Rip apart my idea here

So we plan to syndicate out multiple deals primarily net lease assets, healthcare, self storage.

Our goal is the following:

-We plan to acquire these assets using our own equity. After closing we will be syndicating out the equity.

-We will not be taking any promote, but just an asset management fee of maybe 5-10% of the NOI.

-We will not be taking institutional money and instead publicly market and advertise these offerings under Reg D.

-We will be spending money to market these offerings. Our primary goal is to pitch to HNW individuals primarily those in the medical profession. We'll be attending their conferences and sponsoring events in order to gain publicity and traction. Goal is to hit doctors, attorneys, etc.

We pay a distribution monthly or quarterly and provide updates through our online platform. Anyone have advice on the good, bad, and the ugly on this? I understand its not a new idea at all and several shops are doing this, but I want to make sure I get input from others before we start making the large capital investment on this. Thanks.

Comments (15)

Feb 24, 2022 - 12:00pm
jarstar1, what's your opinion? Comment below:

I'd rework your own incentives since your customers will use that as a guidepost of where you're intentions are at. If all you have is an AM fee, why should you be concerned about growing the portfolio and providing superior returns? By taking just an asset management fee you'll do better by growing in size, regardless of quality, which isn't exactly confidence inspiring, especially if you syndicated all the equity away. If doctors and lawyers wanted simple passive exposure to real estate they can buy a REIT. I'd say align your interests with theirs a bit, take a promote, not to rip them off, but to show them you have skin in the game. 

  • Associate 1 in RE - Comm
Feb 24, 2022 - 12:02pm

Never heard of asset management fees as a % of NOI. It's typically a % of equity. But I guess you can do whatever you want there.

What happens when you put all of your money into a deal and then can't get anyone to buy in? Why wouldn't you sign people up by showing them prospective deals and then call their Capital once you win one?

You didn't mention the terms of the individuals investment. Do they have to stay in until you say they can leave?

How much are all of the legal / transaction costs of the reg d offerings? If you're doing tiny deals, those fees could really hurt your or the investors economics (depending on if you pass along the costs to them or not).

What happens when a building needs Capex / TI? You guys fund that? Do you do another offering?
 

Who signs the guarantees on the loans? Or will you have to pay a fee to a guarantor?

Just off the top of my head. If you're a VP I'm sure you've thought of these things

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  • VP in RE - Comm
Feb 24, 2022 - 12:23pm

Never heard of asset management fees as a % of NOI. It's typically a % of equity. But I guess you can do whatever you want there.

What happens when you put all of your money into a deal and then can't get anyone to buy in? Why wouldn't you sign people up by showing them prospective deals and then call their Capital once you win one?

You didn't mention the terms of the individuals investment. Do they have to stay in until you say they can leave?

How much are all of the legal / transaction costs of the reg d offerings? If you're doing tiny deals, those fees could really hurt your or the investors economics (depending on if you pass along the costs to them or not).

What happens when a building needs Capex / TI? You guys fund that? Do you do another offering?
 

Who signs the guarantees on the loans? Or will you have to pay a fee to a guarantor?

Just off the top of my head. If you're a VP I'm sure you've thought of these things

All good questions. Didn't want to get deep into detail, was more so talking about our ability to attract investors.

To answer your questions, the investment exit is determined by us. Whether thats a refi or sale, we have full say on that. Individual investments will be around $50K minimums.

We''d much prefer to bring in capital partners prior to closing, but the issue is theres more risk. We have to go under contract and put up EMD, attorney fees, etc. Then if we are unable to raise the money last minute, we lose the deal and our reputation as well. We'd love to have the ability to do a raise prior, but there is definitely more risk.

Yes, we would need scale to offset the reg D filing costs. We've been using a securities attorney in the past and get reasonable fixed pricing.

As for CapEx/TI, we're going to put in a sizable replacement reserve from our cash flows each year. If a cost exceeds that, we would obviously have to have a clause for outside capital calls in order to pay for anything else. We are the guarantors on the loans. Loans are non-recourse, but we will sign the bad boy carve outs.

Feb 24, 2022 - 4:37pm
PEarbitrage, what's your opinion? Comment below:

Uh why do they need you?  That's the real question here.  Yes you have the deal, buy why pay 10% to someone who does pretty much nothing on a deal except cuts a check for the mortgage.  

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  • Associate 1 in RE - Comm
Feb 24, 2022 - 4:59pm

 🤦‍♂️ 
 

This is maybe one of the most basic concepts in private equity. Do you think everyone has several million dollars lying around to buy a property? Do you think doctors and lawyers have time or knowledge to negotiate a PSA, find new deals, secure loans, hire a property manager, manage capex projects, you know - all of the things a RE investment manager does?

This is probably the most asinine question you've ever asked. And you've also asked WSO for office cap rates in FiDi instead of just using CoStar or calling a broker. Like I'm in shock that this isn't a troll account

Feb 24, 2022 - 5:05pm
PEarbitrage, what's your opinion? Comment below:

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