The Stonecrest Income & Opportunity Fund-1, which was opened in March of 2009 in order to take advantage of the severe downturn in the real estate market, has finally closed. Even though the types of real estate, mortgages and the sellers we faced changed over the life of the fund, the one constant was the undervalued assets we found that offered our investors the potential for gain.
Since inception, the overall return of the fund was 20.20%. Upon the liquidation of the remaining assets, the fund had a loss for 2015’s fourth quarter, as well as the year. The reason for this was IRS regulation 1.1001, which forces a company that significantly modifies mortgages to report the differential between the basis in the note with the “modified amount” of the note as income for tax purposes. We fought this strenuously, as we knew that the modified notes were not worth their new face value and that, upon sale, this would create a loss for the fund. Unfortunately, we lost the battle and had to adhere to the IRS rules regarding modified mortgages. And, indeed, the liquidation of the modified mortgages did create a loss, which decreased our return. We were happy with the overall return, but we were also frustrated with having to book a gain that we didn’t believe was justified, and to then book a loss on those same assets upon liquidation. The end result would have been the same, but the fluctuations in our return were unnecessary.
Through consistent networking and establishing ourselves as a known player in this industry, I believe we were successful in our goal to find assets with great potential for SIOF-1. I am very proud of our entire team, who worked with extreme diligence on behalf of SIOF-1 and were able to adjust quickly when a new type of distressed asset was introduced to our business model.
The relationships we established are baring fruit in our other funds and we continue to network with new industry players through the conferences we attend. I want to thank all of our investors for their faith and trust in our abilities, and I am looking forward to continuing our relationship for many years to come.