Highlights from Investing in Real Estate from a Capital Allocator Perspective
The CalALTs Real Estate Special Interest Group (SIG) met on May 11th at 3:00 PM Pacific with California’s industry leading real estate investors to discuss and understand the traits, structures, and other criteria they seek in real estate fund managers. Our SIG Moderators Benjamin Beer of CohnReznick and Peter Bush of EY introduced our panelists Meghan Pinchuk , Chief Investment Officer of Morton Capital , Gregory Kushner , CPA, Senior Managing Director and Chairman of Lido Advisors, LLC and Allen Kim , CFA, Director – Manager Research & Investment Solutions of Kayne Anderson Rudnick to discuss. CalALTs members can log into their member accounts and watch the full discussion in our webinar archive here .
See below for a few highlights from the conversation.
BENJAMIN: "What are some of the things you focus on when reviewing the credentials and background of an asset manager that approaches your company for capital?"
MEGHAN: “Obviously their background is important. But I think there are a lot of managers out there who’ve maybe had experience at another firm or who have worked in the industry for a long time -- maybe they even syndicated a number of different loans when they didn’t necessarily have a fund structure yet…That’s not necessarily a deal breaker for us. I think it’s a lot more about the key individual(s) experience and whether or not they can articulate that, versus a [searchable] track record you can just look up…A lot of people are really excellent at making the real estate loans, they’ve got that background, they’ve got those credentials, but they don’t necessarily have the experience running a fund or dealing with a fund structure…That’s not something we’ve shied away from, sort of being involved with managers who are newer to running a fund but not newer to real estate lending specifically…We have a lot of experience investing in these funds and strong opinions on how things should be structured to be effective…we’re very open to collaborating or partnering if that’s the case."
BENJAMIN: "If there was one thing you were looking for in the operations of a fund manager, what would it be? What’s something that really sticks out?"
MEGHAN: “ You can be great at managing your investments and your funds, but if you don’t set up the right institutional controls to make sure the client’s money is actually protected and there’s a lot of third-party oversight, it just doesn’t matter how good the investment manager is. The good news to that is there're a lot of third-party groups now that are fairly cost effective – third party administrators and really excellent auditor choices are out there and are very used to working with firms in this space. So, it’s not as hard as it sounds. It’s actually quite simple.”
GREG: “I completely agree with what Meghan was saying…From our perspective, there are really some wonderful investors and they’re maybe not so good at running a fund, and it's the same thing -- we really encourage them to go with a third-party administrator, have the right kind of accounting firm, etc. That really does make a big difference and, as I mentioned…we’ve seeded some of these groups with some of our capital -- we don't take an ownership position within the fund, but we just want to make sure they're doing all the right things, checking all the right boxes…you've got to just make sure, from an SEC audit perspective, that you're doing all the right things. You're doing the initial due diligence, and more importantly, the ongoing due diligence…things you should be looking out for.”
PETER: "From a fee and structuring perspective, is there anything specific that that you guys look out for when looking at a manager?"
ALLEN: "The fees are an interesting thing -- I think, you know, going back 20 years ago -- back to the private equity world and the hedge fund world…What’s really changed, besides the headline fees is what comes in the annual audit and the kind of extra fees that are in there. If you noticed, over time, besides the stated fees for management, there are “other fees” for real estate management…At the end of the day, I think the manager, regardless of whatever they stated on the stated management fees, has certain economics that they want to work with when they roll out a deal. We try to look at the managers financials and really see where all the all the expenses were spent, to do a complete operation list of the year before and try to get to a comfort level as to what the total expenses might be, including the stated fees as well as other expenses."
CalALTs would like to thank our moderators Benjamin Beer of CohnReznick and Peter Bush of EY as well as our panelists Meghan Pinchuk of Morton Capital, Gregory Kushner of Lido Advisors, LLC and Allen Kim of Kayne Anderson Rudnick for their time and expertise . To get involved in future Real Estate Special Interest Group (SIG) meetings, please contact the CalALTs Office at info@calalts.org .
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