December 11, 2015
A Community for Anonymous Diligence Sharing amongst Institutional Investors
United Development Funding (UDF) - One Example of Many: How The Scheme Works, from One UDF Fund to the Next
One Example of Many: How the Scheme Works, from One UDF Fund to the Next
United
Development
Funding
(UDF)
One
Example
of
Many:
How
The
Scheme
Works,
from
One
UDF
Fund
to
the
Next
But
First....UDF
Company
Response
– Huh?
UDF’s
statement
DOES
NOT refute
any
allegations
and
instead
discloses
the
SHOCKING
REVELATION that
UDF
has
been
under
investigation
by
the
SEC
since
April
2014.
While
the
Company
attempts
to
down
play
the
seriousness
of
the
investigation,
we
note
that
Enron,
Madoff,
and
Stanford
all
started
as
non
‐
public
SEC
fact
‐
finding
investigations
Now
How
it
Works...Disclosure
About
Not
Lending
to
Affiliates
UDF
V,
the
newest
fund
in
the
UDF
family
of
funds,
“will
not
participate
in
any
investments
with
our
advisor
entities
or
any
of
their
affiliates,
including
any
prior
program
sponsored
by
affiliates
of
UDFH”
Unlike
UDF
III
or
UDF
IV,
UDF
V
will
not directly
loan
money
to
affiliates
nor
will
it
acquire
participation
interests
in
related
party
/
affiliate
originated
loans,
according
to
its
prospectus.
‐
UDF
V
Prospectus
Form
S
‐
11
(February
26,
2014).
While
UDF
V,
technically,
has
not lent
to
an
affiliated
program,
it
indirectly
and
effectively has
by
lending
to
an
entity
that
previously
received
had
a
2
nd
lien
loan
from
an
affiliate
(UDF
III);
this
entity
used
the
loan
from
UDF
V
to
repay
the
loan
issued
8
years
ago
by
UDF
III.
Shahan Prairie
–A
Centurion
American
Development
UDF
I
originally
loaned
to
Shahan
Prairie
LP
(“Shahan
Prairie”),
an
entity
controlled
by
Mehrdad Moayedi doing
business
as
Centurion
American
(Moayedi and
Centurion
American
are
collectively
“Centurion”),
as
a
junior
lender
in
2004;
UDF
III
entered
the
picture
in
2007,
extending
and
increasing
its
loan
through
the
financial
/
housing
crisis
(the
latest
increase
coming
in
2014);
UDF
V
is
the
latest
to
enter
the
picture,
issuing
a
$18.1
million
subordinate
development
loan
on
June
9,
2015
Source:
http://centurionamerican.com/community/shahan
‐
prairie/
A
Real
Development
and
Direct
Competitor
– Wildridge
Shahan
Prairie
Estates
The
land
adjacent
to
Centurion’s
Shahan
Prairie
Estates
is
owned
through
a
partnership
between
Crescent
Communities
(North
Carolina
‐
based)
and
Taylor
Duncan
Interests
(Dallas
‐
based);
construction
is
currently
underway
for
the
385
‐
acre,
master
‐
planned
community
of
~1,200
single
family
homes
called
Wildridge.
The
primary
piece
of
land
(250
acres)
was
acquired
in
2012,
with
additional
acreage
acquired
later;
there
was
a
groundbreaking
ceremony
on
July
9,
2014,
and
the
first
finished
lots
were
delivered
in
Summer/Fall
2015
(note
during
site
visit
in
August
2015,
there
were
roads
in
place
and
model
homes
were
being
built).
Centurion
has
owned
the
adjacent
land,
via
Shahan
Prairie,
for
over
10
years
and
there
is
no
sign
of
development
activity.
[
2014
]
Shahan Prairie
–A
Centurion
American
Development
This
is
the
land
that
has
served
as
collateral
for
multiple
UDF
loans
issued
by
various
UDF
entities;
these
pictures
of
the
land
acquired
by
Centurion
in
2004
were
taken
in
November
2015.
If
you
were
a
developer
borrowing
at
interest
rates
of
13%,
wouldn’t
you
be
developing
real
estate
as
fast
as
possible?
Summary
of
Shahan Prairie
Loan
Timeline
August
2004
April
2005
June
2005
September
20
th
2007
Sept
2009
April
2012
UDF
I
loans
$1.55mm
to
Shahan
Prairie
(SP);
this
loan
is
junior
to
a
$1.15mm
seller’s
note
UDF
I
lien
is
released,
acknowledging
full
repayment
of
loan
Sovereign
Bank
issues
$1.65mm
loan
to
SP;
loan
given
in
part
as
extension
and
renewal
of
seller’s
note
May
2008
UDF
III
increases
loan
from
$1.9
million
to
$2.5
million
on
September
20,
2009
UDF
III
increases
loan
from
$2.5
million
to
$3.4
million
UDF
III
issues
$1.9
million
loan
to
SP
UDF
I
assigns
$15mm
loan
to
CTMGT
&
12
subsidiaries,
including
SP,
to
Textron;
UDF
I
defaulted
on
Textron
loan
in
June
2009
September
6
th
2007
First
National
Bank
issues
loan
in
original
principal
amount
of
$3.2
million.
Deed
referenced
no
prior
lien.
This
loan
is
later
assigned
to
Plains
Capital
Bank
Nov
2014
Trez Capital
Issues
$2.55
million
loan
to
SP;
Plains
Capital
Bank
lien
is
released
1
month
later;
UDF
III
is
subordinate
to
Trez Capital
Shahan Prairie
LP
Loan
Progression
June
9
th
2015
UDF
V
issues
$18.1
million
development
loan
which
is
subordinate
to
Trez
Capital;
UDF
V
proceeds
used
to
repay
UDF
III
as
this
was
a
backdoor
refinancing
of
a
UDF
III
loan
UDF
I,
UDF
III
and
UDF
V
have
all
loaned
to
SP;
UDF
III
lent
through
the
financial
crisis,
increasing
the
loan
balance
along
the way
February
2014
UDF
III
increases
loan
from
$3.4
million
to
$4.8
million
This
timeline
was
pieced
together
by
reviewing
Denton
County,
Texas
deed
records
(supporting
records
provided
in
appendix)
Financial
/
Housing
Crisis
UDF
V
Enters
the
Picture
– June
2015
On
June
9,
2015,
UDF
V
entered
into
a
loan
agreement
with
Shahan
Prairie,
LP
to
provide
a
$18.1
million
subordinate
development
loan
on
the
same
piece
of
property
that
previously
served
as
the
collateral
for
prior
loans
issued
by
both
UDF
I
and
UDF
III,
the
same
“102
acres
of
land
in
Oak
Point,
Denton
County,
Texas”.
Trez Capital’s
loan
remains
senior
to
UDF
V’s
“land
development
loan”.
Source:
UDF
V
8
‐
K
http://www.sec.gov/Archives
/edgar/data/1591330/
000114420415036674/v412974_
8k.htm
Source:
Denton
County
Records
Borrower's
Statement
Confirms
UDF
V
Funds
Repay
UDF
III
This
borrower’s
statement
confirms
that
the
loan
issued
by
UDF
V
to
Shahan Prairie
LP
was
used
to
payoff
a
previous
loan
from
UDF
III.
UDF
V’s
external
manager
also
received
an
origination
fee
Source:
Denton
County
Records
UDF
V
Update
from
September
2015
When
the
loan
was
issued
on
June
9,
2015,
only
$2.3
million
was
funded.
As
of
September
8,
2015,
$4.9
million
had
been
funded,
an
incremental
$2.6
million.
As
of
a
November
1,
2015
site
visit,
there
still
was
no
apparent
development
activity.
Source:
UDF
V
424B3
http://www.sec.gov/Archives/e
dgar/data/1591
330/000114420415054437/v420043_
424b3.htm
Providing
Liquidity
to
Affiliates
–In
Summary
UDF
III,
UDF
IV
and
UDF
V’s
largest
borrower,
Centurion,
was
issued
a
2
nd
lien
loan
(via
Shahan
Prairie)
by
UDF
I
in
2004
to
acquire
raw
land.
The
same
borrower,
Centurion,
and
same
entity,
Shahan
Prairie,
received
a
loan
from
UDF
III
in
2007;
this
loan
was
modified,
extended
and
increased
at
least
3
times
over
the
next
7
years,
with
UDF
III’s
lien
on
the
land
tripling
over
the
period.
The
same
borrower,
Centurion,
and
entity,
Shahan
Prairie,
received
a
loan
from
UDF
V
in
2015.
Proceeds
from
the
UDF
V
loan
were
partially
used
to
repay
UDF
III;
the
collateral
is
still
raw,
undeveloped
land
11
years
after
the
initial
acquisition.
UDF
V
specifically
states
that
it
will
not
lend
to
affiliates
or
participate
in
loans
issued
by
its
affiliates.
UDF
V
has
done
explicitly
what
it
said
it
would
not
do
;
it
has
just
done
it
in
a
very
opaque
way
at
the
asset
level
rather
than
directly
buying
loans
from
its
affiliates,
a
practice
which
its
predecessors
actively
engaged.
Half
of
UDF
V’s
loans
to
date
have
been
issued
to
UDF
III
and
UDF
IV’s
largest
borrower,
Centurion,
and
specifically
to
entities
that
previously
(and
at
the
time
of
issuance)
had
loans
outstanding
due
to
UDF
III
and
UDF
IV.
The
Company
does
not
disclose
this,
because
it
appears
to
be
engaging
in
activities
that
it
claimed
it
would
not
and
because
it
appears
UDF
V
is
the
latest
mechanism
by
which
liquidity
is
being
provided
to
affiliates,
UDF
III
&
UDF
IV.
Many
other
examples
just
like
Shahan
Prairie
exist
within
the
UDF
structure
(UDF
III,
UDF
IV
and
UDF
V);
this
case
study
was
chosen
as
an
illustrative
example
to
highlight
how
capital
from
later
UDF
vintages
(and
new
investors)
is
used
to
provide
liquidity
to
older
UDF
vintages
(and
older
investors).
APPENDIX
I
Deed
History
Sourced
from
Denton
County
Land
Records
http://216.60.44.147/TX/Denton/D/Default.aspx
UDF
I
Loan
Issued
to
Shahan Prairie
– 2004
UDF
I
issued
a
second
lien
to
Shahan
Prairie
in
August
2004
for
$1.55
million;
this
was
a
second
lien
subordinate
to
a
seller’s
note
of
$1.15
million.
The
land
that
was
acquired
was
102.324
acres
in
Oak
Point,
Texas
which
is
located
in
Denton
County.
Source:
Denton
County
Records
UDF
I
Loan
to
Shahan Prairie
Assigned
to
Textron
– 2008
On
May
1
st
2008,
UDF
issued
a
secured
promissory
note
in
the
amount
of
$15
million
to
CTMGT
and
12
CTMGT
subsidiaries,
including
Shahan Prairie,
LP
On
May
7
th
2008,
this
loan
was
assigned
to
Textron
Financial
Corporation.
On
June
14
th
2009,
UDF
defaulted
on
its
loan
to
Textron.
Source:
Denton
County
Records
Source:
United
Mortgage
Trust
10
‐
K
(12.31.09)
UDF
III
Deed
of
Trust
– Issued
2007,
Increased
2009
On
September
20
th
2007,
UDF
III
issued
a
secured
promissory
note
in
the
amount
of
$1.9
million
to
Shahan Prairie,
LP.
On
September
20
th
2009,
this
loan
was
increased
to
$2.5
million.
The
land
that
secured
the
loan
was
“101.438
acres
tract...being
a
part
of
a
called
102.324
acre
tract
of
land”.
Source:
Denton
County
Records
UDF
III
Deed
of
Trust
–Further
Increased
2012
On
April
1,
2012,
UDF
III’s
loan
to
Shahan Prairie
was
further
increased
from
$2.5
million
to
$3.37
million.
Source:
Denton
County
Records
UDF
III
Deed
of
Trust
–Further
Increased
2014
On
February
27,
2014,
UDF
III
issued
a
second
junior
loan
to
Shahan Prairie
in
the
amount
of
$1.39
million,
“the
Supplemental
Junior
Note”.
Including
the
“Original
Junior
Note”
in
the
amount
of
$3.37
million,
the
total
amount
of
promissory
notes
from
UDF
III
to
Shahan
Prairie
was
$4.76
million
as
of
February
2014.
The
loan
was
also
extended
to
March
6,
2015.
Source:
Denton
County
Records
Trez Capital
Enters
the
Picture
–Later
in
2014
On
November
4,
2014,
Trez Capital
issued
a
promissory
note
in
the
amount
of
$2.55
million
to
Shahan Prairie,
LP
on
the
same
piece
of
property.
Trez Capital’s
loan
is
senior
to
UDF
III’s
notes
(the
Junior
Notes).
On
December
5,
2014,
PlainsCapital Bank
released
a
lien
with
an
original
principal
amount
of
$3.2
million
(theoretically
refinanced
by
Trez Capital).
Source:
Denton
County
Records
UDF
V
Enters
the
Picture
– June
2015
On
June
9,
2015,
UDF
V
entered
into
a
loan
agreement
with
Shahan Prairie,
LP
to
provide
a
$18.1
million
subordinate
development
loan
on
the
same
piece
of
property,
“102
acres
of
land
in
Oak
Point,
Denton
County,
Texas”.
Trez Capital’s
loan
remains
senior
to
UDF
V’s
“land
development
loan”.
Source:
UDF
V
8
‐
K
http://www.sec.gov/Archives
/edgar/data/1591330/
000114420415036674/v412974_
8k.htm
UDF
III
Releases
Lien
– June
2015
UDF
III
released
its
lien
on
the
Shahan
Prairie
land
on
the
same
date
that
UDF
V
issued
a
loan
to
Shahan Prairie,
June
9,
2015.
Source:
Denton
County
Records
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