Valoran Capital Management Insights

“Past performance does not guarantee future results” is seared into every track record distributed for all investments. This phrase is so omnipresent in the investment community that it loses its effectiveness as a disclaimer. With this statement ever true, what good is a track record if an investor can't look to the past to evaluate the future?

From 2020 to 2022, rents in markets like Tampa, Orlando, Phoenix, and Austin grew 25%+, SOFR hovered around 0%, and occupancy in the hottest markets exceeded 96%. It was good to be a landlord. Equity capital was abundant, and transaction volume was breaking records. Then the party ended. Rent growth turned negative, SOFR peaked at 5.40% in 2023, and transaction volume plummeted as sellers canceled sale plans.

Many affluent investors already have substantial exposure to real estate before deciding how to allocate additional investment capital to the asset class. They may consider their primary residence, a vacation property, apartment building, property owned by their business, and/or commercial investment property. Others invest in syndicated deals or funds. This article will help investors decide the best vehicle, or vehicles, for investing in real estate.

What is Best for You? Second to private equity, real estate is one of the most allocated asset classes in the alternative space.

Investing in multifamily products can take on different forms of risk and potential outcomes. It can range from risky with the potential of high returns to conservative with ongoing distributions and moderate expected returns. This table describes the main types of investing and potential outcomes for each one.

When offering a memorandum of a property deal lands in your inbox, flip to the model and look at these assumptions. This five-minute check can eliminate a bad deal in a short amount of time without having to spend a lot of time hearing the operator’s story of the opportunity.

Everyone knows the old saying in real estate: “The three most important aspects are location, location, location.” But what actually defines a good location? Two of the most powerful drivers are supply and household incomes.

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.