company should have a continuity plan in place, and investors should know about it, before they’ve handed over their money.
- The second lesson is that companies like this one should undergo regular audits and investors should have access to that information both before and after they invest. Maybe this was happening to some extent but The Real Deal says that many investors accused Prodigy of poor communication in lawsuits.
- Make sure you’ve studied the track record of the manager of any syndication or crowdfunded project. They should have several successful projects under their belt that offer the same returns in the same asset class.
- Finally, it’s important to understand that real estate is an investment and it comes with risk. However, that risk can be less if you are a debt investor versus an equity investor. If you are invested in the debt side, secured to the property in first lien position, you get paid first. That’s why in this case, the lender was paid first. Unfortunately, there was nothing left for the equity investors. That’s why equity investors in development deals are at much higher risk, but the reward is also quite high when things work out.
If you’d like to read more about Prodigy Network, The Assemblage, and Rodrigo Niño, you’ll find links on the page for this podcast at RealWealthNetwork.com. You can also read more about due diligence for syndicated projects on our website in the Learning Center. (5)