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REAL ESTATE EDUCATION

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ADVANCED REAL ESTATE CONCEPTS

Real Estate Waterfalls – The Simpler the Better

June 5, 2019

Real Estate Waterfalls – The Simpler the Better By Adam Gower Ph.D. Real estate syndications use what are called ‘waterfalls’ to structure and compensate principals and investors, and these are seldom altered once a developer creates a structure that works for them. There are, however, a vast array of ways in which waterfalls are designed and this article examines the most common, as well as looking at some of the most complex.   Simply stated…

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The Impact of Crowdfunding on Real Estate Waterfall Structures

June 5, 2019

The Impact of Crowdfunding on Real Estate Waterfall Structures By Adam Gower Ph.D. Waterfall calculations are used by real estate developers to calculate distributions to investors during the life cycle of a project and there have been some notable shifts in how they are structured since the emergence of real estate crowdfunding – with significant implications.   One trend is the way investors are driving how sponsors underwrite and present their deals, the tail wagging…

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Real Estate Waterfall Outliers

June 4, 2019

The Outliers of the Real Estate Waterfall World By Adam Gower Ph.D. When investing in a real estate project as a passive partner, cash distributions are calculated and made using what is called a ‘waterfall,’ most of which are structured according to reasonably uniform standards, and some of which are more creative.   According to Investor Management Services (IMS), the industry-leading investment management technology company for commercial real estate, commonly seen waterfalls offer an 8…

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Sponsor Fees and the Motivating Factor in Real Estate Investing

April 28, 2019

Sponsor Fees and the Motivating Factor in Real Estate Investing By Adam Gower Ph.D. When looking at any real estate deal with a sponsor, understanding the principals’ motivation for why they are doing a particular transaction is a key consideration prudent investors should keep in mind. The best sponsors will be able to articulate clearly the strengths and weaknesses of the opportunity and will demonstrate to investors that real estate is their passion, that they…

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Unwrapping Assumptions in Real Estate Analysis

April 19, 2019

Unwrapping Assumptions in Real Estate Analysis By Adam Gower Ph.D. The Promise of High Returns   It is easy for investors to be seduced by the promise of high returns on a real estate deal and while there is nothing wrong, of course, with wanting a high return it’s important for investors to understand what assumptions underpin a sponsors’ projections. Credible, professional sponsors with an eye to the future and establishing long term relationships with…

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Aspects for Evaluating a Sponsor

April 9, 2019

Aspects for Evaluating a Sponsor By Adam Gower Ph.D. Investing in an average real estate deal with a great sponsor instead of a great real estate deal with an average sponsor can be a wise investment decision. As the sponsor has such an impact on the trajectory of how the real estate is going to perform here are several criteria an investor may wish to consider. Track Record   The first consideration is track record.…

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3 Risks to Watch for in a Real Estate Recap

March 13, 2019

3 Risks to Watch for in a Real Estate Recap By Adam Gower Ph.D. A recapitalization of a project occurs when a sponsor refinances a project they already own, oftentimes bringing in new investors to provide additional equity. An obvious advantage to this scenario is the mitigation of risk that comes from the sponsor’s legacy knowledge of the building and its operating performance. However, there are three major risks that investors in such types of…

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Understanding Real Estate Recapitalizations vs. Acquisitions

March 12, 2019

Understanding Recaps vs. Acquisitions in Real Estate By Adam Gower Ph.D. When a sponsor offers an opportunity to investors, the property they wish to finance will either have just been acquired (or is under contract) or was purchased by the sponsor at an earlier time using a different financial structure than the one being proposed. This defines the essential difference between an acquisition and what is called a recapitalization (‘recap’) of the property. In an…

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What You Need to Know About Rent Control

March 5, 2019

The Unintended Consequences of Rent Control By Adam Gower Ph.D. Oregon just became the first state in the union to impose rent control statewide, yet an entirely predictable unintended consequence is that driving down single-family home values is also a likely result.   Communities across the United States are grappling with the question of how to provide workforce housing to people who would otherwise be priced out of the market. What tends to happen in…

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House Price Dynamics

March 2, 2019

How to Recognize a Housing Bubble By Adam Gower Ph.D. Past performance is not a guarantee for future results. This boilerplate disclaimer is standard wording for just about any financial investment we might make, but when it comes to buying a home it is often disregarded. Home-buyers tend to be driven by the idea that because prices went up last year, they must go up again next year. Same goes for speculators, who, seeing a…

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