Due diligence requirements for private real estate investment trusts (REITs) and underwriting standards are in acute need of upgrading as the earnings gap between publicly-traded REITs and non publicly-traded REITs remains quite large. This tells the underwriter that the transaction costs remain too high, the conflicts-of-interest can be so Orwellian that only proactive, post-funding monitoring can help sort out the potential challenges before asset impairment and investment loss exposure can reach the critical stage.
At issue is the holding period – which is determined to be indefinite. There does not currently exist a public market for the primary securities and many participants are forced by tax regulations to hold the investment for no less than 10 years. In today’s Information Age, ten years is the equivalent of forever because the odds of the commercial real estate industry continuing to suffer market disruptions over that period of time are just about 100%. This means the issue is more than just where the exit cap rate has to be for the investors to be made whole.
The INVIZEN approach is to attack the private real estate investment trusts and other 1031 exchange investment vehicles with an end-to-end approach that is designed to provide underwriting support for most private placement offering securities transaction funding proposals by:
- Focusing on the working capital reserves necessary to sustain the given asset class, within the given market area, based upon the surveyed market evidence relating to the potential for a pending market disruption to reduce the revenues of the property; and
- Focusing on the requirement that each property be able to present a credible two-tailed exit strategy plan where the asset can be positioned to provide maximum assurance to investors and lenders that both term default risk and maturity default risk exposure is essentially manageable for the entire term of the investment holding period; and
- Requiring liquidity maintenance to track conditions, and while this will sometimes penalize near-term distributable cash flows (thus slightly lowering the overall annual IRR of the investment), the cash does come back out and the overall investment return is not impacted; and
- Tracking potential administrative foreclosure event conditions that could inadvertently lead to an administrative foreclosure; and
- Providing proactive protection against the filing of a bankruptcy petition as a result of an unforeseen liquidity crisis over the term of the investment.
- INVIZEN supports the project and the participants the entire way with our exclusive suite of business planning services specifically designed to proactively manage execution risk because the budgets, goals and owner requirements are automatically updated and transmitted down to the line employee level through every level of management that includes tasking, productivity measurement and automated reporting. What does your due diligence program have?
There is so much more to the INVIZEN Real-Time Status Asset Care Protection Program that INVIZEN was intentionally designed to support:
- CRE Developers & Sponsors. Developers and sponsors seeking capital financing have the advantage of a systemic solution that provides the support needed to increase the odds of a successful capital financing outcome that saves time, money and reduces their capital investment risk.
- Investors & Lenders. Investors and lenders seeking to participate in commercial real estate securities private placement offerings and other credit instruments have the advantage of a systemic solution that provides the highest practical investment performance assurance we can contrive. INVIZEN gives investors and lenders the proactive investment loss severity risk prevention and monitoring they really need, but have never been able to obtain in the past.
- Broker-Dealers & Registered Investment Advisors. Securities broker-dealers and registered investment advisors on both the buy-side and sell-side of the transaction have the advantage of a reporting system that provides FINRA compliance support, protection from future investment fraud claims, increased transaction velocity and the opportunity to increase their operating margins – all in one package. If your firm doesn’t have this approach, then you are still operating in an environment that will penalize your opportunity to profit and control costs.
Talk to an INVIZEN representative today for more info
Find out more about what we can do together to make CRE investing that much better for everyone concerned. Let’s talk about your concerns and needs. Talk to us about what INVIZEN can do for your bottom line by calling 832.663.9634 today.