LP Investing Digest #56
Tweets on investing, and anything else helpful to LPs
Last premium post: 6 reasons to put down a deck - reasons to walk away from an investment deck immediately
Last free post: LP Investing Digest #55 & Full Article Index
Announcements:
LP Cohort: Review 4 deals with me and other LPs to learn what to look out for in deals. Please reply to this email if it’s of interest - next cohort will start after Thanksgiving.
It’s common for GPs to exit through some sort of structure which benefits themselves (many options exist including REITs, recapitalizations, cross collateralization, continuation funds, etc)
I’ll write on this in more detail soon, but for now I just want everyone to be aware that there’s usually massive conflicts of interests and you should (as LP, on either side of the transaction) proceed with caution.
This is true.. and should serve as a good reminder for LPs that preferred returns are far from guaranteed.
In fact, I think it would be a lot more accurate to call a preferred return an accrued return instead - in the vast majority of cases they’re accrued until there’s enough cash to pay them.
A coinvest (and it’s relationship to the acq fee) is very important. Read #4 for more
Always try to understand what a statement might mean behind the scenes to protect your capital - I call this having a healthy dose of skepticism
An interesting look at annual returns per the Shiller Housing Index. Three things to consider:
Doesn’t account for liquidity (i.e. can’t just compare the below to stock market returns for example, because the latter has the benefit of liquidity)
This index is based on single family prices, which are usually tied to very long dated debt (typically 15-30 years) which also tends to decrease the probability of having issues due to leverage alone
One of the primary drivers of distress, as I discuss here, is having to pay a third party (typically a lender) by a given date… and in commercial real estate those maturities tend to be 3-5 years out and need to be weighed accordingly by LPs
Reminder to check NOI Margin assumptions against what the GP has been able to produce in the past
This is actually a great metaphor… the more value the last owner added to an asset, the less there’s remaining.. and therefore you need to particularly mindful of investing in something that’s a macro bet (rather than a real estate one dependent on the GP’s operating excellence & business plan)
Have a wonderful weekend!
Thank you for reading! I genuinely hope you found this helpful - the best way to say thank you is to spread the word.
I advise LPs on existing and potential positions and write articles here weekly on what I see in the marketplace that could help you invest better. You can find me on LinkedIn or Twitter.
Whether you’re an LP, want to learn to become one, or affiliated with LPs (GPs, Attorneys, CPAs, Wealth Advisors) I hope you’ll consider subscribing and sharing this post to help others make more informed investment decisions.
When you’re ready, I could help you in 3 ways - simply reply to this email if one is of interest:
Limited Partners:
Potential positions - you’re considering investing and need an independent opinion
Existing positions - there’s a lack of communication, you’re concerned about fraud, or perhaps you got a capital call request and you’re not sure how to proceed. I have also helped LPs with a “post-mortem” analysis on deals that didn’t work out - it’s important to learn these lessons as opposed to just blaming the GP.
LP Cohort - review 4 separate memos together with me and other LPs to learn how to vet LP investments.
LP Topics Seminar - an ongoing biweekly 1 hour meeting with other LPs where we'll go over investment decks, capital calls, distressed situations, and modeling. This is meant to provide a deeper look into existing LP investments. Please reply to this email if you’re interested.
LP Investing Lessons Podcast - learn from others investing lessons here. if you're an LP with lessons learned from a successful or unsuccessful investment, consider replying to this email to share your knowledge with others. Both the LP and GP in the recording are kept anonymous.
LP Community - join my free 2,500+ member LP community on Twitter
Find GPs in unique asset classes/geographies on my monthly Twitter intro post (see LinkedIn’s post as well for more)
General Partners:
Deck review - I’ll look over your marketing materials from the perspective of an LP and provide slide by slide commentary to improve your pitch
Investment review - I’ll provide independent feedback on an opportunity you’re pursuing
Capital call advisory - you suspect that you’ll need to make a capital call, but aren’t sure how to proceed or communicate the message.
Other - anything from waterfall/fee advisory to disagreements between co-GPs on the proper path given a set of circumstances
General Consulting: modeling, strategic advisory, underwriting training, etc.
If you’d like to speak on the phone, you can reach out to me any time at aleksey@centriocapital.com