Feeder funds play a crucial role in providing access to investments that individuals may not otherwise have, with some funds excelling at underwriting processes. It is essential for sponsors facing financial distress to communicate early and transparently with their LP investors, taking responsibility for the situation. Blaming external factors like the Fed is discouraged. When evaluating capital calls, it is important for investors to assess their financial capability, the necessity of the call, and the overall investment performance. GP transparency regarding the investment's current status is vital for investors to make informed decisions.
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.