Question - Why are some investors interested in a fund?
Answer - DIVERSITY
When investing in a share of a traditional project, an investor has say $50,000 allocated to one property. With a fund, that same $50,000 is invested in multiple properties.
NEW INVESTMENT PRODUCT
COMING SOON .....
Question - Is this pretyy unanimous among investors?
Answer - NO
Not all investors are fans of funds. The main reason is that they prefer the sponsor concentrate on managing specific assets and they take care of diversifying by picking the assets they want.
Our traditional investment product kind of goes like this:
Find an income producing property that we would like to invest in ourselves.
Put together a small group of like-minded investors interested in owning the property with us.
Investors and Denbar become members (shareholders) of a single purpose LLC that in turn purchases the property.
Although this has worked well for a long time, due to changes in the market place, and more importantly, our fellow investors requesting other options, we decided to add a new investment product, which is like a fund that invest in multiple diverse projects
Since the best learning comes than from actually doing something, we are currently piloting this product with a Fund called Denbar READY. READY stands for Real Estate Assets Diversified Yield. I know, it’s a push but we are not known for our naming prowess. The fund has invested in 8 projects so far and should be fully invested by the end of 2016.
This fund has a mix of current income and equity buildup projects. However, that is not the only element of diversity in the portfolio. Some of the other aspects of diversity we are attempting to incude are:
Type – E.g. residential, commercial, industrial etc.
Class – E.g. A, B, or C class apartment complex
Financials Structure – E.g. Equity, Debt, Mezzanine
Geography – E.g. Iowa, Arizona, Seychelles (I wish!)
Please let us know if you have questions or suggestions on this new product.
After listening to feedback from current and potential investors as well as external research, we would like to create two funds. One that focusses on current income, and one that focusses on long term equity build up. This is very similar to what we already do with our individual investments.
Invest no more than 20% in a single project
Outside sponsors, if any, has to have at least a 5% equity stake in a project net of any upfront fees they charge.
No more than two classes of shares.
Income fund target projects with 8 % annual yield, plus some equity appreciation
Equity fund target projects that doubles equity in 5 to 6 years.
Offer investors limited liquidity after one year.
Avoid asset based fees by any sponsor (including ourselves)
Tie sponsor fees to performance.
DISCLAIMER - This is a work in progress, so may change. Also, still working on how to actually implement some of these.