All Forum Posts by: Chad Childress

Many of the deals I'm seeing these days and many of the deals we are underwriting ourselves are showing very little cash flow in years 1 and 2, and while those deals still might be offering a 6% pref or a 7% pref, if you dig into the actual cash flow projections what you see are early years not actually hitting the pref target (but catching up in later years).

If you're looking for consistent returns from day one and are willing to give up a little bit on the back end, I would take a look at preferred equity funds or debt funds. You can typically hit 6% or 7% consistent cash flow in these vehicles, but you'll find that you're total return is capped somewhere at around 12%.

In my mind, it's a reasonable trade-off for those who are looking for consistent returns and lower risk.

Thanks. I'll take a look. I have about a 15 year horizon to retirement so I'm trying to take a balanced approach to driving growth now but also stacking deals to build up a strong cash flow position in the future.

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Quote from @Brian Burke:

@Chad Childress, I agree with @Kyle Kovats…investors won’t place Capital if there isn’t a return, so the only option for new deals to get done is lower acquisition prices. I just discussed this at length on the BiggerPockets “On The Market” podcast. If you are thinking about making an investment in syndications, you might want to give that a listen.

Thanks Brian, I listened to that podcast episode, very informative. with all the price discovery happening it seems to me that individual deals might be a safer bet than funds right now, especially because I feel like liquidity is going to be a problem in the lending markets and banks likely will not be so forgiving. Is this a good assumption in your opinion?

P.S. I just bought your book and am excited to dive in.

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Quote from @Kyle Kovats:

@Chad Childress good question. The adjustment won’t necessarily be to pref but rather acquisition price. There is definitely a little price discovery going on right now and a delta between seller/buyer expectations. It’ll be interesting to see how fast that gap closes when deals that are forced to sell due to maturity or rate cap expiration without sufficient reserves come to market.

7pref 70LP/30GP is fairly standard and could that change to 6 pref 70LP/30GP? Sure. But as a GP we underwrite to our investor expectations and if that is a 7% pref, it will be reflected in our offer to the seller.

Thanks Kyle!

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New LP syndication investor here dipping my toes in and looking to do my first deal this spring. With compression between CAP rates and debt service due to interest rates rising to a much more normalized historical level, will that eat up most of the cash flow on syndication deals?

I was planning on using a balanced approach from an investment perspective between cash flow and EM to generate passive income for FIRE.

Now I’m worried the cash flow component will be virtually gone (1-2%?), and that also means lower total IRRs and EMs.

Are GPS broadly adjusting for increase financing costs? How is this going to affect the mix in the capital stack? Are the high historical returns now just pipe dreams?

Would I be better of just sticking with my brokerage account if the returns or more on parity with the stock market but much less liquidity?

Thank you

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All Forum Posts by: Chad Childress

Chad Childress has started 1 posts and replied 4 times.

Post: Will interest rate increase eliminate preferred returns?

Post: Will interest rate increase eliminate preferred returns?

Post: Will interest rate increase eliminate preferred returns?

Post: Will interest rate increase eliminate preferred returns?