Investing in Real Estate Syndications

We've all heard it… "past performance does not guarantee future returns."

And this is a very true statement, especially for stock pickers / mutual fund managers.

Past performance can't predict future returns - But what does this tell us?

Regarding real estate investing, we can see experience in Assets Under Management or the number of full-cycle transactions (acquisition to exit) showcasing the outcome in ROI to investors.

As real estate investors we may be attracted to a specific market or region like the Sunbelt, based on job growth and employment. Or maybe its specifics related to the asset, like its amenities, the ability to renovate vintage or classic units, its proximity to town, and how it compares to others in the market… a diamond in the rough.

But the real reason to invest in someone else is Operational Expertise and the opportunity to leverage that expertise as an investor.

As investors, we can see the Private Placement Memorandum or PPM. It’s the guiding document that a Syndication runs on. The PPM outlines the business plan, the project timelines, target returns to investors, etc. The approach generally includes fixing the expenses (cash going out) and improving the rents (cash coming in), driving up the Net Operating Income or asset value creating equity. As the NOI increases, so does the cash flow to investors, and ultimately the disposition of the asset provides potential for significant upside.

 In evaluating an operator's potential to acquire an asset and generate equity, their operational expertise is crucial. How quickly will the team stabilize the asset and generate revenue upon acquisition? Will renovations bring in the target rents? And how about the equity event (sale of the asset), can they sell and achieve the metrics outlined in the PPM? Executing the plan is key in today's climate and essential for success. It may be the difference between getting distributions or dealing with a capital call. Their track record points to their ability to perform, but remember every project has its issue and challenges, it’s how the operator deals with them that matters.

Every decision regarding doing something ourselves versus paying someone to do that task hinges on time and expertise.

Operational expertise is why we invest, leveraging that expertise, joining our capital with their capabilities to provide an output.