All Forum Posts by: Paul Azad

Everywhere I have traveled this year, New York, Paris etc Hotels are much cheaper than VRBO/AIRBnB and the experience and safety, location, quality of beds, bathroom fixtures are better at Hotels, but 5-10 years ago it was the opposite. I suppose the inflation adjusted 88% home price appreciation since 2000 has forced the nightly rates up to point now where short term rentals are just an all around crappy experience. Well, was nice while it lasted. 

Hi Brynn, there are 1031 exchange intermediary companies that can source deals for you but likely charge a commission and may not be aligned with your interest in getting best quality investment

you can join the 506investorgroup.com, which has hundreds of active CRE-passive investors who are always posting new deals, and reviewing them and have long threads on each investment going back years tracking how they have done.

you can google syndicators around the country and start contacting them and looking at their deals now and get a feel for which ones are good operators, so you will have a dozen or so lined up for when you need to invest

you can start networking locally with RIAs or lenders and find out who are good/active CRE syndicators

good luck :)

 The link above has most of those details, The fixed loan is from an insurance company, is interest only years 1/2/3, then no defeasance penalties up to year 10, they plan to sell/re-fi in 5-7yrs. There are 2 buildings, the first in Fort Wayne, near airport houses 1 tenant ZF, a german auto-parts supplier, been in the space x 22 yrs and only has 2-3 years left on lease but space is custom for them and they have long contracts from automakers for parts for legislatively mandated discontinued car parts, when car models get shut down, the manufacturers have to continue to supply parts for 10-15 years by law, and ZF gets many of these contracts, also all work force very established there so company less likely to move, but even if they do, Heritage could carve up the 1, 100k space into 4 smaller spaces and then get 50% more rent. (from $4 to $6 a sq/ft) The second building in north of Fort Wayne by 20-30 miles in Garret Indiana, with 100k and with four smaller tenants, including Vanderbilt Pontoon boat company, a bakery distributor, a home Leaf gutter supply place etc. 

Heritage owns 1.1 million square feet of industrial in Indiana already so this 200k adds to their footprint, They have 10 million sq ft in office/multi-family and industrial in 20 states with >2 billion AUM. i clipped some of the financials and debt info below

and since you are the DSCR Master,

and

Carlos, I know that initial and rising DSCR is making you a little moist :)

Hi Ken, coming from a drunk sloth level passive LP perspective, you have a fair approach, however the projected IRR is lower than most current offers out there so may be difficult to market to cursory investors, but your 80/20 is quite reasonable compared to most others. Check out Neal Bawa's latest offering by his GroCapitus group, BTR 92 townhomes in Idaho Falls. 18%IRR, 75/25 split, then 50/50split above 19%IRR or as docs say >25% AAR, he has 3 share classes, 6/7/8% preferred returns for higher investments
02. Equinox on Lincoln V27 Investment Summary.pdf - Google Drive

Your suggested fees are on the lower side of what's out there, but also lower IRR projected. I don't pay much attention to IRR alone, as GP can make up any number there he wants by sliding to more aggressive cap rate compression projections at exit, one can move IRR from 10-20% easily. I look at Equity Multiple and duration, local market, macro-environment for asset class, supply/demand, GP experience/longevity, and about 50 other things.

I posted a link to an interesting industrial syndication offer last night on the syndication forum, also 80/20 after 8%, then a bump to 70/30 above 14%IRR , check that out too, obviously different asset class/and existing, but their deck can give you an idea on what the fund raising environment is like too

NE Indy Industrial Portfolio (heritagegroupcapital.com)

good luck :)

Thankyou Brian, good point. I suppose any sponsor/GP could sell property early if they needed capital back as they as GP have full control. My guess would be that as this GP is doing 1031 as a TIC into the deal he would be a little less likely to want a sale, which is a taxable capital event, and would like to keep his money invested and sheltered from taxation as long as possible which tends to fit with my investing style of long term/preferably forever investing.

       I frustratingly see so many deal offers, particularly in Multi-Family space, where GP/sponsor is putting nothing or next to nothing into the equity portion and is collecting 2-3% acquisition fee/ 0.5-1% loan origination fee/ 1.5% yearly asset management fee/ 1-2% disposition fee and then 50/50 splits to 60/40 splits over fairly modest hurdle rates of like 14-15%, and it seems this latter structure incentivizes GP to take more risks particularly with debt options. It seems rather difficult to find GP - LP alignment today. :(

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.