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Has anybody invested in real-estate interval funds?

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  • Has anybody invested in real-estate interval funds?

    Hey all, I was wondering if anybody has invested in interval funds?  From what I understand they are non-publicly traded funds geared towards long-term investing in things like real estate or other alternative assets.  This link gives a good description:

    https://www.pimco.com/en-us/resources/education/understanding-interval-funds

    I'm interested in diversifying my portfolio with Commercial Real Estate so l went down a rabbit hole researching real-estate interval funds.  They were a little difficult to find objective information on because they're traded by broker-dealers.  I found a list of funds on this site:

    https://www.intervalfundtracker.com/data/active-interval-funds/

    To research I went directly to the real-estate funds' sites and read over the propsectus and annual reports to find info like the annual expenses, holdings, LTV%, etc.  This was pretty time consuming and I'm still learning what to look out for.  In general, the funds are invested in 20+ private institutional grade real-estate funds with 10-30% of the fund invested in public REITs/securities/Cash to provide liquidity. Some of the ones I found are:

    Griffin Institutional Access RE Fund (I-class ER 1.72%, 70% invested in Private funds)
    Predex (I-class ER 1.12%, 87% private)
    Bluerock Total Income + RE Fund (I-class ER 2.22%, 90% Private)

    Advantages:
    +Invests in institutional class private real-estate funds that otherwise wouldn't have access to
    +Diversified with 20+ funds adding geographical diversification as well as commercial asset class (multifamily/office/etc)
    +Less correlation with stock market
    +Core/Core-plus RE so more conservative
    +Historical returns of 5-7%/year, not huge but less volatile
    +There are others like Broadstone's BDREX that will invest a portion of the fund directly into real-estate properties (higher fee of 3.3%)

    Disadvantages:
    -Obviously to a Boglehead the expenses are high, most range from 1.5 - 3.5% for the real estate funds
    -Actively managed and investments/public allocation will fluctuate
    -Need to beware of the different share-classes that add commission fees, I'm staying within I-class shares by using a broker-dealer
    -Broker-dealer also adds another layer of fees (mine starts at 1% AUM and decreases to 0.4% as capital invested goes up)
    -Less liquidity
    -Difficult to figure out how to actually invest in them and need to find the right broker-dealer, mine doesn't offer PREDEX

    I guess my question is if this seems like a reasonable investment.  The fees are high but seem to be the norm for real-estate fund investments.  The main appeal for me is the diversification and what I believe (hope) to be high quality Core/Core-Plus institutional private real estate funds, which seems like a good way to get my feet wet with commercial real-estate.  I won't qualify for accredited investor until next year and this has the familiarity of mutual funds.  I'd also be investing with a Roth IRA that I setup with the broker-dealer to minimize tax drag.

    It's hard to find someone objective who's discussing these investments.  At this point I'm not sure if I've gotten tunnel vision and am trying to justify the investment or if this is actually a reasonable investment.  I emailed Dr. Dahle the same questions and he was suspicious of the high fees with unimpressive return, but I thought it would be interesting to also get some other opinions from the forum.  Thanks!

  • #2
    I, like you, just went down the rabbit hole researching interval funds.  I had never heard of them either and I’m in the industry.  From my cursory research I would have some concerns with making an investment like this.  To me, these funds seemed geared towards institutional investors like pension funds or insurance companies.  They require a lower return to meet their investing criteria and can pay a higher expense ratio for flat but steady returns.

    You mentioned in your advantages that the returns have historically been 5-7% per year.  Do you know if this is after their fees?  If it’s not, then that drastically reduces the return.  On top of that, it sounds like you may have to pay an advisor fee for getting you access to the holding, thus further reducing returns.

    If you’re looking to get into investing in real estate without becoming a limited partner and still retain some liquidity, then you may want to just sick with REITs for the time being.  I’d be really hesitant to put my money in a fund with low liquidity for those types or returns.

    Additionally, I would suggest doing some research on different real estate syndicators where you can become a limited partner and just passively invest in this sector.  There are different investment sponsors that cover the entire commercial RE industry (office space, multifamily, student housing, self-storage, etc.) that can provide you with this asset class with you only being an LP in the deal.  I know that I’m personally am only looking for long-term cash flowing yield of 10%+ and there are plenty of sponsors out there that are hitting that mark with safe risk-adjusted properties. Conversely, I think that one of the negatives with syndicators is that they are constantly churning deals, as an exit is how most sponsors make their money, but there are sponsors out there that have it structured for a long-term hold.  Which I like because I’m looking for passive income for my retirement.

    In my previous life I worked for a trust company that dealt with self-directed IRAs (to hold alternative, non-publicly traded assets) so please feel free to let me know if you have any questions about the benefits and disadvantages of using an IRA to invest in real estate.   This doesn’t really come into play if you’re just going to invest in a REIT, but it will if you want to use IRA funds to be a limited partner in a syndication.

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    • #3
      So you're going to have a minimum of 2% fees? And that's absolute minimum. Better do crazy well to justify that.

      Why not just do reit

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      • #4
        7% is the average return of the stock market. Why go into something this complex for similar returns?

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        • #5
          The 5-7% is net of the ER listed on the prospectus but obviously does not include any additional fees like AUM from broker-dealer or sales load/commission.

          The argument for investing in a real-estate interval fund rather than Public REIT/stock market is to hopefully have an investment that correlates less with the stock market.  The "private" portion would supposedly protect against some volatility and market downturns providing more consistent/steady returns during a bear market (allegedly).  In my mind I pictured this investment as a sort of conservative "bond" portion within my real-estate asset allocation.   BTW is there any guide to asset allocation within investing in real-estate?

          Anyway thanks for the replies!

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          • #6
            Illiquid, opaque, high fee, complex, and anywhere from a tax headache to a multiple state tax return filing nightmare.  What's not to love?

            Comment


            • #7




              Illiquid, opaque, high fee, complex, and anywhere from a tax headache to a multiple state tax return filing nightmare.  What’s not to love?
              Click to expand...


              yea but it makes you fancy....

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