Investors sue Portland developer over fund loans

A Texas-based investment manager and an individual investor have filed a $5 million lawsuit against Portland real estate developer Paul Brenneke and three of his companies.

The complaint, filed Oct. 2 in Multnomah County Circuit Court, alleges that the Sortis Income Fund breached contracts and misled investors about the nature of its assets.

The plaintiffs argue that Brenneke and his team diverted money from the fund to finance loans for businesses they controlled, including Rudy’s Barbershops and Sustainable Restaurant Group.

Sustainable Restaurant Group is the parent company of local brands such as Bamboo Sushi, Sizzle Pie, and Ava Gene’s.

The lawsuit states that the fund was marketed as a conservative, unleveraged real estate vehicle. Instead, the complaint says, managers used it as a source of capital for risky, unsecured loans to their own affiliates.

According to the filing, the fund raised approximately $180 million from investors starting in 2016. The loans to Rudy’s and Sustainable Restaurant Group were not listed on the fourth quarter 2020 performance report under specific borrower names.

Subsequent quarterly reports identified these loans only by the generic location of Portland, Oregon. The plaintiffs contend this disguised the true nature of the investments, which were not secured by real estate or based on independent valuations.

The complaint alleges that the fund stopped making redemption payments and profit distributions to investors beginning in the first quarter of 2024. Despite halting payments to investors, the fund continued paying managers a 15% performance fee in cash.

By November 2024, the fund disclosed that the loan to Sustainable Restaurant Group had grown to over $10.5 million and the loan to Rudy’s had reached $6.3 million. The most recent quarterly report shows both loans have since increased by more than $2 million each, totaling more than $21 million.

Brenneke, 62, was served with the lawsuit on Oct. 22. He is the founding partner of Sortis Capital and has controlled the Sortis entities directly or indirectly.

Paul Kisslinger, Brenneke’s attorney, stated that the fund viewed the lawsuit as an attempt by a small stakeholder to interfere with business operations.

Kisslinger noted that Stillwater Portfolio held less than 2% of the fund. He said the allegations repeat claims from a former manager whose testimony was previously found contradictory by a court in a settled 2024 dispute.