How wealthy families invest in real estate?

In life, two families join hands to marry their children. In real estate, two families join hands to invest their money.

When it comes to real estate, the wealthy investors know that there is a lot of money to be made in real estate and that the risk is a hugely reduced if they join hands or even join an up and running successful syndication.

High net worth investors look for syndications that specialize in a particular segment of the real estate market. Some look for hotels, some prefer retail and some would rather just set up their own partnerships to buy directly from the banks with tens of millions of dollars in investment funds and get the best possible prices on foreclosed properties.

The problem they encounter quite often is the fact that they need an experienced and ethical management team to run their portfolio.

Despite having ample cash, these wealthy families are looking for partnerships or syndications in order to lessen their exposure to risk: If real-estate values were to drop further, for instance, losses would be spread out over at least two parties in a partnership, or more investors in a particular syndication.

Most wealthy investors today are scared of the stock market as well as the oil and gas speculations and so on. They would rather invest in tangible assets like real estate even if the cash flow is very low because it is a secure way to preserve their wealth.

A syndicator will do well if he/she pursues the high net worth families and show them a good track record of a syndication that specializes in a particular segment in commercial or residential real estate.

It is however important to note that more and more of these wealthy families are joining hands and forming their own investment partnerships to buy directly from the banks distressed assets at a huge discount and they are actively working with third parties to manage their investments.

When two wealthy individuals or families team up to buy property, both parties have more decision-making power than they would if they pursued real-estate transactions as a limited partner with hedge funds and private-equity funds or via real estate funds. This along with a more purchasing power in cities where large real-estate acquisitions can cost hundreds of millions of dollars have given these wealthy families a huge advantage.

If you as a syndicator wish to get some of these funds deployed in your private offering, then you must focus on the prime housing markets, such as New York, Los Angeles, San Francisco and if internationally then London, Paris and Singapore, which have been largely immune to economic downturns and political turmoil.

If you are courting wealthy individuals for your own syndication and are faced with their indecision whether to go with you or form a partnership with another wealthy family to invest directly, it would be wise to ask them to do their own due diligence to decide. Here are some points to consider:

-What is the other partner’s track record versus your syndication’s track record?

-Present to them a list of your property holdings and ask them to have their potential partner present such a list to compare.

-Compare the cash flow of your portfolio versus other potential investments

-Make sure you understand their interest: if they want multi-family or retail and your focus is on storage facility then be upfront and either explain the advantages of your type of property or recommend another syndication to them

-Have them find out the difference between control and safety factors. It is a lot less risky being in a syndication instead of a partnership because there is less to do and there are more investors hence the risk is spread out. Also you may offer more liquidity, because you may have more properties in your portfolio. In a partnership quite often no decisions can be made unless both partners agree.

The wealthy is focused on real estate opportunities now more than any time in the past. While cash flow may not be present in many commercial real estate transactions, most investors realize that it is safer to wait with a real property than it is to speculate in the stock market or other aggressive ventures. These wealthy families need qualified, experienced syndicators to deploy their capital safely and profitably. You could be the one…

Wishing you much success in your syndication business,

Cherif Medawar