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This begins meeting at 2. We're back on the record. The time is 11:10 a.m. Mr. Cardone, let's look back at 231, which is the responses and objections to the fourth set of interrogatories. And we're still on the response to interrogatory number nine. If you could go to page five.
Okay. >> So, this second paragraph of the response we just talked about part of the response about the successful track record, right? >> What number are we on? We're what I want to talk about now is it says like other irr and cash return projections for funds five and six the reference statement was and continues to be supported by and I want to talk about number two now >> okay >> their disciplined property selection criteria expertise in property management and use of quality management companies right >> okay and if we turn the page to page There's a section at the bottom here, property selection and superior management that provides some more information about what's meant by this. Right. Yes. >> Okay. And it says in part uh starting at the bottom of page six, defendants targeted class A and B multif family properties that would appreciate over an expected 7 to 10 year holding period selecting properties based on positive cash >> holding >> holding period based on positive cash flow at purchase superior geographic location and a purchase price below replacement cost. What does purchase price below replacement cost mean, Mr. Cardone? >> Big smile. >> Yeah. If you were to rebuild the asset, it would cost its cost to rebuild. That is considered the replacement cost. you would take into account uh the cost to build both soft and hard cost plus the time cost of money and then any risk. So for instance, this building would take to get it approved again would be probably 18 months and then another 3 to four years to build it and then you'd have to anticipate going forward what the cost to build in 2031 would be. What do you rely on to determine the replacement cost? uh market market uh surveys, cost of materials, inflation at the time depends on what part of the world or country or state you're building in. Replacement cost in the west coast of Florida is different than the east coast because um concrete block is produced here and it's not produced on the west coast. So, and then regulations and permits, the quality of the construction, and then the the the the um location of the asset, and how desirable, you know, and how much competition you would have for that that particular asset.
>> So, the replacement cost is an amount that Cardone Capital determines taking into effect all of what you just said. Is that right? pretty much and more sometimes you know >> it's not something that a third party provides you you do that cost calculation internally >> yeah third parties can provide can provide some some guidelines on that and then you can have you know very conservative third parties you could have more aggressive everybody's kind of just guessing in a fluid economy what happened uh when we were buying these assets were everybody was wrong on the estimates. >> Wrong about what, Mr. Cardone? >> Oh, almost everything. >> And you mean they were also wrong about the replacement cost? Oh yes, absolutely. >> Yeah. >> Class A properties are not guaranteed to return a 15% internal rate of return. Correct. >> Objective form. >> Class A >> properties >> are >> not guaranteed to return a 15% internal rate of return. Correct. >> Who's class A? I don't know. I don't know know what class A you're talking about. It says here defendants targeted class A and class B multif family properties. That's true. >> What I'm trying to understand is that >> we did target >> class >> we did target those and we targeted a 15% return. >> Okay. >> But a general statement >> Mr. Cardone class A can't return a 15%. >> No, that's that wasn't my question. >> Okay. >> My question is class A properties are not guaranteed to return a 15% internal rate of return. Correct. It's a general statement about somebody else's class A, >> right? So just because a property is class A, you can't know for sure that it's going to guarantee 15% >> return. I agree 100%. Absolutely. Okay. >> You cannot you can't can't you you can't just say something's a class and then guarantees X, >> right? >> Yes. >> I agree with you.
The interrogatory response here continues. Cardone capital and where are you now? Sorry, I'm on page seven. >> And it says in the third sentence, line three, >> Mhm. >> Cardone Capital and Mr. Cardone strategy was to seek opportunities for the funds that met rigorous uh financial criteria, including targeting acquisition cap rates of 4% or above, >> pro-form cap rates of 5% or above, cash on cash returns 3% or above at purchase and 6% or above at proforma, and existing occupancies above 80%. Right. >> Yeah, exactly. Everything's laid out right here. >> It's exactly what we target. >> What is the difference between an acquisition cap rate and a proforma cap rate? >> Man, you're going to be so good at real estate by the time we're done here. Okay. The acquisition cap rate is based on and this is a cons very conservative underwriting that I personally use unlike most of the industry they they get very aggressive about the forward-looking performer. So I basically take the asset as it is. I underwrite or use the net operating income, which is the gross income less the expenses equals NOI before taxes. And I use the actual NOI achieved by the current owner uh to anticipate or you know say okay that's my cap rate going in. Now the proforma cap rate is going to start including all these projections that that are required by the financial institutions. They aren't a choice of mine by the way. Okay. The Fanny May Freddy Mack life insurance companies and banks require a 10-year projection ba based on assumptions that everyone should know and I've told this to my investors many times are completely contrived based on old guidelines but it's part of the government Fanny May and Freddy Mack are the largest lenders in the world and they have certain criteria that they have to see and those have been adopted now by CBRE JLL Kushman Wakefield >> been adopted by we'll never let it >> CBRE Kushman Wakefield JL Kers all the real estate professionals and those are used to then project some future. So there's the actual which is what I use and then there's the future >> and Mr. on is for cash on cash returns at purchase versus cash on cash returns at proforma. >> It's the same thing, right? At purchases based on the historical. >> No. >> Okay. Can you explain to me what the difference is between cash on cash returns at purchase versus at proforma? >> Yeah. So cash on cash. I buy a property from Joe here and when I bought it, if I would have taken it today and it did what it did the month before, that would be my cash on cash. I get in Joe's property, I take it over, he's gone. I run it into the ground and the cash flow goes from six to zero. That's a different cash flow. If I improve the property because I'm smarter, I'm brighter, I pay more attention, I take care of the tenants, I do the right things, rents go up, the federal government prints money like they did during COVID. They printed 7 trillion. Oh, rents go up naturally. Do rents go from $800 to 1,200 to 1,500 like they have? And guess what? My cash flow is going to go up. Could go up. It could go down. It can go sideways. It will change constantly. By the way, it will be doing this like it will be changing up and down constantly regardless of what I'm doing beyond my control. >> Mr. Card, the question was what does cash on cash returns at Proforma mean? Yeah. Just I just I just gave you I answered the entire question. >> So it's what happens after the purchase. Is that what you're saying? >> That's right. >> Okay. and depending on management, regulation, inflation, taxes, expenses. New York City just had 8% increase in rents in one month since Madami um pulled a million units and froze them in the inventory where you have a a rent moratorum. San Francisco's rents have exploded 22% in 60 days. So, their cash flow is going to just it's going to go crazy. Now, the people that live there are not going to like it. And that's the difference between the actual cash flow at close and the future performer of cash flow. It's all an estimate. It's a target. It's a projection.
All right, Mr. Cardone, let's look back at the interrogatory responses. You talked you talked a minute ago about the underwriting process. >> You were personally responsible for the underwriting process for fund five, correct? >> Yes, ma'am. >> Okay. >> And same answer for fund six. >> Yes, ma'am. >> I'm ultimately responsible for everything here, by the way. >> Okay. It says here in the interrogatory response, in other words, >> where am I? >> Sorry, we are at >> page >> page seven at the bottom of this paragraph. Um it says in other words part of the basis for return projections on funds five and six was understanding that Cardone Capital would go through this extensive diligence process to target only those properties that it believed could be operated sufficient to generate the targeted returns. Right. >> What line are we on? >> We're at this middle paragraph here. Just >> give me a number 19. >> 19. Okay, >> let's run it back. >> This paragraph here, it's talking about how it's Cardone Capital's position that the return projections on funds five and six was that Cardone Capital would go through an extensive diligence. >> Yes, I agree with that. So even if Cardone Capital hadn't >> expensive. >> So even if Cardone Capital hadn't invested in any properties at the time that you told investors they would walk away with 15% annualized returns. It's Cardone Capital's position that your statement was supported because Cardone Capital would only target properties it believed would generate those returns. Do I have that right? >> Say again. >> Sure. >> Even if Cardone Capital hadn't invested in any properties. Even if we hadn't >> added, >> we had already bought >> almost a billion dollars of real estate. >> I'm talking about the fund five properties. >> Sorry, >> Mr. >> Cardone Capital had done almost a billion dollars to transact. I can't separate the two. Okay. So, the idea that you guys are going to say the fund had no experience. I am the fund. There is no fund without my experience. There is no fund without 20 plus years of me buying real estate. Just just so you guys understand, I can't get a loan. I can't >> I haven't asked a question. >> Well, there can't be any >> extensive due diligence if I don't know how to do due diligence. >> What I'm trying to just clarify here is just the response here in your interrogatory. Simply put, it says part of the basis for return projections on funds five and six was understanding that Cardone Capital would go through this extensive diligence process to target only those properties that it believed could be operated sufficient to generate the targeted returns. >> That's Cardone's Capital's position, right? >> Yes. >> Okay. And if we can go back to page five, it says >> what number? >> We're on line 14. >> Great. That helps so much. >> Like other IRRa and cash projections for fund five and six. the reference statement was and continues to be supported by. And then >> number three is the investment hold and exit strategies for funds five and six as explained in their respective offering circulars. Right. >> That's right. >> Okay. >> I thought today was about the company. I didn't know we're going to be getting into the deals today. >> Mr. Dr. Cardone, the response here goes into more detail on page seven. >> Okay. >> It says, "Hold and exit strategy." >> Yes, ma'am. I see that 23. >> And it says, "The projected returns were further supported by a disciplined hold and exit strategy." >> It's true. As noted in the funds offering circulars, the life cycle of the funds was projected at a minimum of 7 to 10 years at which time the funds would sell or refinance properties that had appreciated in value. Right? >> That's what it says here. >> That is what it says. >> Okay. >> At which time it would sell or refinance properties. >> Let's go. >> Very very important by the way. >> Well, I will mark as exhibit 233. Too many baby. >> Yes. Okay. Is that a copy for you? Do you recognize this document, Mr. Credone? >> Yes, I do. >> This is our This is our This is our uh This is our offering circular, right? This is the preliminary offering circular. It says here at the top of the first page, right? >> Right. >> Dated July 2nd, 2018. Okay. >> So, this document was written about 9 months before your YouTube video in which you stated that investors would walk away with a 15% annualized return. Right. Well, I actually think that you had two dates, two videos. Um, >> the video that we're discussing this >> is the April 22nd, 2019. >> I agree with that. >> 22nd, 2019 video. If you can look at page 17 of the preliminary offering circular. >> I don't know how to get to page 17. >> It's there. Sorry. There's tiny little numbers at the bottom here. >> Okay. I see 17 out of 77 pages. >> Yes. Um and there's also the 17 that's reflected here. And in the middle of the page, >> do you see where it says, "Currently, our strategy includes paying a monthly distribution to investors under this offering that would result in a return of approximately 15% annualized return on investment net of expenses of which there is no guarantee. Do you see that?" >> Every one of our investors saw that as well. That was not my question, Mr. K. >> Yes, I see it. It says, "Our ability to make distributions to our members is subject to fluctuations in our financial performance, operating results, and capital improvement requirements. There is no guarantee." Yes, I read that. >> Mr. My question was about that first sentence there about >> the offering that would result in a return of approximately 15% annualized return of >> exactly the same one sentence that I'm looking at. It says 15% return on investment net of expenses of which there is no guarantee. >> Correct. Okay. Can we turn to page 26 now? >> But did you have a question there? >> No, I'm just reading the sentence. >> You're just asking me if I'm reading the same thing you're reading. >> Correct. Okay. >> Can we turn to page 26? >> Feels like a setup. You set me up for something. >> Under this background overview section, >> okay, >> it says in the last sentence of this paragraph, the third paragraph down. >> Okay. >> The company will attempt to achieve an overall company. >> The four the fourth, you're on the >> I'm on the third paragraph, the last sentence. Uh okay. >> The company will attempt to achieve an overall company internal rate of return of 15% per year net of expenses. Correct? >> Yes. The company will attempt to achieve >> Okay. Can we turn to page? >> An overall company internal rate of return of 15%. >> Can we turn to page 32? There was no question on that last one either. Right. >> The question was just that it says that right? >> Okay. >> On page 32 at the chart at the bottom here. Do you see that? >> Let me just familiarize myself with the page, please. Acquisition cap rate four, performer rate five. >> I'm sorry. I'm just talking to myself. Okay, I see it. It's looking good. And >> it says generally the fund will seek opportunities which meet the following criteria. And in that chart, it says IRR based on 10year holds 15%. Right. >> Yes. >> Okay. All right. I'm going to mark this as exhibit 234. >> I don't need any lines. just walk through the scene. >> And just to remind you, at the end, anything with pink is mine. >> Oh, >> I'm taking notes for you. >> I'm going to autograph some of this for you. Okay. >> This one. >> This one? >> Yes. >> Thank you. >> Thank you. >> Yes. I love this letter. This is a great letter. And Mr. Cardone, what the court reporter is telling you is that the the ones with the stickers are like court records. Okay, you can mark on them, but just realize that those would be the court records. >> That's excellent. >> I have nothing. >> So, don't put any secret notes or anything. >> No, no. All my secret notes are made public. >> Mr. Cardone, you said you love this document. >> I love this document. >> I presume you have seen this document before. >> Game changer. Changed my world when I saw this. This is a letter from the SEC to Cardone Capital. >> Yes. >> It's addressed to you, Grant Cardone. >> Yes. >> Okay. Can you please read for me what it says at number two here? We note your disclosure on page 17 and throughout the offering statement that references your strategy. Your strategy to pay a monthly distribution to investors that will result in a return of approximately 15% annualized return on investment. >> You want all of it? Yep. >> We further note you have commenced only limited operations. Not true. Don't agree with that. Have not paid any distributions. Absolutely not true. And don't agree with that. And do not appear to have basis for such a return. Also don't agree with it. Please revise to remove this disclosure throughout the offering statement. Please revise. Yes, Margan. What is your question? >> Mr. Herdone, you had not paid distributions to members of Fund Five as of July 30th, 2018, right? >> We didn't have properties in Fund Five yet. >> It's impossible for Fund Five to pay anything to anyone if we haven't closed a deal yet. So the SEC tells the company to remove the representations about a 15% annualized return from the offering statement, right? >> Object to the form of the question the document >> and it's not true. It's complet >> objection. What's your object? >> Object to the form of the question. It misstates the document. >> It's absolutely not true. >> It's not what the SEC said. The SEC says, "Please revise to remove this disclosure throughout the offering statement." >> That's not what you said, >> Mr. Cardone. >> It's not what you said. >> The SEC told the company to remove the disclosure throughout the offering statement. >> No, they did not. >> They did not. And you you're misrepresenting You're misrepresenting what the SEC said. They said, "Please revise to remove." They didn't tell me to remove it. Also, >> again, just so the rest of your firm knows, we did not have limited operations. This is incorrect. The SEC, massive respect for them. I've worked with them for years now. We had a 28-month investigation into my company by the SEC, unbeknownst to us. And despite they're the SEC, doesn't mean they're right about everything. We did not have limited operations. We had not not ever paid distributions. And the fact that they said we don't appear to have a basis is not true. Period. Full stop. Not true. >> I'm going to move to strike all of that as not Mr. Cardone. Then they requested. You have to let me finish. You cannot you have to let me finish. Then they requested. I'm gonna finish. I'm gonna finish this. Mr. Cardone, I will have to call the court. >> Call the court. I I don't have to tell you. I'm not doing anything wrong here. >> I'm asking. They requested that I remove them the disclosure. And guess what we did, Morgan? >> Mr. Cardone, >> do you know what we did? >> You removed the disclosure, Mr. Cardone, right? >> Because they asked, "Please remove." And we did. >> You removed the disclosure because you did not have a basis for those statements, right? >> Not true. Absolutely false. Sorry. >> Absolutely not true. Morgan, >> we did have a basis for it. >> And the basis for it that you represent, if we go back to interrogatory number nine, is it everything that is written in response to this interrogatory? >> Where do you want me to go? Where would that be? >> That is exhibit 231. >> Okay. Page nine. >> Yes. >> Are you is the everything that is written in response here to interrogatory number nine. >> Okay. Not not page nine. Number nine. >> Is that your basis or the representations that you made in the preliminary offering circular about a 15% IRR? >> What? What? What page? Again, I'm I thought you told me page nine, but now you're telling me it's I guess page five. >> Yes. The response to interrogatory number nine. Everything that we've walked through today, your track record, the disciplined property selection criteria, and the investment hold and exit strategies. Is it your position that that forms the basis of your 15% IRRa representation? >> Object to the form of that question. selection of the property, the location of the property, the cash flow of the property, the quality of the asset, uh our constant due diligence and second layer of management oversight, the debt that I acquire, how I pay attention, fact how I negotiate the deals and the debt. Yeah. based on based on at this time 30 years of experience 40 plus deals. Yeah. Yeah. That's that that's why I I I believe the asset I believe the asset will achieve a 15% internal rate of return and it's why our circul circular offering that you talked about earlier also made it very clear that while we expect that and target that I can't guarantee that >> let's look again actually at this preliminary offering circ Circular exhibit 233. >> Okay, >> let's start on page two. >> Page two is a good page. >> And in the second paragraph here, the second sorry, the third sentence of that paragraph >> of which paragraph? The second paragraph, it says, "At or around the eighth year of operations, >> the manager will attempt to sell, refinance, or otherwise dispose of properties in order to return capital account balances as defined in the company's operating agreement to the members." Right. >> That's what it says. And on page five, it says >> you you're not asking a question about what it says there. You're just asking me if that's what it says. >> I'm asking you if that's what it says. On page five, number one, it says the company's primary focus. >> You got to tell me where. Okay. on number one down in the middle of the page. >> The company's primary focus is to invest in multif family and commercial properties >> that will appreciate over a 7 to 10 year holding period, >> right? >> Yes, ma'am. >> Okay. On page six, turn the page. >> So, you're just going to you're just going to read that one sentence, >> correct? >> There 10,000 words in this document. You're going to grab one sentence. Okay. Go to six. Page six. And there's a section here that says, "What is Cardone Equity Fund Five LLC?" >> Under frequently asked questions, >> sorry, >> Cardone Equity Fund 5 LLC. >> Mhm. >> And it says in the second paragraph under that answer there, the company intends to purchase properties that will appreciate in value over the expected hold period of 7 to 10 years through the use of quality third-party management. It is expected that the investments will appreciate due to superior locations and increase net operating income over time. Right? >> That's what it says. >> Okay. >> So that's at least three times in the preliminary offering circular that Cardone Capital explains its hold and exit strategy, right? >> Yes, ma'am. >> Okay. And Cardone Capital also talks about in this document its plan to use third-party management to help increase net operating income. Right. >> Yes, ma'am. >> And >> we have two layers of management. >> If we go to page 33 of this document, >> it says here due diligence and financing. And it says when the company identifies a location. >> What paragraph? >> Right under due diligence and financing. >> Okay, I missed the page. >> Page 33. >> 33. Thank you. >> When the company identifies a location or a potential property, it will secure the necessary financing, sign a contract, >> and place an escrow deposit to be held with a designated escrow agent. Mhm. >> The company will take the time necessary to complete all its due diligence to the property, including site inspection, reviewing all leases, income, and expenses, as well as securing a first mortgage on the property. After the due diligence process has been completed, the company will determine whether the property is suitable or not. If property is not suitable, the company will cancel the contract and look for the next opportunity. Right. So the preliminary offering circular also stated that Cardone Capital would do an extensive due diligence on all the properties before purchasing them. Right. >> That's right. And we do. >> And just above that on page 33, it talks about the company's overall strategy to identify class A and class B multifamily communities. >> Yep. You said that >> correct. Okay. And starting on page 57 of this document, the preliminary offering circular discusses your track record with prior performance tables. Right. >> Okay. >> Okay. So, Mr. Cardone, everything that we've talked about so far today as the basis for your cash projections and IRR projections, your track record, the performance of the properties that Cardone Capital invested in, >> the investment strategy of targeting class A and class B multif family properties using third-party management companies. Yes. >> And the 7 to 10year exit strategy for the funds that was all in this preliminary offering circular. Right. We'll check to the form of the question. >> Yeah, I believe I mean I I I'm waiting for the gotcha moment. >> Either that or you're going to be you're going to I'm going to make you one of our advertisers because you you're saying exactly what we give the circular. This is exactly you keep asking me questions that are written down in our offering. >> If we can go back to exhibit 234, the July 30th 20 letter from the SEC. I didn't think we better. >> Exhibit 234, the July 30, 2018 letter from the SEC even after the SEC reviewed the preliminary offering circular for fund 5 >> which contains all the same information >> that you told me today supports your statement. The SEC asks you to revise the preliminary offering circular to remove the 15% IRR disclosure throughout the offering statement. Right. >> Object to the form of the question. It calls for speculation. You mean this sentence where they're like you have no limited operations and I made it clear that we have very extensive operations that I had not paid distributions and the truth I had paid tens of millions of distributions and we did not appear to have a basis for return which is not true and then they say please revise and then we yeah I read that I see that >> the SEC had before it all the very same information that you told me supports your basis for asserting a 15% annualized return. Right. >> Objection. That that misstates his testimony and it calls for speculation. >> So what are you asking? >> The SEC has before me or before >> before it in this preliminary offering circular. The SEC did not have my track record. The SEC did not know what I had accomplished. The SEC didn't know about my experience. The SEC didn't investigate Grant Cardone, look at my returns, look at all my deals. The SEC didn't talk to my investors to see how satisfied they were. Look, the SEC knew nothing >> about my history or experience investing in real estate. >> Mr. We just walked through that on page 57 of your preliminary offering circular. >> Yes. >> The preliminary offering circular goes into detail about the prior performance of your earlier funds. Correct. >> Objection mistakes the document. >> Is that right? >> I don't I no I I I >> it says here on page 57 >> 57 >> the preliminary offering circular. >> Okay. 233. >> You got me working going back and forth right now though, Morgan. >> 57 of 77 pages >> says from 1995 to the present. >> Yes. >> Grant Cardone as the sole principal of the manager. Cardone Capital >> I'm sorry >> to the present. Grant Cardone >> as the sole principal of the manager. Cardone Capital LLC and its acquisition arm, Cardone Real Estate Acquisitions LLC has purchased 44 multifamily communities in transactions with a total purchase price at over 600 million50 million and currently has 20 properties that are valued over 700 million. Correct. >> Yes, let's see that. >> So, the SEC did have before it your track record, right? >> Objection mistakes the document. >> That's not what it is for speculation. >> I didn't say they had my track record. I said they didn't do any investigations or due diligence on the performance of any of my previous deals. How how would how could any government agency possibly be expected to do that? >> This wasn't enough information, Mr. Cardone. You don't believe this represents your past performance? What it says here? >> Object. >> I know it question. >> I know it. I know. Not only do I know this this is and this is this is the minute part of my performance for because I have the experience of each one of these deals. But the but to suggest that the SEC did due diligence on 44 different transactions is not that's not true. They did they wouldn't have done that. >> Mr. Cardone, I'm going to mark as exhibit 235 the Cardone Capitals August 1st response the SEC letter. >> Mhm. >> I'm going to share that in the Zoom. I don't have that printed with me. >> Okay. >> Action. >> I'm ready. When you're ready, >> do I just hit the chat? >> Give me one second. It logged me out of the Zoom. Morgan, would you wait to put it in the chat until I go back in because it it doesn't allow me to >> Yeah. Let me know when you're in. I'm not in chat right now. >> Now it's not letting me into the Zoom. >> Yeah, it kicked me out, too. >> I'm still in here. I'm in. >> Good guys are in. >> Go off the record for a second. >> Good guys are in. >> Off the record. The time is 11:53 a.m. >> Got you. >> We are back on the record. The time is 11:54 a.m. >> Okay. >> Mhm. >> Do you recognize this document? >> Is this a Miss Jennifer? Uh, is this coming from Trobridge Sedati? >> This is coming from Cardone Capital, right? Miss Troage is submitting this on behalf of the fund. Correct. >> The >> Let me just read it. >> One sec. >> Companies provided. Yeah, I recognize this. I think I mean I think I recognize it. >> Okay. I just want to make sure this gets marked as an exhibit. This will be exhibit 235. >> This is August 2018. >> If you can go to page two. page two. >> Somebody um >> has to disconnect their audio. >> Me? >> Joe. >> Come on, Joe. Get your game on, dude. >> Jesus, what an amateur mood. >> My miss >> apologize. >> Looks bad. It's >> bad. It's a bad look, too. Okay, I'm on page two. >> Okay, >> Miss Morgan. >> And it says, do you see where it says we have removed the references on pages 17, 26, and 32, >> right? >> I don't see that. I don't see that. >> I think it's >> it's page uh it may be further down in the PDF. It's page two of the letter. It may be four of the PDF. What are 17, 26, and 32? >> Earlier today, we walked through the preliminary offering circular together and we looked at those pages. Those are the pages that discuss a 15% IRR. And it says here, we have removed the references on pages 17, 26, and 32. Right? >> I see I see that. But what I don't understand is what is 17, 26, and 32? >> We can walk back through that. If we go to exhibit 233, the preliminary offering circular page 17. >> Got it. >> Currently, our strategy >> we have. Yeah. >> That's where it says the 15%, right? >> Yes. >> And on page 26. >> Okay. >> At the bottom of the third paragraph, that's where it said the company will attempt to achieve an overall IRR. Okay. And then 32. >> And on 32, same thing. That's the chart that had the 15% IRR representation. >> And they requested that we remove this. >> Correct. >> And we did remove it. >> Correct. >> You testified earlier that >> um the SEC didn't have the full context of your prior history. Right. >> Just states testimony. >> That's what I said, though. You could have responded with that information, right, and said that's our basis. >> Objection. You >> could have in fact hold on I have to I have to >> that information right and said that basis objection >> my objection is that it calls for a legal conclusion from a lay witness. >> Answer >> and we attempted to provide the SEC with our full disclosure. By the way, the page 32, the fact that the SEC asked us to remove this was like, okay, you guys want to remove that? It is our complete basis for buying the asset. This disclosed everything. By the way, this was a mistake by the SEC. Again, hats off to the SEC. I appreciate. We always try to work with them, but they should have left this in here. This was a oversight or a miss by them. It says our acquisition cap rate was four. Now that now the investor doesn't know what the acquisition cap rate is. Says the pro-arma was going to be a five. The cash on cash was going to be a three margin. And they had us remove this. This was more disclosure for our investor, not less. And the SEC made a mistake. pulling this. They should have left it in it. But I'm I'm not going to fight them. I'm not okay guys. What? Whatever. You're the SEC. You're a big government agency. Barack Obama had recently, prior to this, passed the Jobs Act, allowing and encouraging private owners of real estate to democratize institutional quality assets so that regular families could invest and partake in wealth building via the cash flow, capital appreciation, the tax writeoffs. Sorry. >> And we're doing our investors a favor. This is what I proposed for the SEC. The SEC requested uh some of these things be removed. So, we said, "Yeah, no problem, guys. No harm, no foul. We'll remove it." And then we were that we were, you know, going about uh raising money for our investments. >> Mr. Cardone, do you recognize this document? Document 236. >> Yes. >> Offering circular December 11, 2018. Cardone equity fund five. I do. >> Okay. And this does not say preliminary offering circular. Right. This is the offering. >> This is the Mac Daddy. 63 pages. >> Okay. Can you turn >> transparency >> to page 32 of this document? >> Yes, ma'am. I see it. >> The table we were just discussing. Yes. And you said the SEC made us delete it. >> They did not make you delete the full table, right? That's all in here except for the irr statement. Correct. >> Oh, I thought they You asked me if they requested us to delete that table and I said yes. They requested that we delete it. They requ Sorry sorry go ahead >> and I said we should in keep it included and now guess what Morgan it's included >> right except >> full transparency >> the and if you want to compare it exhibit 233 at 32 included the IRR based on 10ear holds 15% >> right >> wait what page 30 >> page 32 >> 32 man. Okay. What's going to not be included here is just the IR >> just the IRR was removed, right? >> Yeah. Okay. I think because >> I think that you know this is the first time I'm actually noticing that particular difference. I think the SEC wanted us to remove the entire box, >> but you kept >> because the IR Obviously, I kept it in and they approved it because it was a request, Morgan. It wasn't a demand. It wasn't a mandate. It wasn't, "You have to do this." The way I read it, we should have removed the entire box. The way my legal team read it is like, "Oh, they just want us to remove the IR." The way the SEC, you'd have to I guess you'd have to depose them. depose the SEC and say, "Why did you allow the box but not the IR?" I have no clue. But we end up in the same place anyway because the numbers in the box are what is going to determine whether or not we hit our IR margin of 15%. And that being said, in the circular on page two, not page 32, it says we are emerging growth company with limited operating history. Subscribers will have no control. We will require additional financing. We have not conducted any revenue generating activities. Our offering is an arbitrary. Investments are speculative. The company does not currently own any assets. >> Strike all that as nonresponsive. My question was just that the IRR was removed. Right. >> You struck it as what? >> Nonresponsive. >> It was completely responsive. How How can you say that's non-responsive? >> It's a yes or no question, Mr. Cardone. >> No, it's not a yes or no question. is is did they take out they should have taken the whole box out if they disagreed but the internal rate of return they the way you're just asking me how I see this and I literally told you while while I was saying oh yeah they they had us remove the box now you're showing me the box and my legal I think that was Jill at the time is that her name thought I guess thought it was the internal rate of return, but the internal rate of return is not the issue here that you guys think it is, by the way. And it's cool that they left the 3% cash flow in there because we've exceeded that by 40%. We're a good team, Morgan, and you. 231. >> Let's go back to interrogatory number nine. >> Okay, number nine. Back to number nine. It says, and we're moving through the last number here, it says in the second paragraph of the response on page five, line 14, like other IRR and cash projections for funds five and six, the reference statement was and continues to be supported by and number four here is the current performance of the funds. Is that right? >> That's what it says. Today is July 15th, 2026. Right. >> It is. >> And the statement that we're talking about in interrogatory number nine is dated April 22nd, 2019. Right. >> I believe you, >> Mr. >> April 22nd, 2019. Right. >> Okay. Mr. Cardone, you are not a time traveler, right? >> We'll jump to the form of the question. >> Yeah, you're you're way outside your realm now. There's a lot of things we don't know about time >> and space. >> The current performance of the funds as of today, >> well, good try, >> could not have been the basis for statements that you made in April 2019. Right. Say again. >> The current performance of the funds as of today, >> yeah, >> could not have been the basis for statements you made in April 2019, right? >> The basis of the statements made in 18. >> In 2019, >> 2019 can't be what? >> The current performance of the funds as of today. >> Yeah. >> Could not have been the basis for statements you made in 2019. Right. You kind of threw threw me off with the whole time travel, man. You got me into a different space. Um, >> I'm not sure what you're asking me right now. Really, I'm a little confused. Okay, let's go to page eight of the interrogatory response and and maybe that'll illuminate. You can go to page eight with me. >> Okay. >> And it says current performance. Do you see that? >> Yes, ma'am. And the first sentence here says the return projections for funds five and six which were entirely reasonable when made also have been validated by the actual performance of the funds since their inception. Right. >> Okay. >> If the actual performance of the funds were worse than the return projections that you had claimed for fund five and six then you would agree that there's no basis for your projections. Is that right? object to the form of the question? Absolutely not. Hold on. Incomplete. >> Excuse me, sir. >> It's an incomplete hypothetical. No foundation. >> Yeah. >> Go ahead, Grant. >> Incomplete. >> Absolutely not. Absolutely not. Do you know Do you guys know your firm know that we could have sold all these assets in 20 two and a probably a three and a half cap rate. It would have taken these IRS through the roof. But we didn't do that because our investors want capital protection. They want the investment. See, this is the one thing you guys aren't paying any attention to. What does the investor want? Including the first investor or one of the first investors involved in this class action nonsense, which was Lewis Pino wanted to partner with me. Number one. Number two, he wanted to be invested in a real estate asset for him and his family that he could never have access to on his own. Three, he wanted capital protection on his $10,000. He put two $5,000 in two different funds. Fourth thing he wanted was cash flow, which I have sent to him the entire time. Never missed a month when he passed away. Rest in peace, Mr. Pino. He passed it on to his daughter. his daughter or his her their estate has been distributed every single month. What do we 19 20 21 22 23 24 25 26 8 years times 12 is 96 months. 96 effing months in a row. I have delivered cash flow to the Lewis Pino family and every other family. We we have sent his family cash flow uh probably six years now almost almost six years since he denied resisted did not want to have his $10,000 sent back. So >> I will move to strike everything after absolutely not as nonresponsive. We we we've outperformed our our expectations on these deals at this point. >> Mr. Cardone, are you aware that we have for several months been trying to get distributions from Miss Pino? >> How would I be? How would I know what you guys are up to every day? >> Are you aware? >> I don't know what you do on breaks. I don't know what you do when you're in New York. I don't know what you did to prepare for this. How would I know that? It'd be impossible for me to know that. >> Mr. Cardone, are you aware that Miss Pino has not been receiving her distributions? >> Uh, we made the distribution. Shame on Miss Pino. All I can tell you is we've made the distributions. We make them every month. That's my obligation. My My obligation is not to cash the check. My obligation is to make the payment. In fact, we've made 20,000 20 distributions last month, the month before, the month before. I made 20,020 wires and/or cash distributions today totaling $22 million. As we sit here this morning, while you and I are going through this nonsense, I sent out $22 million to our investors today. Miss Pino will be one to receive a check today. Now, whether she cashes the check or is responsible for her check, I don't know what she's doing with her money. Like, I I that's not on me. >> Mr. Cardone, I want to go back to something you said a few moments ago. So, I asked you if the actual performance of the funds were worse than the return projections that you claimed for funds five and six, then you'd agree that you had no basis for your projections. And you said absolutely not. >> Absolutely not. Absolutely. >> So, >> in no in no situation would would I not have basis. Okay. So regardless, >> this is where the SEC would sorry, this is where the SEC was wrong when they said we had no basis. We did have basis. They said we had limited operations. We didn't have limited operations. >> So regardless of whether the funds have performed well or not, you still believe you had a basis for the return projections. Correct? >> Jack to the form of question. It's an incomplete hypothetical. I've answered it like six times and I will tell you this. We're going to we will at the end of the day exceed the expectations of the returns that I made to the investors. >> Move to strike as nonresponsive. >> It's very responsive. >> You want to take a break? >> No, that's fine. Let's let's go. I'll just Somebody will fill in for me. >> So, you'd agree then, Mr. Cardone that the current performance of the funds is really irrelevant to whether you had a basis for your return projections. Right. >> Objection misstates as testimony. >> Silly. Silly. Silly. >> It's irrelevant. >> It is silly what you're saying. I had every basis. I had 30 years of history and the results have proven
themselves. Like you guys understand there is no financial damage in this case. That the capital's been protected. The investors have received cash flow and the investors received a tax write off and the investors received capital protection against the most inflationary period of time and destruction of the US dollar that we've had in my lifetime. No, what you're saying is silly and and and it what you're saying is irrelevant.
>> I'll move to strike the answer as nonresponsive.
>> Was very responsive. the paragraph here. Um, I'm on page eight of interrogatory number nine.
>> Which one am I on now?
>> 231.
>> Exhibit 231.
>> Okay.
>> Page eight.
>> Page eight. I'm there.
>> And it continues. We just read the first sentence. The second sentence says, uh, for example, number, please.
>> Sorry. We're on line seven. Okay. For example, for fiscal year 2022, the audited irr of funds five and six were 18.26% and 24.16% respectively.
>> and both funds achieved an annual cash return of 5%.
>> Right.
>> Who who who wrote this,
>> Mr. Cardone? This is a document that you signed.
>> your attorneys. It says the answers on page 20 were compiled by defendants council from records and information made available to them.
>> Um, but you signed that is true and correct to the best of your knowledge, information, and belief.
>> Correct.
>> But who wrote this? Who who wrote these returns?
>> 18.6 24.16
>> 14.42.
>> Why don't I ask you the same question, Mr. Cardone?
>> I'm just a little lost in what document I'm looking at right now. It says
>> I have 1 2 3 4 5 six seven documents. I'm asking you.
>> Yeah, we can look. Why don't we look at that?
>> Where did this data come from?
>> Let's look at where the data comes from.
>> Okay.
>> Uh if we can turn to page F16.
>> Yes, ma'am.
>> Um which is basically the last page.
>> Good.
>> Okay. And it says at the top here, end of year since inception, internal rate of return 18.26. 26%.
>> Right.
>> Yeah.
>> Okay. So that
>> is 26%.
>> So that's the 18.26% that's reflected in your interrogatory response. You were asking where that number comes from, right?
>> Where's the 18.6%. In the interrogatory response on page eight, it had said, for example, for fiscal year 2022, the audited irr of funds five and six year
>> 2022, the audited irr of funds five and six were 18.26. We're where I was on
>> certain impacts from COVID may have significant negative
>> impro I'm what I'm asking Mr. Cardone, you had said on page eight of the interrogatory responses,
>> it says here,
>> yeah,
>> for example, for fiscal year 2022, the audited IRRs of funds five and six were 18.26% and 24.16% respectively. What we're looking at now is the 2022 annual statement
>> for fund 5.
>> Yeah. On page F16 at the top here, it says end of year since inception internal rate of return 18.26%.
>> Right?
>> That's what it says.
>> Okay. Agree.
>> So that's where the numbers come from in the interrogatory responses. They're from the annual statements, right?
>> Objective form, you know, foundation. Again, I I spent probably, you know, 60 plus hours, but I did not go through all the financials for the last eight years on on all all in this case, nine properties. So, but that's what it says.
>> Okay.
>> And in the interrogatory response, it says the audited IRRs Is that referring to Kaufman Rosson?
>> I'm not sure.
>> Okay.
>> We've had multiple law firms and accounting firms work here over the last 40 years.
>> So, you don't know who audited
>> too many law firms.
>> You don't know who audited the IRRs that appear
>> in the annual statement?
>> No, ma'am. I don't not at this time. And you don't know what?
>> I'm sure somebody don't know.
>> So,
>> okay. And you don't know what they did to audit the IRS.
>> Correct. If you don't know who audited the IRS,
>> check no foundations.
>> No. And I think, you know, No, I don't. And it's kind of hard to deliver an IR without an exit.
>> Without a
>> exit. You can assume an exit, which might be what they're doing, but you'd have to you'd have to uh depose them. I guess they could use an assumption exit if we sold at today's value. Keep in mind the properties get appraised every two years. Cough Kaufman Rossman would know that though if they did it and if they're using an assumption cap rate and exit price they would then have calculated an IR that looks to be exceeding what we what we suggested was our target.
>> Mr. Pon, do you know if this figure here this 18.2 26%. Is that the investor level IRR or the project level IRR or something else?
>> Object to the form of the question and foundation.
>> At this time I I don't know. I don't have my accounting hat on right now.
>> Do you know if this figure incorporates any of the fees that you'll take out, Mr. Cardone? the if it incorporates fees like the asset management fee, the eventual disposition fee,
>> is any of that factored into this since inception internal rate of return?
>> Jackson, no foundation.
>> I don't know because I mean there's no way there's a fee in there because we haven't sold the asset yet. So I haven't p been paid any fee at this point on this deal in 2022. Have I been paid fees since 23, 24, 25, and 26? Four years later, maybe. I don't know. I'm due. I'm due fees. I think our investors on this particular fund are going to make like
>> okay,
>> 60 or $70 million
>> and we might end up making 10. Let's turn to page F14 of this. So, just one page prior of the 2022 annual statement.
>> The same. We're on the same
>> same document.
>> 237.
>> Yep. It's page on the bottom 24 out of 28.
>> Okay.
>> And it says here in Do you see at the second paragraph? Are you on page F14?
>> Yes, ma'am.
>> Okay. No, I'm on page 24.
>> Okay. But it is a F14 at the bottom right here.
>> Okay. Yeah.
>> Second paragraph. It says in accordance with the operating agreement, distributions will be allocated 65% to the class A members and 35% to the class B members.
>> Right.
>> And the same distribution structure 6535 applies to fund six.
>> Right.
>> Okay. Do you know if the earlier funds funds one through three had a 65 35% split or something different?
>> Objection foundation.
>> I think one and two were 7525.
>> I'm not sure.
>> I think fund three was um maybe 6535. uh fund 47 and 48 are 50/50 by the way. They're much bigger funds too, only accredited investors. So, every fund is different
>> and then we leave it up to the investor to decide what fund they want to invest in.
>> Okay. The
>> um for each year that fund five has been in operation,
>> Yes, ma'am. Cardone Capital as the class B member has either not taken its 35% distribution or has taken a reduced distribution. Correct. This says that I took $1.9 million last year. I mean it says Cardone Capital. It says class A members total 2.2 million. That's our our investors. I'm I'm one of those by the way. I'm I'm a and and my daughters are also invested in these funds. and 1.999.817 uh uh was delivered to the class B.
>> That's what this says. Uh if you go two more sentences after that it says at the manager's discretion a reduced percentage of distributions has been paid to date to the class B interest holder the manager
>> with the intention that at a later time when the cash flow from operations increases or an exit event occurs the manager may adjust cash distributions to be allocated on a cumulative 65% 35% basis.
>> Correct. That's what it says.
>> Okay. It says the aggregate impact of this as of December 31, 2022 would be to
>> It says the aggate impact
>> of this at December 31, 2022 would be to distribute an additional 3,430,171 to the manager.
>> Correct.
>> That's what it says.
>> Okay. So for each year that fund five has been in operation, Cardone Capital as a class B member has either taken a reduced distribution or it's not taken a distribution at all. Is that right?
>> Judge misstates the document.
>> Check.
>> It misstates the document.
>> Uh you want me to answer that?
>> Yes.
>> I'm a good guy, guys. Like I don't know. I don't know what you're trying to set up here. I'm a good guy. If I want to, I don't have to send I don't have to take any of these distributions. You understand that this document does not b uh bind me to ever take a penny from any of these deals? Do you understand that Cardone Capital doesn't pay me $1? Does it pay me a dollar? I might be wrong. It might pay me $1. I have taken not a penny from any of these funds. I don't have to. I'm like, people call me Robin Hood. Take from the rich, give to the poor. We have underestimated what these returns will be. We overd deliver if I'm required to look, I've already I've already done extremely well in my life. I I have more money than I could possibly spend in my lifetime. Okay? If I could spend my next years of my life setting up funds to buy institutional quality assets allowing regular people to invest in these institutional quality assets. The these have been these have been for a hundred years only access accessible to wealthy people and institutions. And if I can do this, if this is my mission and it costs me a little bit of money, I don't have to send my money myself 35% a year.
>> Mr. Cardone, it says here that the manager, if I could just finish. No, let me ask. And I could just finish. Now, you got to let me finish because it's about this question right here. Okay. I am in a position because of what real estate does to wait long periods of time because this could take another five years or seven years. I have discretion to go longer. Somebody comes along and pays us a lot of money for this asset, all my fees could get caught up. I could make my investors will be they'll be taken care of. We'll exceed our expectations what what I projected that we would do and our targets and Cardone Capital would also make money.
>> Mr. Cardone, it says here that at the manager's discretion, a reduced percentage of distributions has been paid to date to the class B interest holder. The manager with the intention that at a later time when the cash flow from operations increases or an exit event occurs may adjust cash distributions to be allocated on a cumulative 65% 35% basis.
>> That's right.
>> Mr. Con, you are here under oath today.
>> Are you willing to testify under oath that you will not take your 35% distribution at a later date?
>> You're being serious. I don't I don't have to I don't have to say under oath whether I'm going to do that or not. You're not even asking me something that's reasonable. I don't have that obligation. Why would I give up my right? These things go up three or four or five times. I'm going to take my promote. Trust me. And my investors will want me to take my promote. If these do what I think it's going to do, I'm gonna go out and get my promote and go buy a big boat and go sit out on it for about three and four months at a time and invite you out there, Morgan. Going to go get a big suntan with me in the south of France.
>> Do we want a break for lunch now?
>> Yeah, probably.
>> Yeah. I I
>> You guys are hungry?
>> Well, on on the representation that we would break at 12:30, I told somebody I would give them a call.
>> Let's go off the record, please. We're going off the record. The time is 12:32 p.m. We're back on the record. The time is 1:35 p.m.
>> Mr. Cardone, if we can start again with exhibit 231.
>> Everyone on Zoom back.
>> Yes, ma'am. I'm there.
>> Okay. Is there the responses and objections to the fourth set of interrogatories? We're still on interrogatory number nine. And if we can go to page eight, please where we're discussing current performance.
>> Oh, beautiful. Thank you, Craig.
>> Thanks. Okay, I see that.
>> Okay,
>> if you can just read to yourself that first paragraph there where it says current performance and just let me know when you're done reading that. Oh, let me pop back in.
>> What's the login?
>> Okay, I I've read this.
>> Okay.
>> The internal rate of return for funds five and six have changed every year, right?
>> Yeah, of course they would. I mean, not the projected, the target had never changed, but because every year changes, numbers change. Of course, rents change, collections change, expenses change.
>> Because until the exit, you can't know the IRR, right?
>> Or the refi. That's why we projected the 15 based on either a refinance. Oh, we talked about a 7 to 10year hold time to either refy or exit the asset. Only one year that's reflected here in this interrogatory response was the IRR ever above 15%.
>> Right?
>> I I don't see all the years here. I doubt that's true. But again, the IR can't actually be properly projected until an exit. It's impossible.
>> Okay. But you're relying on here
>> if
>> is in these responses.
>> Yes.
>> It says the return projections for funds five and six which were entirely reasonable when made also have been validated by the actual performance of the funds since their inception. And it goes on to cite the IRRs.
>> That's right.
>> But as you're saying today, these IRRs are simply projections. They're not they can't validate the actual performance.
>> Right.
>> Yeah. I'm sorry. Can't accomplish an actual hour until you exit the asset. It'd be like having a baby, but you're still pregnant. We're still pregnant with the asset and until we exit either through a sale or a refinance event, which would be a complete return of capital to our investors, which we've achieved on over 20% of our assets. Um, and then that pushes our this is the trick wealthy people know. They don't sell their assets. They just refinance their assets, return their capital, and they have cash flow on no money invested.
>> So, Mr. Cardone, right here, just in this response, it's a simple question. It talks about fiscal year 2022, 2023, and 2024.
>> Only one of those three years has the quote audited IRRs of funds five and six been above 15%.
>> Correct.
>> I answered the question. You cannot achieve the IR until you exit. These are projected. We haven't finished our 10-year target and we will stay in this asset as long as I have to stay in this asset to achieve the target. Again, another I have time. So now, do we do we get it? I don't maybe we don't get it. Maybe I miss I've missed before,
>> Mr. These numbers that are reflected here, these are numbers as we walked through earlier that appear in your annual statements to that go out and that investors can review.
>> Yeah. As
>> right.
>> Mhm.
>> And again, none of these numbers here except for in 2022 are above 15%.
>> Right.
>> This will be at least three times that I've answered the same question.
>> It's a yes or no. Are they above 15%
>> in 2023 and 2024? It's a simple yes or no. It's written right here. Mist
>> you can't actually actualize an IR to in in a calendar year unless you accidentally real estate. So,
>> if you're attempting to make me look like I did something wrong or said something wrong, it's you can, but everybody knows you cannot. We're hitting our cash flows. We're hitting our projections. Our investors are happy. I think 50% of the people invested in this fund have already opted out of your of your your class action lawsuit. The original investor didn't even want his money back from the get-go. I'm going to move to strike the answer as nonresponsive. Can we look back at exhibit 237? This is the annual statement for the year ended 2022.
>> I don't have 237, 229, I have 233, 232. It should be in numerical order.
>> 234 236.
>> You have 237.
>> There you go.
>> Okay. And actually, I apologize.
>> What is this? What is this number right here?
>> Oh, one.
>> Okay.
>> One.
>> The responses and objections to the fourth set of interrogatories. Just before we get back to the 2022 form 1K, it says on page 8, uh, at the end of the first paragraph where it says current performance, the fair market values of the properties reflected in the funds annual reports on form 1K further support these irrations. and are based on appraisals performed by independent third parties. Um, every fund five property is appraised every two years. Is that right?
>> I'm not sure what you're looking at right now.
>> Right now I'm looking I'm not on the same thing you are
>> page eight of the interrogatory responses.
>> What page what number is that?
>> Exhibit 231 and I'm looking at line 12, page eight.
>> Okay. I was on page eight of
>> Yes, I
>> 237.
>> We're going to look at that in a second, but
>> Okay, let me get to page eight with you.
>> I'm there.
>> This is what I was just reading. Current performance.
>> Okay,
>> so that last sentence on the first paragraph, line 12, it says both funds also achieved annual cash returns of 5%. The fair market value, sorry, the last sentence is the fair market values of the properties reflected in the funds annual reports on form 1K further support these IRR calculations and are based on appraisals performed by independent third parties.
>> Right?
>> That's what it says.
>> Every fund five property is appraised every two years. Is that right?
>> I think that's right.
>> Okay. That's what you said earlier. every fund six property it is it appraised every two years
>> I think that's right
>> okay now can we look at exhibit 237 and can we go to F13 which on the bottom here it says page 23 out of 28
>> Okay.
>> It's discussing fair value measurements.
>> If you could just you can take a moment and skim through the first paragraph there.
>> Okay.
>> Mhm. This paragraph is discussing how the company determines the fair market value of the real estate properties.
>> Right?
>> Okay.
>> Is that right?
>> I agree with that.
>> Okay.
>> The fair market value of the properties, it's not based solely on the appraisals of the properties. Is that right?
>> Well, the appraisal of the property would be based on a number of conditions, like a lot of conditions.
>> Let me maybe back up here.
>> Okay.
>> Are you in determining the fair value measurement of the properties? You said you get these appraisals every two years. Do you take the number in that appraisal and you say that's the fair market value of the property and or do you do any other independent analysis to determine the fair market value of the property?
>> I can't remember what we did on this in December on December 31st of 2020, but I would expect that we use their number because it's a conservative number. My number would be much greater than this this number on this asset.
>> So you believe that in your annual statements the numbers that are reflected as the fair value measurement of the property come from the appraisal. Is that right?
>> We we we we underpromise and overd deliver.
>> Just a yes. Is it from the appraisal?
>> That's that's bou language for yes.
>> Okay. Let's talk now about topic 37 which is the debt obligations, lines of credit, mortgages or other borrowings of or any refinancing by the fund five and fund six entities or any refinancing by the fund five and fund six entities since the fund's inception.
>> Can't listen because I can't I don't know what I'm looking at. It's a
>> It's a topic that we're going to discuss from the 30B6 notice.
>> I'd like to re I'd like to see where your seat
>> it is. Exhibit 229.
>> Okay. Okay. Thank you. Page nine. Thank you.
>> I'm there.
>> Okay. So, I want to talk about this topic. Topic 37. All the properties that are held by the funds were purchased through singlepurpose entities.
>> Correct.
>> Okay.
>> And those singlepurpose entities are owned and managed by Cardone Capital and you, right?
>> Yes. True.
>> And every property within fund five and fund six has a mortgage, right?
>> Yep. We would we wouldn't we wouldn't buy an asset without debt on it.
>> Are the mortgages on the fund five and six properties nonreourse loans?
>> Yes. That's interesting. Um, all all all loans today by Fanny and Freddy are uh non-reourse loans. In fact, if I wanted to do a recourse loan and I've requested recourse, um, they won't allow me to anymore. The borrower listed on those mortgages is the singlepurpose entity that purchased the property.
>> The SP is is the entity responsible for the debt payments.
>> But you sign a guarantee on every mortgage. Is that right?
>> I am responsible for the asset. I'm responsible for attaining the debt. I'm responsible for negotiating the debt, including the origination fee, the term, whether it's an adjustable loan or a fixed loan, whether it's interest only or principal and interest, and I'm also responsible for any carveouts or irresponsibilities taken regarding the loan.
>> So, for all the mortgages, have you signed a guarantee for those mortgages? a guarantee.
>> I don't know.
>> I don't think I don't think it would be ter ter I don't think it would be I have to check into that. I don't think it would be called a guarantee.
>> What do you think it would be called?
>> Not sure.
>> Okay. A personal guarantee on the loan only becomes relevant if the borrower defaults.
>> Correct.
>> I don't No. No. Yeah.
>> Objective four.
>> In the ordinary course, the monthly mortgage payments are made from the fund's operating income, not from you personally.
>> Correct.
>> That's not true.
>> Where do the monthly mortgage payments come from?
>> Comes from the rental property,
>> right? I
>> We collect the rents. The rents pay the debt. We collect the rents. The rents pay the utility bills. We collect the rents. We pay the property taxes. We collect the rents. Whatever's left over gets distributed to our investors.
>> So the distinction you're making there, I asked in the ordinary course, the monthly mortgage payments are made from the funds operating income. Are you saying it comes out of the properties before it goes into the funds? I'm just trying to understand the distinction there. No money comes to me like you're suggesting money comes to me and I go write a mortgage check. I I don't own the asset. Okay. The SP SPE owns the asset. A limited liability corporation owns the asset. The members own interest in the L in the SP. The SB is now responsible for the distribution of fees to all entities involved. Cardone Capital is an entity involved. RPM in the case of the management company or any of other two or three management companies that we use would be in that particular region would be distributed money every month that that distribution could be two and a half to three and a half%. In addition that could be a Fanny loan, a new ven loan, a Freddy Mack loan.
>> Let's look at the responses again to the fourth set of interrogatories. So, this is exhibit uh 231. We're just going to keep coming back to this today. Uh, and if we can look at page 14.
>> Okay.
>> Interrogatory number 17.
>> I'm there.
>> Okay. And it says, are you are you there?
>> 17 or 14?
>> 17. On page 14.
>> I'm looking at it.
>> All right. Um, line five. For each fund five and fund six property, identify A the mortgage amount, B the principal balance as of the date of these interrogatories, C the rate of interest applicable to the mortgage, and D the period of time if any during which the terms of the mortgage required payment only of interest. And do you see that?
>> I do.
>> Okay. And in response to that, defendants including Cardone Capital directed plaintiff to numerous documents which describe the amounts and terms associated with the loans on the subject properties. Do you see that?
>> Okay.
>> And the first document there is Cardone cap 00547582.
>> Okay. So let's take a look at that document together. This will be I think are we on 237
>> 238
>> 238.
>> Yes.
>> Thank you. This is a print out of a spreadsheet. So, it's not totally perfect in the way that it printed, but essentially got the first page here. Then this is actually a continuation if you turn it of
>> Did did we provide this for this? Yes, this is a document that you've provided and it's a document
>> I hope I hope he didn't give it to you like this.
>> You uh cited in interrogatory number 17.
>> We didn't we didn't give it to him like this, did we?
>> You gave it to it in a spreadsheet. If it's easier, I can share the spreadsheet, but I figure it's easier to have the print out.
>> I can work I can work with what you have right here, Colleen. Thank you.
>> Do you recognize this document? I don't recognize it on like this on two pages, but but I if this we provide this to you. This is our layout of all our properties.
>> Mhm.
>> Um I I tend not to do things on two different pages, but
>> this is an Excel spreadsheet. That's just when it printed, it printed on two pages,
>> right? Okay. Does this look like something that Cardone Capital keeps in the ordinary course of its business?
>> These are all properties that that I am responsible for.
>> Okay. Does the information reflected in this document appear to be accurate and this is it says as of February 29th, 2020. So I understand
>> the numbers may be different today.
>> Yeah.
>> Okay.
>> And I don't look at the 72-month numbers. I don't look six years back. I I did look at all our numbers last night though for 2026.
>> Okay. And we'll get into that. So on the left side here, it says the property name and there's a column.
>> Yes, ma'am.
>> If you turn it over to the second page, there's a column that says interest only.
>> Okay. Um, and unfortunately the way this printed it's a little difficult to see. So I could pull it up, but
>> the this column reflects the amount of time that the loans are interest payment only.
>> Right?
>> I see that.
>> Okay. 10X living at Delray, Sawrass, 10X living at Breakfast Point, and Vantage at PCB were all fiveyear intereston mortgages, right?
>> Uh, I believe you. Uh, only reason I can't see it because of the way you printed them on two pages,
>> whether that's true or not. But from memory,
>> let me
>> I'm just going to trust you on it. Okay, how about that?
>> Why don't I share it so at least you have it up on the screen and you can see what this looks like.
>> Okay, so give me one second.
>> I know 10X Living at Del Rey
>> Mhm. is a uh was a 10-year loan because I I looked at it last night and the loan's due in 28
>> and we may be pulling that loan forward to return $30 million to the investors.
>> Look at these interest rates, man. 369, 318, 325, 380. [ __ ]
>> None of my investors could achieve those kind of rates even at that time.
>> Sends me at 2. We're going off the record. The time is 2