@Justin F.
@Daniel Reyes
Justin,
You would be surprised to find how many Tier 1 and Tier 2 investors lack the necessary skills to produce an adequate analysis. It is even more surprising to find the almost amateur skill levels of embedded analysts. The exception to this are high end Tier 1 private equity firms and REITs, as they are the only ones who can afford to pay the post grad level quantitative financial analysts that possess the skills to do the calculations and projections that are necessary to ensure an accurate analysis. Sure, anyone can do a back of the napkin analysis on a potential investment, the so-called "good enough analysis" and for the smaller investors that may be sufficient. However, having been in this game on both ends of the spectrum I have found that most smaller investors ($1M-$5M) have no real discernible strategy. They may be able to tell you what IRR or CoC they are hoping for, but outside of traditional value add strategies they are simply hoping for the best. You would be surprised how many larger investors are rowing the same boat.
The difference between a successful investor and one that is mediocre isn't luck, it's strategy. Like any good chess player, you should consistently be 10-15 moves ahead at all times. As it stands, I have yet to see but a handful of investors who posses the strategic forethought to ensure a solid return in any market; anyone can make money in a bull market. How many investors can tell you how much their property valuation will deviate based off of the rate of the T note? Moreover, how the macroeconomic environment, the lifetime of the property and the degree of rotation of the interest curve are directly correlated to the overall interest rate sensitivity of an asset? Of course this may seem nominal especially when dealing with smaller investors, but lets be honest, those seemingly small deviations have an exponential impact on the overall asset performance. Think of it like navigating a ship, you don't just take your bearing at cast off, in order to successfully reach your destination you have to continually adjust your heading.
Ask any smaller investor 3 years into a project that isn't performing as expected why and you're likely to get a blank stare. If they can tell you then its unlikely then can tell you how to fix it. Asset performance is like steering a large ship, it happens in miles not meters; it takes time for any corrections to take affect. The question is how long can a smaller investor stay in the red before the corrections produce any results? Will those corrections work or will the asset still be performing in the red? How much money can you throw at it before the bank takes possession and your investors man the lifeboats?
I think for the most part you see where I am going with this. A good analysis can tell you "if by year 2 we are not here then this needs to happen before that happens so by the time we get to year 6 we can be here and not there, because if by year 4 we are there instead of here we can do this in order to be there by year 8."
