All Forum Posts by: Pretty Khare

I feel bad for the LOs that lost money in this cycle where we're counting on the continued cash flows for living expenses. Hopefully everything works out and they can get their distributions at the exit.

This seems like a prime buying environment though over the next few years as these loans reach maturity.

The reason those investor accounts are out dated because many operators get more institutional... when they go over 2-4B in AUM... higher splits and fees means less ROI for LPs... the trade off is reliability in terms of counter party risk (stealing your money). However some big institutions use a net zero reversion cap rate, assuming they're selling into a stronger market as opposed to increasing it by 0.5%-1.0%. I remember attending this real estate conference without the usual YouTube influencers and real estate fake gurus. I asked a bunch of institutional operators about their strategies. Their answers were surprising. Most people in Sub 2B in AUM expect the market to dip slightly and use a reversion cap rate of about half a percent.

Take late 2023, for example. We saw cap rates accelerate. Phoenix, Arizona, is a perfect case. Cap rates there jumped from 3.5% to 6.5%, even 7%. That's a 30-40% drop in market value. It all boils down to how commercial real estate works: your net operating income divided by the cap rate determines your property's value. Let me break it down: A property with a net operating income of half a million, at a 3.5% cap rate, is worth around 14 million. But at a 6% cap rate? It's only worth about 8.3 million. That's a huge loss.

This is why your investment model needs to account for cap rate changes. If it doesn't, you're in trouble when rates spike. And that's exactly what happened last year. Diversifying over different time lengths is key to handling these swings. High cap rates are rare, but they do happen. As a passive investor, you've got to weigh the risk and reward.

Operators usually evolve (less in favor for LP). They either go institutional, tapping into large, passive sources of capital, or they change asset classes.  For the smaller LP investor, finding the right operator is crucial but if you net worth is under 4M (what I call endgame status) then I would try to find a less institutional operator.

I know a few syndicators who are the "legit, real-deal". Although I'd bet for every 1 legit real-deal, there is no less than 100 if not 1000 who are just like you said, another CEO stacking there cash and if it crashes and burns, oh-well, onto the next. 

And yes, that's exactly how $ is set-up for many if not most. Most syndicators will NOT get financially ruined by an investment going to 0. For most they just loose the profit potential, it's the LP's who are generally holding all the $ risk.     Via various smoke and mirror tactic's it's readily made to look like a GP has a bunch of $ on the line, but it's rarely the case. That's generally fee's of some form or fashion used in a manner that views as invested capital. 

So yeah, how you said. No consequence. 

Again, Traders who got into Real Estate. WS was too slow or boring so RE is hot, rinse and repeat in RE what they do in WS. That sums up a great # of syndicators today. 

And the good few syndicators I know, are just waiting for them to implode and swoop in with offers cent's on the dollar. 

Not looking good for my ODC Sunbelt Diversified Fund.  Here's part of my November report. It's not even the worse of it. So 2024 will be a rough year.

As mentioned on previous updates, after careful consideration around where we are in the market and the significant run up in costs around our debt service, insurance, and taxes, we have decided to pause all distributions. However, we will continue to monitor the performance on a month to month basis, along with the overall market conditions, to inform future distribution decisions.

I'm on my first and it adds up to about 2 hours per week. I clock in when I need to respond to guest inquiries, set door codes, update my cleaner, pay bills etc which can easily be 15-20 minutes 5-7 days a week. However I see this as a good thing because I want to log enough hours to be considered "active" income and offset my W2. With some automation I could knock it down a significant amount but I want that bonus depreciation to offset my income so I'll worry about that when I scale. 

@Avery Carl what’s a pundit?