All Forum Posts by: Paul Azad

Came across this Deal from heritagegroupcapital.com, They are buying 2, 100k industrial fully tenanted/leased buildings in North East Indiana, near Fort Wayne. Sponsor is Jeff Greenberg, owner of Heritage Group Capital, 3rd generation CRE, at first did multi-family in New Jersey, now diversified. He is putting in 15% of equity as his family office as a TIC, tenant in common to the deal via a 1031 exchange, so that aligns him with LPs better than 99% of deals out there, also GP fees are fair to reasonable, 8% pref, then 80/20 and then for >14% IRR, they split 70/30, so better than 95% of last 100 deals I have seen. (I analyze syndication deals all the time, wife says I'm likely on some damn Spectrum :) I asked the first question on this week's webinar. They seem smart and straightforward. Min buy in is 50k, pays quarterly distribution. timeline 5-7 yrs, getting very good loan from insurance co source at 6.75% or so with interest only on yrs 1-3 then no defeasance penalties thereafter if they re-fi or sell. It is a very small investment, only 4.5 sticks, so should fill up fast. Industrial is a good place to be next 10 yrs IMO. watch recent webinar. What are your thoughts?

[NE Indy Industrial Portfolio (heritagegroupcapital.com)](https://heritagegroupcapital.com/ne-indy-industrial-portfolio/)

 Not sure this will be a typical down cycle, might be much worse, given extreme leverage at play both publicly and privately. Most new MF construction ever entering market now and next 24 months, and Macro, no reason for FED to cut rates as economy growing and lowest unemployment ever and most importantly FED screwed up with a slow/weak response to inflation in 2021/2022. This great/brief article by Research Affiliates

Res Affil Nov 2022 -history-lessons-how-transitory-is-inflation (1).pdf

shows that historically will take about 9-10 yrs on average for the US inflation to drop to below 3%, and the 20%/80% range of certainties puts that drop at between 6 yrs and 19 yrs. So if correct then we are looking at higher 10 Yr yields/cap rates for a very long time, like most of last century. Gone are the 42 yrs of falling interest rates where any Chimp with traumatic brain injury could make great returns in Stocks/Bond/Real Estate or any risk on Asset. Time for much more or "any" Due Diligence as Gravity ie the 10yr Yield will be much less forgiving. 

 Dear Geri, Very, very sorry to hear about this investment gone bad. It looks like "Good Egg" is simply an Entity that collates funds, and then invests those funds on your behalf with the actual sponsors/general partners that actually purchase the properties, get the loans, manage the properties and distribute the funds. Effectively good egg is simply a P.O. box that takes a Commission out of your hard earned/saved money, in return, for purportedly providing due diligence to vet the potential projects and sponsors, on your behalf. Clearly, they failed in their primary responsibility to you as their layer of due diligence was a mere gossamer like patina. Real estate syndication investing is still quite valuable as it can offer higher Returns than investing in public REITs but not as high returns as direct ownership and management of real estate by some experienced people, but with the benefit of being far more passive, than direct ownership/management. But I would strongly advise, never letting somebody else do your due diligence on an investment for you. 

First of all, as seen here with Good Egg, they have no alignment of interest with you. Their interest, like a real estate agent, is simply to churn incoming flows of money at a high rate in order to get their Commission and their cut. Which means they are probably advertising new Deals all the time even though their prior offers are collapsing.  I doubt they've offered to make you whole on your investment having failed at their primary/only job of due diligence. In future, please try to only invest directly with general partner/sponsors, not through any incompetent "intermediary".  There is absolutely no need to have this extraneous and superfluous layer in the form of "Good Egg" and other companies that simply collate funds, take a fat commission and then route the money to the actual GP/Syndicator. It is not very difficult or complicated to evaluate commercial real estate, there are plenty of good books available that can teach you how, textbooks, online courses, community college classes, even excellent youtube videos etc, and it is actually quite enjoyable in the process to learn.

If this is not something you're interested in delving into and learning to a high degree, then investing in publicly traded REITs would be another good option for you, which have historically returned about 13.5 per cent Per year over the past 50 years (1977-present), beating the US stock market by two per cent and even beating private real estate investing by 4 per cent (that's compared with the average real estate investor, not the experts here at Bigger Pockets). There is lots of information on how to analyze publicly traded REITs as well. They give the benefit of instant liquidity and being able to sell them when you need the cash. And you can also buy them when they're beaten down and underpriced due to market overreactions like currently, due to rapid rise in US 10yr rate.

I've read and watched multiple Good Egg offerings and they are typical of many feeder funds and to be fair like many primary GP/syndicators as well for both taking on unnecessary risks and also charging confiscatory fees, as #1 they have no skin in the game and #2 they get a big cut up front whether project fails or not, find GPs that are investing >10-15% of their own cash into every deal.

good luck and sorry this happened

I read somewhere , Wealth is made by concentrating risk and preserved by diversifying it. 

Many experienced GPs and investors did see in late 2020 and throughout 2021 that massive inflation was on the way, which then began in mid 2021 and ramped up to 9% by mid 2022. All from the 27% increase in global US Dollar M2 money supply in 2020, the largest ever in US history. So many GP's did avoid variable rate debt and short term maturity loans requiring RE-FIs at predictably much higher rates. But there are many GPs that would buy at any inflated price as they had no skin in the game and even fewer neurons under the scalp :)

The US has now shrunk the M2 money supply by 4% in last 18 months, which has brought inflation rate down, This decrease in M2 has only happened 4 x in US history and every time caused a recession. Let's hope this time is different. 

consider the opportunity cost of doing this

#1) sell house for cash or to a buyer with their own financing from a bank, etc and you get 315K at time zero, you invest that at historic SP500 8.4% return over last 220 yrs and it grows to $3,541,514.46

#2) do owner financing and you get 100k up front that invested at 8.4% grows to $1,250,000, plus you get your payments at $1400 x 360 months or $502k, invested grows to $3,265,000 total including the 1.25 mil above

so you come out 300k better not doing it and you don't have to service the loan and all the other risks

remember banks don't even carry mortgage notes after origination, they dump them onto the US taxpayer via illegal-unconstitutional havens like Fannie/Freddie/HUD, and for last 15 yrs the FED has bought every MBS in the country, which frees up the Banks capital to do it again and make the real money on churning the points and fees

plus will next 30 yrs have higher inflation than last 30 yrs? probably, so your money locked up at 6.75% yield while if we get higher inflation causes mortgage rates to rise/cap rates to rise and stocks to rise even faster than RE. 

I would hire a RE attorney to draft and send the letter to the resident to vacate in 30 days, no reason given, and if any questions they should be sent to your attorney only. I would not converse with tenant in any format, as things could end up in court, if he declines to leave and has to be evicted etc. 

also don't confront in person, you said he is MMA fighter, good rules to live by include : Never get involved in a land war in Asia , and never anger a man with Cauliflower ears.

OP, for right now, who knows?

argument for stocks, corporate earnings rose 11.39% this quarter year/year, so puts forward PE on sp500 at 19.9, not far above historical avg of 18.2 PE, and the earnings of companies are growing much faster(driving PE lower) than the historical price appreciation of real estate, which per every long term study has it pegged at about the inflation rate (Dutch economist Piet Eichholtz built a price index of houses on the Herengracht {most expensive canal, homes} in Amsterdam, with a constant quality from 1628 until 1973, which has been extended to present, 400yrs). Also SP500 up 8X since at 666 on 3/6/09 until now, in just 15 years, with no leverage. Obviously one can use leverage in Equities as well, through 2X, 3X, 4X ETFs on sp500 or QQQs, also via margin but at only 0.5X, but can get easy 100X on call options and potentially infinite leverage on cheap short dated expiry options, So investing today one could get great returns in stock market?

argument for Real Estate, with 5 to 1 or even greater leverage, can be great investment clearly. For me the tax benefits are huge as well. My syndicated CRE investments have done 23% avg annual returns since mid-90s, many rolled over and over by 1031, giving effective tax yield near 37%/year if I were to ever sell, which I hope I never shall, just pass to kids with basis step up on first 13.6 Meg. However, Real Estate is highly sensitive to borrowing costs for all that lovely leverage. With the 10yr rising from 0.31% in 3/2020 to 4.55% now, and if one believes in the data from Soviet mathematician/economist Nicholai Kondratiev, the interest rates along with GDP, follow long 50-60 year cycles of Leverage Up/De-Leverage, or expansion-contractions. We just got off a 40 year Leverage UP from 1981 until 2020, which followed a De-Leverage from 1942-1981, this cycle maps out pretty perfectly going back to late 1770s in US, meaning we may be in year 4 of 30-40 years of rates rising and Cap Rates rising, and pressure on real estate appreciation?

So OP, Who Knows? but just keep investing in something because Inflation is Certain :(

BOFA has 3.18 trillion Assets, most earning prime +, so north of 8%, but the bare minimum they would earn would be 5.33% with any cash deposits parked at the FED reverse repo facility, which equates to about $470,816,666 per day in interest, So delaying a digital payment for a week is like 3.5 Billion dollars across its portfolio

And I love that despite tbills going from near zero to 5.4% over last 2 yrs, BOFA/CHASE still paying its depositors the Princely sum of 0.01% on savings accounts. I'm gonna invest that and watch it grow. :)

yes agreed, definitely not the same thing, just using the equity REIT index as a proxy for american real estate in general. For the passive investors more comfortable with syndications/REITs/CLOs/MREITs/debt funds etc, not wanting active private real estate was thinking more about relative value, Do you think there may be value in certain indoor mall/central business office that has been beaten down so much? especially for someone with 5-10yr horizon? Or are those asset classes really permanently damaged?