Investors in real estate partnerships often overlook the possibility of losing their entire investment capital, assuming the worst-case scenario is merely getting their money back. Many investors seek stable dividends in real estate investments without fully understanding the associated risks and returns, leading to potential over-allocation. There is a tendency to be overly fixated on impressive IRR figures advertised by sponsors, which might be based on aggressive assumptions. Moreover, investors should differentiate between operational excellence by general partners and returns driven by market conditions, as success might not always be solely attributed to the GP's expertise.
Aleksey Chernobelskiy has many pieces of advice for retail investors writing checks for syndicated real estate deals. But, one of the most important: you could lose it all. As many syndicators — firms that pool equity to buy property — grapple with distress, thanks to rising interes rates, investors have been stuck in the crosshairs trying to determine whether to pump more money into a struggling deal, or walk away.
Deconstruct chatted with Chernobelskiy about syndicator best practices, what retail investors should know about real estate investing, feeder funds tapping wealth for these deals and what LPs can do if everything goes wrong.