Letter to Axiom Investors

In April 2008, NuWire Investor published an article on Axiom Realty Capital and the concrns and problems that its investors have faced. The following is an e-mail received …

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In April 2008, NuWire Investor published an article on Axiom Realty Capital and the concrns and problems that its investors have faced. The following is an e-mail received by Axiom investors in March 2008 which NuWire obtained during its investigation. It has not been altered or edited by NuWire:

March 7, 2008
 
            Re: Assignment of Axiom Profits to Axiom Buyers
 
Dear Axiom Buyer:
 
This letter is directed to any Axiom buyers who are disappointed with the outcome of their real estate purchases with Axiom.
 
Status of Axiom
At this time, Axiom has decided to limit its operations to the following:
 
1) working through current projects with current buyers,
2) collecting overdue fees and
3) seeking out new projects that may be suitable for buyers with an existing origination fee credit.
 
We are not currently offering new projects to new buyers.
 
In terms of ongoing communications regarding the status of your project, please note that you are always able and encouraged to contact the developer directly, as you purchased the unit directly from him. In several instances we have arranged for localized legal representation to advance the buyers interests as a group with the developer. Accordingly, you are invited to contact the particular attorney as needed. Finally, Mr. Nilsson will communicate with you on an ongoing basis. Because of his limited time, he will affirmatively contact you when there is something to update you on and will likely do so via email [E-mail Redacted]. Where projects are not moving forward, you will receive a status report on your particular project including a developer contact, an escrow agent contact, a legal contact and other information that will assist you in reclaiming your escrow deposits.
 
Offer to Dissatisfied Buyers
We are assigning Axiom’s Joint Venture profits to be earned on the resale of all current projects plus any damages and/or awards received from developers to a new trust which be established for the benefit of unsatisfied buyers who paid an origination fee to Axiom. This is in addition to crediting your origination fee to a future Axiom project. In addition, we have dramatically pared down our costs and overhead in order to preserve the amount payable to the trust.
 
Background on Axiom’s Fees
The ‘origination fee’ Axiom charged was used to bridge the time delay between Axiom’s current overhead (rent, personnel, marketing, general costs of doing business, etc.) and the future collection of our Joint Venture Fee / Profit on successful projects. Because you paid the fee, we were certain that you were clear on its use (for instance, you required that your deposits with developers remain in escrow and not be used by the developer). Moreover, when a clause was added in some agreements specifying that your fee would remain as an ‘in house credit’ in the event that a developer’s project did not move forward, we were certain that our agreement with you was clear.
 
Accordingly, it came as a surprise to us that some of you who paid an origination fee later requested a refund when a developer that we had no control over failed to abide by his agreement with your or with us. 
 
Our Business Model
When Axiom was founded, the business model seemed simple enough. Developers contractually agree to sell units at below-market terms on developments that they were building. Buyers would purchase at these favorable terms, then resell their units for a profit and likely reinvest in another project… We did not anticipate the difficulties we have experienced in many cases in getting developers to update us on projects and to comply with their contractual obligations, or the need for extensive customer service / work outs.
 
Axiom entered all negotiations with developers in good faith. In each situation, we attempted to negotiate terms that compared very favorably to buyers’ alternative of purchasing a unit directly from the developer. We also monitored the state of the industry and tried to improve our deal terms and contracts as the market tightened and to remain competitive with other companies in our industry. 
 
State of the Industry
As you know, however, the housing and credit crashes have reached historic proportions. This has led to most commercial lenders discontinuing lending activity. In turn, many developers have suspended their projects, with many of them no longer willing or able to abide by the agreements that they entered into with you and/or with Axiom.
 
Despite the state of the industry, and despite problems with some developers, we nevertheless believe that our bulk purchasing model represents a unique and sophisticated way of purchasing real estate. Many of Axiom’s JV partners include some of the most experienced and brightest minds in the legal and real estate industry who also recognized the value of our business model. Unfortunately, market forces cause problems that none of us expected.
 
Future Profits and Damage Awards to be Transferred to Trust
While many projects have had problems, developers of several other projects continue to move forward. Currently developers on four significant projects have told us that they remain on track. In addition, our attorneys have also indicated that we have actionable claims against several other developers, including at least two which we believe are ‘collectible’. In total, we anticipate that Axiom stands to collect between $1 million and $3 million over the next two or three years from the various projects. Of course the actual amount may be less; and it may be more.
 
The aforementioned trust will be established by April 2008.  Mr. Brett Nilsson is being asked to help manage the trust-related affairs on a day to day basis. Arrangements have been made or are being made with localized attorneys on a project-by-project basis to assist in the administration or workout of issues in each development. When the trust is established, any monies received by the trust will be paid first toward administrative and any other professional fees incurred for trust-related issues, and then to you, the Axiom buyer, in a pro rata amount based on the amount of origination fees that you initially paid.
 
Roaring River Project
For those interested in using your origination fee credit for another Axiom project, we highly recommend the Roaring River development, for which we will allow you to apply your origination fee up to 5% of the land value. These lots are currently selling very well and the development is 11 months ahead of schedule. Our negotiated prices are 18% below the retail value at the time they were negotiated. Since that time, the developer has already initiated two price increases of approximately 6% each. Your wholesale price is still the originally negotiated price. Approximately one half of the lots originally contracted for by Axiom have been acquired at this time. Please email [E-mail Redacted] if you are interested in this option.
 
Buyers Opting Out
If you are not interested in participating as a beneficiary in this trust, please contact Mr. Nilsson [E-mail Redacted] and let him know within the next two weeks. Otherwise, all Axiom buyers who have paid an origination fee will be included in this group on a pro rata basis based on the amount of their origination fee. By April we will then forward you a copy of the assignment along with your total percentage of beneficial ownership into the trust.
 
Thank you. We appreciate your patience.
 
Sincerely,
 
AXIOM REALTY CAPITAL, LLC

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