Here's what I've got for you this week.
- Real Estate Investing Without the Hype - Part I
A new world of capital raisers has emerged in recent years and over the next few weeks in a series of commentaries, I'll be covering the background to this new sector of the industry, the challenges it presents, and the opportunities it brings you.
- Podcast Episode 7.2: The Allocator, a new way to finance CRE
Meet Jeff Greenberg of the Synergetic Investment Group, a capital allocator, who explains the nuances of the allocator model.
- This week's white-paper
Generating leads is a critical task for any business. This week's white paper, How to Generate Investor Leads, offers actionable guidance for building and converting prospect lists - that's relevant for capital raisers and non-capital raisers alike.
Plus, a reminder of this year's three main initiatives:
- Investors:
I am getting increasingly active in finding personal real estate investment opportunities.
Follow my journey here.
- Sponsors and Capital Allocators:
Join the waitlist to get the exact system our clients have used to raise nearly $1bn in equity capital.
Join the waitlist here.
- LinkedIn Mastermind:
LinkedIn is an amazing platform for networking and scaling. Use coupon: FEB14 before February 14th for $200 off the enrollment:
Join the next Mastermind, here.
As always, please do not hesitate to email me directly if you have any questions.
Best,
Adam
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Real Estate Investing Without the Hype
Part I
Background
A serious problem is brewing in the real estate capital raising industry. It manifests in three ways:
- Misleading statements designed to entice investors.
- Overhyped, templated marketing that creates the illusion capital raising is easy.
- Blurred lines between seasoned real estate professionals and industry newcomers making it difficult for investors to make informed decisions.
In the coming weeks, I’ll explore this issue in-depth, provide context, explain why it matters to you, and offer solutions - whether you’re a sponsor, investor, or allocator.
My goal is to provide actionable insights for:
- Investors: Make better, well-informed decisions.
- Sponsors: Identify ethical, effective allocators to work with.
- Allocators: Scale faster by using best practices for raising capital effectively and compliantly and by partnering with seasoned sponsors.
How We Got Here
Since the 2012 JOBS Act allowed general solicitation (marketing and advertising) under Regulation D 506(c), the real estate industry has undergone a four-phase evolution:
Phase 1: Foundations (2012-2015)
Three major changes emerged when the regulations first became effective:
- Marketplaces:
Online marketplaces emerged for the first time, allowing accredited investors to view select sponsors’ offerings on marketplace-style platforms. Early examples included Fundrise, RealtyShares, RealtyMogul, CrowdStreet, and others.
- Sponsors:
A small number of sponsors recognized the opportunity to expand and scale their equity capital sources by promoting their offerings online.
- Service providers:
The digital marketing and real estate capital formation industries began to overlap, giving rise to a new marketing industry that provided services to sponsors unfamiliar with online marketing.
These groups were divided into:
- Seasoned real estate professionals (limited marketing experience).
- Digital marketers (no real estate expertise).
- Experts in both disciplines bridging the gap.
Phase 2: Rapid Adoption (2016-2020)
- General solicitation became mainstream as sponsors saw its potential.
- Novice sponsors with strong marketing skills but limited experience raised large sums from new investors.
- Conferences and large networks promoted real estate investing as low-risk and highly profitable.
- Marketplaces like CrowdStreet flourished, while others, like RealtyShares failed.
Phase 3: Euphoria (2021-2024)
Fueled by low interest rates and massive economic stimulus during Covid, the industry experienced exponential growth. This created euphoric growth in the industry with both novice sponsors and their investors harboring the illusion that ‘this time was different’ and that nothing could go wrong.
Enter Capital Allocators:
Borrowing terminology commonly used in the institutional world – ‘fund manager’ or ‘fund of funds’ amongst others – this new group of capital raisers also adopt terminology traditionally used by seasoned, professional sponsors like ‘assets under management’ or ‘units owned’ or ‘full cycle’ etc., blurring the lines between themselves and seasoned professionals.
Simply stated the allocator business model is that:
- the capital allocator finds deals,
- negotiates preferential terms with sponsors in return for larger than minimum investments,
- solicits investments from their own networks, and
- then either passes the preferential terms through to their investors, splitting the delta with their investors or harvesting it entirely as their own compensation.
While some allocators provide value, others raised capital using questionable tactics for opportunistic sponsors. This fueled the 2020-2023 bubble, driven by aggressive bridge lending, leading to the struggles many portfolios face today.
To learn more about the nuances of the capital allocator model, I encourage you to tune in to the latest season of my podcast/YouTube show, The Allocator, where I am interviewing some of the players in that sector.
Episodes are published on my website before they go live on podcast channels. Listen here to get a head start on the season.
Phase 4: 2025 and beyond
The real estate market is on the cusp of a seismic shift. With the new administration likely to inject liquidity through deregulation, tax breaks, pressure on the Fed to lower interest rates, and relaxed banking controls, we’re entering a period of tremendous opportunity.
But history shows us that such periods inevitably lead to market corrections.
In this dynamic environment, only high-integrity, seasoned real estate professionals will thrive, rising with the market and emerging even stronger after the inevitable downturn.
I’m currently working with a select group of capital allocators, equipping them with the best-in-class capital-raising tools that only my private clients have enjoyed until now. These leaders, along with the seasoned sponsors they partner with, will set the standard for this new era of real estate investing.
I’ll introduce them and their opportunities to you in the near future.
If you want to stay ahead of the curve:
- Sponsors and Allocators:
Join the waitlist for my next Investor Acquisition Mastermind, here, where I’ll share the tools and strategies to raise more capital effectively and compliantly.
- Investors:
Join me here as I make my own investments this year, focusing on capital protection, income streams, and long term wealth generation - in that order.
Next Week: The Platforms Reshaping the Industry
In the next newsletter, I’ll examine two groundbreaking platforms disrupting real estate capital formation, both catering heavily towards the capital allocator sector. You’ll learn how they’re changing the industry - and how allocators can stay competitive in an increasingly crowded field, and what investors need to do to protect and grow their capital.