Family Office: Need to Do Due Diligence

Family Offices: Do Your Due Diligence

1 year ago 0 0 633

I recently read the National Real Estate Investor article “Survey Shows Family Offices Falling Short on Due Diligence for CRE Deals.” This article is 100% on point. Investors not familiar with the nuances of private real estate investments do not consider the elevated risks often posed by real estate, which result from its illiquidity, debt, lack of transparency, and reliance on a sponsor. Family-office professional DJ Van Keuren’s questions that family offices should ask during due diligence (modified below from the article) hit the mark. What is the sponsor’s track record? How long has the sponsor been in business? How much of its own money is the sponsor investing in the deal? What are some examples of deals that went south? How did you handle those situations? What is the market demand for this type of property? How many similar projects are in the local development pipeline? Has the sponsor run the numbers

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Smart Real Estate Investing in 2018

3 years ago 0 0 1243

It’s a new year, and we’re moving full steam ahead. It’s a great time to check in with current real estate trends and events shaping this year’s market and then decide how you will respond to them to meet your 2018 investment objectives. Current Real Estate Market Trends Money Chasing Deals: It will come as no surprise that demand for real estate still far exceeds supply. This results in peak prices, which equals lower yields, and makes it increasingly more difficult to “win” deals. Risk/Potential: With the market peaking, there is more downside risk and less upside potential. Hesitation: Current owners are hesitant to sell because opportunities to reinvest their money at acceptable returns just do not exist. Low Prices: Prices per square foot on existing properties seem low compared to replacement costs. Core Investment: Institutional investors now consider real estate a core investment, thus eliminating the need for a

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Cap Rates: They Have Their Place

3 years ago 0 0 1325

Here’s the scenario. You have money you want to invest, and you do not want to manage real estate, but you want an income stream. When considering your options, you find the following: U.S. Treasury bond—2.3 percent return with virtually no risk; Municipal bond—4.5 percent return (with some tax benefits), still with minimal risk; and McDonald’s ground lease—5 to 5.5 percent return, with a slightly higher risk and illiquidity. These examples demonstrate very low risk situations, but make a comparison between similar investment options. So, where do Cap Rates (short for capitalization rates) come in? Cap rates are the benchmark that enable investors to compare various investments. Here’s a straight forward definition: “A cap rate measures a property’s natural rate of return for a single year without taking into account debt on the asset, making it easy to compare the relative value of one property to another.” In most basic

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The Pro Forma: Garbage In, Garbage Out

3 years ago 0 0 1299

I clearly remember one speaker’s comments from a 1985 NAIOP conference. His claim was this: One of the worst things that ever happened to the real estate business was the personal computer. How Can This Be?  For those who can remember prior to 1980—before the personal computer and in the early days of the financial calculator—real estate pro formas were done by hand. Income-producing properties were evaluated based on current income, and development pro formas rarely went beyond three years. With the onset of high inflation in the early 80s, pro formas showing annual increases in income became common to achieve high future evaluations, so real estate could compete with high bond rates. Even then you had to get the numbers (rents, expenses, cap ex, etc.) right on the first try because changing them after the initial projection was cumbersome and time-consuming. Enter the Financial Calculator and the Personal Computer. With

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Development: Unpredictability in the Process

4 years ago 0 0 1123

Development: Unpredictability in the Process My last blog, “The Importance of Timing on Real Estate Investment,” focused on the unpredictability in investment, on what can happen over time once you own a property. In development, there is the added unpredictability during the process. For a broker selling a property or an investor buying a property, the complete process can be done in 90 days or less. But that is not the same with development, not even close. Process Derailment Developers have many considerations—they need time for inspections, site tests, neighborhood forums, entitlement or zoning processes, permitting, and soil boring tests, to name a few. While some of these can be controlled, others cannot. For example, everything could be moving forward smoothly and one ruffled neighborhood group at a zoning hearing or one difficult inspector could stop the project dead or at least create a significant delay, with the developer having

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The Importance of Timing on Real Estate Investment

4 years ago 0 0 1281

A dollar today is worth more than a dollar tomorrow. So, the farther into the future one expects income or a sale to occur, the less it is worth in today’s dollars. In my opinion, investors don’t contemplate this factor enough when considering a real estate investment. Factors that are commonly considered for real estate investments include location, market, available financing and current cash flow. But when you invest and how long you plan to hold can strongly impact how well you do. The Effect of Timing + Buying Let’s look at some examples: Those who bought properties at the market peak in 2006-2008 with 3- and 5-year loans know the pain of debt maturing in a down market. While it is always prudent to buy in a down market, it is possible to buy too early. This could result in debt maturing before the market recovers or in anticipated

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Top Takeaways from GSU’s Views From the Top 2017

4 years ago 0 0 2454

Each year, I start the new year with an economic conference hosted by Georgia State University’s Department of Real Estate, and it rarely disappoints. This year was no different. Views From the Top 2017: “Connectivity & Atlanta’s Urban Transformation” delivered insightful viewpoints on a variety of economic topics. First up was Sun Trust Economist KC Conway. Here were his top comments: Real estate sector predictions: Housing and Industrial are real estate’s strongest sectors, with commercial storage and manufactured housing yielding the best returns. Retail is regressing, and Hotel is overbuilt with declining values. Cost for new or renovated Office space is extremely high. Atlanta + Southeast predictions: The Southeast region, including Atlanta, will outperform the nation in 2017. Atlanta will continue to be plagued by traffic This is a “Must Solve” problem. Millennials will move elsewhere if not resolved, resulting in stymied growth. General insights: Capital for commercial real estate

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Why You Need a Real Estate Advisor on Your Wealth Management Team

4 years ago 0 0 1982

As the end of 2016 quickly approaches and you ponder year-end donations and 2017 financial objectives, you should consider if you need someone to help you reach your goals—or to advise you on what those goals should be. Let’s take a look at your team. The Coach The Coach develops a game plan based on circumstances. Do you become your own coach, or do you consult with a wealth manager or financial planner to mold your circumstances and financial objectives into an effective financial plan? This is the first big call. The Roster Then, you must ask yourself: Who should be my team players? A typical team consists of a financial advisor, an investment manager, a CPA, an insurance advisor and an estate attorney. Now, the water becomes somewhat murky here because some of these players wear multiple hats. In certain cases, they work for a fee on your behalf.

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How Do You Get Started in Private Real Estate Investing?

4 years ago 0 0 1824

As young adults start to accumulate wealth, very few consider investing in real estate. But why? As stated in my previous blog, Private Real Estate Investing: A Game of Risk, real estate presents a unique set of challenges, including illiquidity, higher risk and the amount of required capital. In addition, most people enter the investing world through a friend who is an investment advisor (i.e. stock broker), and he or she sells stocks, bonds, mutual funds and other similar investment vehicles. When I started thinking about a career in real estate investments, a very successful private real estate promoter gave me a piece of advice: Start early with a small stake, and grow it. So, how do you start? Pool Capital Even if you do not have much cash, a smart way to get started is to organize a group of friends who are each willing and able to make

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Private Real Estate Investing: A Game of Risk

4 years ago 0 0 2095

Most people invest in equities, like stocks and bonds. They are liquid. They are transparent. The markets are regulated. With equities, you can follow your investment though various channels. And you are betting on companies more than individual people. Private real estate investing is different. The investment is illiquid. Current value of the asset owned is not easily determined. Often there is a sponsor or promoter who has discretion with regard to major decisions, and finally, debt is typically used to purchase the asset. These factors combined increase risk and put private real estate investments in the category of Alternative Investments. Getting Started To invest in a private real estate deal, an investor must be accredited. This means he or she can afford either to lose all equity or not have access to it for an indefinite period of time. Once this hurdle is cleared, I recommend all investors ask

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