What RIAs Need to Know
Registered Investment Advisors have a multitude of investment options to consider when addressing how best to preserve and grow their clients’ hard-earned capital. From traditional public market investments such as equities and fixed income to alternatives such as private equity, private real estate and operating companies, there are ample opportunities to explore.
Where does private real estate investing fit in?
A recent RIA survey conducted by MLG Capital revealed that:
- 93% of RIAs believe clients should have alternative investments within their portfolio.
- 80% of RIAs expect alternative investments to produce between a 5-10% return.
- 73% of RIA’s clients invest in real estate with real estate representing 29% of all alternatives investments listed (private equity, private real estate, hedge funds, oil/gas, other).
- 93% of RIAs are asked about real estate by clients at least quarterly.
- Only 27% of RIAs proactively allocate discretionary client funds to private real estate.
- 93% of RIAs believe private real estate has a low correlation to the public market.
Clearly, private real estate investments has many potential advantages over traditional public equity investments and investing with a manager with a deep understanding and connection to the local geographic market is important. Here are a few considerations that RIAs should keep in mind.
Buy + Think Like a Local
In many situations, it is best to “buy local.” It’s trendy, yet important. In MLG Capital’s case, for example, our historical geographic strength lies in our key backyards of Wisconsin, Texas and Florida yet we continually seek geographic diversification and target other regions more broadly with the goal of becoming a good neighbor there as well. Understanding a local market is no perfect science and contains no absolutes. Every market is different. Every market demands something different. Understanding that local demand is what drives success. RIAs should seek out and give strong consideration to private real estate firms that buy and think like locals.
Co-Investing for Success
Co-investing with other trusted third-party real estate partners allows private real estate managers to diversify the portfolio in terms of both geography and asset type. Relationships with local real estate partners who have special access can help identify the “best of the best” opportunities and enhances the probability of a successful deal. RIAs should ask their private real estate managers about their co-investment policies as part of on-going due diligence.
Deal Sourcing Considerations
The sourcing strategy of a real estate investment firm can be the “secret sauce” that can give one firm an edge over others. When it comes to finding opportunities that produce the IRR that RIAs expect on their clients’ investment, finding the best opportunities and having a deep sourcing funnel are key. Real estate is a relationship business, and an experienced operator with deep ties to the markets in which they invest will typically have a stronger sourcing strategy than a less experienced operator looking to enter a specific real estate market without an existing network. Real estate is more than having the money to commit to a deal: without the existing network in place, and relationships, the sponsor of your fund may be entering uncharted waters, adding potential additional risk to your investment. Ensure the sponsor or fund knows what they know and source what they know.
Impact Investing Commitment
When private real estate firms are involved at a local level, it is likely that they will strive to address vulnerable populations and in-need communities at-large to fulfill a company-wide commitment to the community. RIAs should delve into whether the management team is comprised of good citizens who are strongly committed to philanthropy and always on the lookout for new ways to improve the day-to-day today lives of local residents and tenants. Loyalty is a two-way street and giving back needs to be woven into the corporate fabric.
Many RIA’s seek informational resources for their clients in the private real estate space. MLG Capital has produced various content pieces. These materials are available on Harvest, a platform dedicated to educational resources for RIA’s, via Harvest Exchange.
About MLG Capital Private Funds
The series of MLG Private Funds were formed to acquire, directly or indirectly, a geographically diverse portfolio of commercial real estate that primarily consists of multifamily, industrial, retail, office, and other value-add opportunities located in strategically identified areas throughout the United States. View more about our latest fund by clicking here.
MLG Capital has been an active private real estate investor for more than 33 years. We’ve acquired over $1.765B in assets (approximation of current value of assets owned + value of assets disposed), comprised of over 19.1 million square feet of space, approximately 14,083 multifamily apartment units, in multiple real estate asset classes, multiple geographies, and with multiple partners.