Problems with real estate funds today

[Badri Malynur]

I wanted to  get people's experience with real estate funds. As  a sponsor/syndicator/real estate entrepreneur  have you ever thought of creating a fund?  If so why and if not why not?

Here are the problems I see with funds today and would welcome your comments/feedback.

Funds have always provided a “one size fits all” diversification model for investors. With no ability to select the investments inside the fund, investors have always felt handcuffed investing in blind pools with no ability to create portfolios that meet their needs.

Similarly, the traditional fund model also limits sponsor flexibility. Sponsors are limited to marketing & capital raising at a fund level instead of deal level. Sponsors cannot customize the fees based on investors and there is no ability to fractionalize the individual investments.

I believe the future of the industry is customizable funds. 

[Chris Levarek]

@Badri Malynur Are you speaking of funds by the bigger crowdfunding agences, Fundrise, Realty Mogul, etc? A fund can be structured any which way in my experience. We build funds for our syndication efforts and each time the model changes depending on our projects. 

In syndication, funds most definitely don't have a one size fits all. Typically, a group can have 3-4 different class of shares, all with different return structure, tax benefits, etc. 

Additionally, I would argue the funds provide sponsor flexibility. We actually market based on an opportunity and again associate that opportunity with a class share. For both the sponsor and the investor, not having to have additional paperwork per opportunity makes it more flexible. On the front end, an investor portal clearly showcases how each property is doing and overall performance.