Real estate syndicates

[Notorious BNG]

I apologize if this is buried somewhere else on the blog...
My question is about the importance of past performance on the future performance of real estate syndicates. I have appreciated all the good information supplied by this website and am now seriously considering diversifying into investments that do not correlate as much with the market.

I have visited the websites of some of the syndicates mentioned on this website. My father has also invested in a few syndicates over the past 3 years, and I have good friends who invest in a syndicate that works with all the partners of that practice. Except for the last option, the other syndicates appear to invest in multiple properties and multiple locations, which makes personal vetting of the investments more difficult. Therefore, I was wondering what people's thoughts were on judging these syndicates based on past performance. Do "good managers" have a higher likelihood of success?
Thanks!

[The White Coat Investor]

I think there are two worthwhile approaches people are doing (and I'm sure a number of not so worthwhile)

# 1 Full vetting- Invest large sums with people you know well with a solid track record and maybe even doing background checks

# 2 Diversifying broadly and investing the minimum ($2-50K typically) in dozens of projects

Not sure which is better. I'm doing a little of both. Much more of the first for equity and much more of the second for debt.

Be advised that I'm not expert in this and am only using a small portion of my portfolio for it. The vast majority of my portfolio is invested in stock and bond index funds.

[Donnie]

I think fraud, inflated/erroneous historical returns, and platform risk are potential hazards here, so I would go with the approach of sprinkling around to multiple groups. Look for real "skin in the game" from the people leading the syndicate.

[Notorious BNG]

Appreciate the thoughts. I am planning on having only 10% of our investments in this type of vehicle. I suppose this could always end up being a 25-50k learning experience as well.

[NJDoc]

I have invested with small local groups of guys I know and trust ( a small syndicate) , wherein we had control over the leases and occupancy and knew the local market. In addition, I have money with large well known national private equity real estate syndicates with many years of documented track records. Typical investments with the big boys start at $100K, although some of the smaller players can get you in for $50K. Small group investments like on the pooled group websites I personally avoid as it reminds me of the "amateur hour of 2007". Just my opinion.

As Donnie has mentioned in another conversation, REIT's are another option , although the share price is more correlated with the broad market they do offer liquidity, similar tax benefits and you can put in as much as you want. What you are giving up with that approach is the potential for alpha above a typical REIT, control if it is a local small deal and the possibility to 1031 exchange. However, most syndications will not be able to enjoy that last benefit.

 

Message me if you want to chat more or need some names of groups.

[Michael George]

Private Equity Real Estate (PERE)

If you are looking to invest in real estate outside of the universe of publicly traded REITs, then you should look at Private Equity Real Estate (PERE) and/or Non-Traded REITs.

Obviously you want to work a firm that has a great track record.  I prefer to work with the larger real estate firms who have deep pockets and handle larger institutional type of properties.  Some of the best deals are on large properties where there is a small finite number of potential buyers.

There is an annual listing from PEREnews.com called the PERE 50.  This list the 50 largest PERE firms in the U.S.

The minimum investments are are high, $1 million to $10 million, but there are 'Feeder' funds which can provide access to some of these funds with minimums as low as $100K.

Many of these PERE firms are investing in opportunistic real estate projects.  As such, it is very common to see consistent IRRs in the range of 15% to 20%. If you look at this list you will see names you may have heard of, like: Blackstone, Carlyle Group, CBRE, Tishman Speyer, and Starwood.                             In this type of investing, you will not receive consistent annual cash flow.  These type of funds are focusing on the final total return.

I wont waste time comparing RealtyMogul or FundRise to this universe of firms.  These firms are completely different caliber of players in the Private Real Estate sector.

If you are looking for consistent cash flow, then many of the Non-Traded REITs work well in this area.  Plus Non-Traded REITs have small investment minimums (Sometimes as low as $3-5k).  They will typically generate average dividends significantly higher than the REIT index of publicly traded REITs, plus their NAV is much more stable than the share price of publicly traded REITs.   Blackstone recently rolled out with one in January. They have a website with information on this fund, it is www.BXREIT.com

 

[The White Coat Investor]

The problem with $100K+ minimums is they're out of reach for most docs. That might be two years worth of savings.

The issue I have with non-traded REITs is the terrible history with broker-sold REITs. Plus, the REIT structure isn't particularly attractive to me outside of a retirement account.

[Notorious BNG]

I agree that those $1 million+ and $100k + investments are out of my range. The opportunities I have are more like $25k.

WCI-can you expand on the "terrible history with broker-sold REITs" or is there a link to something you've written before.

Can someone help clarify the terminology for these investments?
This what I think I understand:
1)publically traded REITs that you can buy and are liquid. Like the Vanguard REIT fund.
That might be it...lol!

I'm not sure of the technical differences between syndicates and private REITs. I know of a company that owns multiple commercial real estate sites and pays out a monthly distribution that describes itself as a private REIT.

What term would you use to describe a fund that invests in multifamily buildings, provides a distribution presumably based on rent, with a final time frame of selling the building in about 5 years? Is that a private REIT as well?

There also seem to be funds that do not provide regular distributions until the cycle is done (this to me is similar to venture capital investments). Is there a specific term for these investments?

[Donnie]

Non-traded REITs typically have a high front-end sales load. They also typically have liquidity restrictions. I am not sure of any major benefits compared to a syndicate except for slightly more liquidity and maybe somewhat better financial reporting.

[The White Coat Investor]

Donnie wrote:

Non-traded REITs typically have a high front-end sales load. They also typically have liquidity restrictions. I am not sure of any major benefits compared to a syndicate except for slightly more liquidity and maybe somewhat better financial reporting.

Click to expand...

That's been my experience as well. At least the newer ones from the crowdfunding companies don't have the big loads, but I'm still a little skeptical of those.

This is one of the first posts on this blog: https://www.whitecoatinvestor.com/privately-traded-reits/

[TheBossMD]

Syndicates are highly sponsor dependent from what I've seen. I have not invested in a syndicate yet, but I know people that have sponsored them. I will probably invest in the future and it will absolutely be with a sponsor I know has impeccable integrity. Bad things can happen in any investment. Real estate is no exception.

Theres a lot of focus on pure numbers from past investments, and that is no doubt important. Here's a better question, though. Does the sponsor have a reputation for making investors whole before worrrying about himself, especially if things go south? You will have a bad deal if you stay in the game long enough. How you react is just as important to me, as an investor, as what your average numbers are.

[Molar Mechanic]

Perhaps an idea for a future post...investment options for those who can put in larger chunks, risks benefits, and perhaps some experiences from those who have walked the walk.

[The White Coat Investor]

Podcasts coming up on it.