September 4, 2024
Is Now the Right Time to Invest in Private Real Estate? Insights from Tim Wallen, Principal & CEO
Why Timing the Market is Hard: Insights from a 35-Year Real Estate Veteran The real estate market has always been a dynamic landscape, filled with challenges and opportunities for both investors and professionals. With over 35 years of experience in the real estate business, I’ve seen numerous cycles and many opportunities arise. One common theme I’ve encountered is the desire among many investors to time the market perfectly. However, timing the market is incredibly difficult, and this approach can often lead to missed opportunities. Market Conditions & Investment Opportunities The real estate market is currently experiencing a shift that has created a favorable environment for buyers: Institutional fund inflows are down approximately 80% from previous years, resulting in reduced competition. This reduced competition allows us to acquire assets at historically favorable cap rates of 5.5% to 6% and significantly below replacement cost. Consistent investment over a long period of time tends to produce the best results. Trying to time the market precisely, aiming to buy at the absolute low, often means missing out on great opportunities. Today’s market presents an interesting scenario where the assets we purchase now are likely to be sold in the future when interest rates are...
July 16, 2024
Investing with MLG Capital’s Dividend Fund Offering; Retirement, Foundation and Endowment Investor Focused
At MLG Capital, we are committed to providing innovative and strategic investment opportunities for our clients across the United States. One compelling offering is the Dividend Fund option that lives within our Series of MLG Private Funds. The Dividend Fund was first announced in 2018 as a parallel offering of MLG Private Fund IV LLC. This Fund option presents a unique pathway to investing in private real estate with retirement accounts, through foundations, endowments, or even cash investors. What Makes the Dividend Fund Special? The Dividend Fund is designed as a secondary pathway to investing in our Private Fund series, offering the same underlying assets, return targets, and investment strategy as our primary Private Fund. This option, however, features a distinct legal structure that can exempt investors from additional taxes typically associated with debt-backed asset investments within retirement accounts, or with foundation or endowment investors, commonly known as Unrelated Business Tax Income (UBTI). This can make it a good choice for those looking to diversify their retirement, foundation, or endowment investment accounts while maintaining compliance requirements for these types of investors. Why Would a Cash Investor Consider the Dividend Fund? Additionally, the Dividend Fund option may be a consideration for...
April 30, 2024
How Investors are Paid: MLG’s Private Fund Return Structure
The series of MLG Private Funds provides investors with access to investment opportunities that aim to produce tax-advantaged cash flow and appreciation over time. The Funds focus on growing investors’ wealth, capital preservation and diversification within private real estate investment. Understanding how and when returns are sent to investors is perhaps one of the most important elements of any investment structure. Within the private markets, there are a myriad of different structures that may exist. These structures can be frequently misunderstood. Our Funds utilize a “European equity waterfall return structure”. This is specifically designed to be an investor friendly return structure. This demonstrates our firm’s commitment to investors and our confidence in our ability to execute. MLG Private Funds Return Structure: Our latest Fund, Private Fund VI, intends to underwrite potential investments to a target internal rate of return of between 11% and 15% (net of Fund expenses and fees), on a leveraged basis. Each of our funds utilizes a three-tiered return structure. 100% of available distributions are paid to investors as follows1; (Tier 1) 8% cumulative preferred return on invested equity (Tier 2) 100% return of original principal invested, after a full 8% cumulative preferred return is paid (Tier...
October 3, 2023
Smart Investing: Preferred Qualities in Multifamily Acquisitions
When considering a potential multifamily acquisition, there are a number of factors to consider. Where is the property located? What school district is it in? When was the property built? These are just a few questions to consider when determining whether a property might be a good investment. Before looking at the specific attributes and factors we review when evaluating a multifamily property, it’s important that we consider the fundamental goals of our multifamily investments: to maintain and grow net operating income that will, in turn, produce stable cash-flow during ownership and maximize the property value upon sale — all with the lowest possible risk profile and in the most tax-efficient manner. The following, and all attributes we review, are considered with that goal in mind: Cost Basis, Potential for New Supply When looking at a potential multifamily acquisition, you’ll often hear the phrase ‘price per unit’ mentioned. While the total number of units is relevant, it’s more important to consider the price you’re paying or selling each individual unit for. At MLG, we are a ‘basis conscious’ firm, meaning that we pay significant attention to price per unit (or per square foot). We compare these values to recent sales...
June 14, 2023
Investment Outlook: Evaluating U.S. Treasuries and Private Commercial Real Estate
A thought on many investors' minds today is whether to invest in U.S. Treasuries in place of private real estate, or any other investment opportunity for that matter.
April 11, 2023
Understanding the K-1: A Guide for Real Estate Investors
As an investor in a diversified private real estate fund, you have likely come across the term “K-1” and have wondered both what it is and what it means to you. The K-1 is an important tax form that every investor in a partnership, including a real estate investment fund like the series of MLG Private Funds, receives annually, and is a very important document needed for filing your taxes. Let’s break down what a K-1 is, and more importantly, how this document can impact real estate investors personal tax filings. What is a K-1? A K-1 is a tax form that is used to report a partner’s (investors) share of the income, deductions, credits, and other allocable items of a partnership. It is required to be filed by every partnership (including a real estate investment fund) with the Internal Revenue Service (IRS) and provided to each partner (investor) annually. The K-1 reports the investor’s annual share of the partnership’s taxable income and is used to prepare the investor’s individual tax return What information is included on a K-1? A K-1 form typically includes the following information (see an example 2022 K1 from the IRS): Your tax basis calculation...
September 1, 2022
Meet Your Investor Operations Team
At MLG, we take pride in our approach to our relationships – from our partners to our investors, we believe that building our network has been key to our success over the last 35 years. Our base of investor relationships is one of our most important assets and serving them well is key to growing relationships and maintaining a strong reputation. As the number of our investors have grown from less than 100 to over 2500, we’ve doubled down on the value we place on service and the overall investor experience. As we’re expanding our Investor Relations team to also encompass investor account management and business development, Investor Operations (IO) is a function that we will continue building over time. The IO team will include general Operations, Compliance and the Private Client Group. The Investor Operations will be your go-to for all serviced-focused inquiries, from subscription processing, capital calls to account updates in the investor portal. The people that make up our team is our competitive advantage. Not only are there several years of combined experience across multiple industries, but these individuals are also committed to maintaining the “white glove service” that MLG has been known to provide. Let’s dive...
August 5, 2021
Why We Believe the Legacy Fund is the Superior Real Estate Exit Strategy
Over the course of the last few decades, many investors have experienced significant success in the world of real estate ownership. The cash flow, appreciation, and tax benefits provided can be powerful; however, owners of appreciated real estate often find themselves in a bind as they consider divesting their portfolio. After years of long-term ownership, investors are ready to sell and move out of the active oversight of their property, but often have very little basis remaining and as a result can face material capital gain taxes. Though there are ways to potentially defer the realization of these gains, conversations of changes to the tax code leave many in this situation wondering: “what options do I have?” What tax-deferred strategies exist? Possible tax deferred exit strategies include selling the property in a 1031 exchange of “like-kind” property, investing in a Delaware statutory trust (DST) with the proceeds from sale, or contributing the property into an UPREIT. Although each of these exit strategies may potentially achieve tax deferral, they also come with some common shortfalls. Common shortfalls of other tax deferred exit strategies: 1031 Exchange – Timing constraints, trade risk, single asset risk and require active management or oversight DSTs –...
June 22, 2021
Why Contributing Property to the Legacy Fund Could be More Than a Smart Financial Decision
When planning an investment, it’s important to understand the impact it will have for you financially and the time and effort required to oversee that investment. What if one could alleviate the entire burden of ownership without losing the financial component? What value would you place on having more time with the people you love or doing what you love? When selling property and seeking to defer tax, investors often consider 1031 exchanges, Delaware Statutory Trusts or UPREIT transactions. While those offerings enable owners to defer tax, they may have some shortfalls, including time constraints, high fees, single asset risk, and/or public market volatility. While partnering with MLG Capital to navigate the waters of a 1031 exchange could be a better alternative than conventional tax-deferred solutions, an even better idea may be to partner with MLG Capital and contribute your property to the Legacy Fund. Unlike our series of closed-end funds, like Private Fund V, the Legacy Fund is perpetual and designed to allow accredited investors to contribute real property into the fund. It’s a compelling exit strategy for high-net-worth investors with appreciated real estate assets. There are three main benefits to contributing to the Legacy Fund. Passive Ownership Diversification Tax Efficiency One of...
June 4, 2021
How Real Estate can Handle Higher Interest Rates caused by Inflation
Today, many investors are concerned that inflation is coming back, and interest rates are on the rise. How would these factors impact private real estate investing? Many incorrectly think private real estate acts like how bonds do in rising interest rate environments (i.e. inflation rises, interest rates go up, bond values down). I don’t believe this is the case. Why can private real estate handle higher interest rates? First, you need to ask: “why are interest rates rising?” Most of the time, higher interest rates are driven by a stronger economy triggering inflation, leading to higher interest rates. Unlike bonds, which have a fixed coupon rate, private real estate has a variety of lease expirations for tenants. This allows sponsors to raise the lease rates as leases mature. A strong economy leads to the following enhancements to revenue: Higher rental rates – Rates can simply rise by inflationary pressures. However, the story is bigger. For example, In Albuquerque, New Mexico, where occupancy rates have hit the 96-97% range. Despite the COVID-19 impact, we were able to raise average rents on a particular multifamily property from $1,050/mo to $1,200/mo over the past year, a 14% rise. While this is an extreme example, it...
