Selection of Real Estate Co-Investment Platforms (Best Practices & Risk Management)

Table of Contents

1. People Above All Else
2. Handling of Investor Monies
3. Transparency
4. Business and Operating Models
5. In Conclusion

Real estate co-investment is a straightforward concept, whereby investors team up to collectively share the risks and rewards from real estate investments. And it is hardly a novel concept either. For the longest time, real estate private equity fund managers have been investing on behalf of sophisticated institutional investors coming together either through blind pool funds that invest into a portfolio of assets or into specific deals.

However, co-investment at the non-institutional segment is a relatively less established arrangement within the Southeast Asia region. While this burgeoning investment channel is generally a positive development for non-institutional investors, co-investment platforms come in varying shapes and forms, each with different approaches. Where best practices are prevalent in the institutional capital segment and professionalism is held to high standards, the landscape is less uniform for market players targeting the non-institutional segment.

This article sets out what RealVantage regards as the key points that investors need to carefully assess when selecting real estate co-investment platforms that can help them diversify and augment their investment strategies.

People Above All Else

Given that investors are likely to take a passive role and the complexities involved in real estate investment (especially for cross-border deals), it is critical that the deals be guided by a steady and experienced pair of hands through the entire investment life-cycle.

The requisite skillsets contributing to success of a deal are wide ranging – from sound research and analysis, rigorous deal underwriting and due diligence, tax-optimised investment structuring to the execution of asset management plans and an eventual divestment – and take years to hone.

It is absolutely imperative that investors assess the qualification, experience and track record of the teams behind co-investment platforms before even looking at the opportunities on offer. Ideally, the principals are seasoned professionals who hail from blue-chip institutional real estate private equity backgrounds.

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Handling of Investor Monies

As borne out by history, every industry has its fair share of bad actors. For the asset management industry, the worst nightmares are played out when investor monies are mishandled. Investors need to contemplate if adequate checks and balances are in place when it comes to handling of investor capital.

To this point, investors should transact with platforms that employ the services of recognised, independent escrow agents that will ensure all necessary conditions are fulfilled and verified before any transfer of funds can be carried out. Investors should be especially wary when monies have to flow through bank accounts of individuals or firms other than the investment entities within the deal holding structure.

Transparency

Transparency constitutes an important measure of accountability and proof of rigour in a deal. Coming into a co-investment arrangement, investors need to decide if they have sufficient data to make an informed investment decision. Important areas include:

• Overall strategy, the factors driving returns for the deal and the exit options;
• Pertinent risks for consideration and corresponding mitigants where possible;
• Capital structures, sources and uses of funds;
• Fee structures and potential conflicts of interest;
• Investment structures with clear line of ownership; and
• The assumptions underlying the calculation of returns.

Co-investment platforms that are consistently open to addressing questions, particularly the difficult ones relating to risks, downside and unforeseen scenarios reflect the level of professionalism. Platforms that operate with opacity or eschew from disclosure of information vital to the assessment of offerings should set off the alarm bells for prospective investors.

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Business and Operating Models

Investors can tell a lot from the business and operating models adopted by co-investment platforms. The way fees are structured – whether the bulk of it is back-end loaded or taken upfront – gives clues on how aligned the platforms are with clients that they serve. Whether the platforms retain skin in the game, investing their own capital alongside investors through the entire deal feeds into the same consideration.

The quality of due diligence is another important area that bears scrutiny. It is a resource-intensive exercise which many investors are inadequately equipped to undertake. The scope of the process depends on the nature of the deal and could range from legal, financial, tax, technical to environmental due diligence. More than just being a long checklist, quality due diligence draws upon the experience of investment managers to recognise risks and strike the right balance with cost management.

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In Conclusion

This brief article is hardly an exhaustive list of considerations when it comes to selecting a real estate co-investment platform but we hope it is helpful as a guide. In addition to the aforementioned points, potential investors could ask to speak with existing investors, learn about their investment experiences with the platform under consideration, request to look at past investor reports or discuss a past deal in greater detail. Just as institutional investors carry out due diligence on fund managers before committing to any investment campaigns, prospective clients of real estate co-investment platforms should do the same.

About RealVantage

RealVantage is a leading real estate co-investment platform, licensed and regulated by the Monetary Authority of Singapore (MAS), that allows our investors to diversify across markets, overseas properties, sectors and investment strategies.

The team at RealVantage are highly qualified professionals who brings about a multi-disciplinary vision and approach in their respective fields towards business development, management, and client satisfaction. The team is led by distinguished Board of Advisors and advisory committee who provide cross-functional and multi-disciplinary expertise to the RealVantage team ranging from real estate, corporate finance, technology, venture capital, and startups growth. The team's philosophy, core values, and technological edge help clients build a diversified and high-performing real estate investment portfolio.

Get in touch with RealVantage today to see how they can help you in your real estate investment journey.

Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational purposes. Please consult your financial advisor, accountant, and/or attorney before proceeding with any financial/real estate investments.