Valoran Capital Management

Can small, relatively unknown real estate managers deliver better returns than large, well-known firms? Every investor who has opened the Wall Street Journal or clicked on a major online publication knows the brand names of private REITs and non-traded real estate vehicles. These are the multi-billion firms acquiring massive portfolio deals multiple times a year. However, there are many, less visible, smaller managers who can deliver outstanding returns. Here is a look at the benefits and downsides of choosing large or small managers for your next investment.

Unlike publicly traded stocks, private investments do not have real-time pricing. At best, private investments publish their valuations monthly, but more often, marks are produced quarterly, or even annually.

Unlike listed securities which have standard disclosure and documentation requirements, private placements, as much as the law allows, write their own rules regarding fees, promotion, allocation of costs, control, and oversight. With Private Placement Memorandums (PPM) sometimes being over 100 pages, there is plenty of room for managers to insert concepts which may not be competitive, or even harmful to investors. Always read through the PPM of a potential investment and ask the manager to explain any terms of questionable nature.

Investing in private Real Estate Funds is a great way to introduce diversification to an investor’s portfolio, but there are pros and cons to these investments which are not always stated on the front of every offering memorandum. Here are some of the benefits and risks of why real estate funds may or may not be appropriate for you.

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