Institutional-Caliber Service for Individual Investors

Institutional investors, such as life insurance companies and pension funds, have historically been the only investors to have access to some of the best real estate deals available.

These institutions will often invest large tranches of money – often $20 million or more, in a single deal or fund. The real estate development firms (sponsors) who cater to institutional investors tend to be highly sophisticated, with refined processes for vetting, managing and reporting on the specific deals.

At Greybrook Realty Partners, we partner with several institutional investors and similarly as a third-party asset manager, we have developed equally sophisticated processes that would rival the most well-respected sponsors.

What makes Greybrook unique, though, is that we are able to offer our institutional-grade platform to individual investors. Through our platform, we pool capital from high-net-worth individuals (limited partner equity) that we then co-invest using a joint-venture structure alongside top-tier sponsors. Using this approach, we are able to provide unprecedented access to institutional-quality deals that most individual investors would not be able to achieve on their own.

This model is unique to the industry. In this article, we will show you how the infrastructure we have in place at Greybrook allows us to provide individual investors with the institutional-caliber service they deserve.

Institutional vs. Individual Investors

Given the level of capital that institutional investors bring to each deal, it is no surprise that they hold significant negotiating weight with sponsors and can more easily influence the direction of individual deals.

High-net-worth and other individual investors generally invest only a fraction of the capital, typically between $25,000 and $100,000 at a time. In general, this level of capital is not enough to warrant the sponsor granting any sort of decision-making authority to those investors. Someone who invests directly with a sponsor is typically issued a “take it or leave it” contract that is designed to protect the sponsor’s best interests.

For too long, individual investors have just accepted this reality.

At Greybrook, we believe there should be a middle-ground solution. By pooling capital from individual investors and then investing those funds collectively with a sponsor, we can negotiate institution-like rights and authority over deals on behalf of individual investors.

Greybrook’s Institutional Customer Base

Greybrook has a long history with institutional investors. Approximately twenty five percent of our investor base is comprised of institutional investors today. Many of our team members have worked for institutional investors, and therefore, have an “institutional mindset” that has helped to inform our systems and processes.

We use the same institutional-caliber systems and processes when partnering with individual investors. For example, institutional investors tend to have long-term, patient capital. They are often risk averse, and in turn, are willing to take a lower return on their investment if it means their investment capital will be protected, even if growing more incrementally over time.

Our ability to “think like an institution” on behalf of our institutional customer base is the same mindset we have when working to protect individual investors’ capital, as well.

Institutional-Caliber Infrastructure for Individual Investors
Given the nature of our business, we have developed the infrastructure necessary to accommodate institutional investors and individual investors alike. Our systems were originally designed with institutional investors in mind, but as our business focus shifted toward high-net-worth individuals, have adapted to meet their needs, as well.

Here is an example of what that looks like in practice.

Our capital markets team works with individual investors similar to a portfolio manager. They will connect with someone who wants to invest with us and will help them map out a properly diversified portfolio of investments that can grow over time. This is the same level of service an institutional investor would expect, except we are providing it to individual investors on a personalized basis.

Institutional-Level Due Diligence

The processes we use to source, evaluate, and negotiate deals are consistent with those used by any private equity firm that is fully capitalized by institutional clients and this is particularly valuable during the initial due diligence phase.

When conducting due diligence on a sponsor before looking at any specific deals, we can go back through the sponsor’s track record and pin down the assumptions they made about prior deals. We then compare this to the sponsor’s actual performance giving us an understanding of the accuracyof projections, the quality of underwriting and ability to execute. We have an in-house team of seasoned professionals who conduct this due diligence and, where necessary, we hire third party consultants to conduct research for us to review and provide additional insight. This might include hiring domain specific attorneys to review legal documentation or planning considerations, cost consultants to examine financials, appraisers to evaluate asset values, and other consultants with similar specialized professional skills. Most institutional investors have in-house teams that conduct this type of due diligence. These are people who analyze deals for a living.

This degree of due diligence is simply cost prohibitive for individual investors to undertake alone. In turn, most will take what the sponsor says at face-value.

As an intermediary, we provide the same level of due diligence that an institutional investor would undertake, except we do it on behalf of individual investors. By aggregating investor capital as we do here at Greybrook, we are able to amortize the expense of this institutional caliber due diligence across hundreds of individual investor contributions, providing the same degree of protection at a de-minimis per-investor cost.

Similarly, when presented with new investment opportunities from our sponsor partners, we use this same infrastructure to stress test the sponsor’s underwriting to better project the likelihood of a deal’s success.

Institution-Like Portfolio Management

Institutional investors employ professionals whose sole responsibility it is to wake up every morning, look at the portfolio, see how the portfolio is performing, and make decisions about whether a rebalancing is necessary and if so, to what end.

The average retail investor takes a more “set it and forget it” approach. Some will have financial advisors guiding them, but few have someone benchmarking their portfolio’s performance on a consistent basis. Even fewer have portfolio managers who can make qualitative recommendations about how to invest in private equity real estate.

This is where Greybrook shines.

Before we even speak to an investor about a specific deal, we spend a great deal of time getting to know that individual. Our advisors will connect with someone to learn more about his or her retirement goals, risk tolerance, time horizon and more. We will look at other investments an individual holds to see how or where alternative investments might play a role, and whether private equity real estate investing would be a suitable fit. More specifically, we look at whether our investment asset class (ground-up and value-add multifamily development) aligns with the investor’s goals. Our objective in doing so is to help individuals create balanced portfolios while mitigating risk.

This acute attention to detail is the type of service institutional investors expect and is one that we are able to pass through to our investors because we act as an institutional investor on your behalf.

Access to Institutional-Grade Assets

One of the primary reasons to have a relationship with a firm like Greybrook is it provides individual investors with access to institutional-grade development deals – deals that they would otherwise be unable to access on their own.

Development deals are inherently very complex and, if mismanaged, can be risky. This is one of the reasons why, historically, only well-heeled institutional investors have been able to invest in this asset class. Typically, only institutional investors have the infrastructure in place necessary to protect their interests, giving them an element of control and element of recourse in the event a development deal goes sideways.

Our platform provides that same sort of structure, but on behalf of individual investors.

Development deals of this scale will often require $30-50 million of equity or more. Greybrook acts as an institutional intermediary that can go out and procure this capital, secure the deal, and oversee the development process on the investors’ behalf. Thought this type of structure is really the only way for individual investors to gain exposure to institutional-grade development deals of any scale and certainly one of the only ways they can do it with any degree of institutional caliber protection.

Institutional-Level Oversight

Everyone thinks that deal selection process and underwriting is the main complexity associated with investing in private equity real estate. The front end of the deal is certainly important, but perhaps even more so is how the sponsor manages the deal after having lined up the capital, received the entitlements, and works towards executing the business plan..

Our asset management group consists of VPs of development who serve as portfolio managers. Each of them has a team that includes an associate and an analyst. Collectively, each team reports to a director of asset management. These teams oversee a dozen or so deals at a time. Their job is to interact with our development partners on a daily, weekly, or monthly basis depending on the status of the project, getting regular updates as to what is happening, the status of various milestones, and to determine where we can add value to the process.

With this approach, we are not passive investors. We are actively engaged in the lifespan of every development project on behalf of the individual LP investors who invest with us. We sit at the table with our sponsor partners, brainstorming and troubleshooting alongside them to ensure successful outcomes. We are not here to “police” sponsors, but rather to add value based on our breadth of experience.

Institutional-Quality Reporting

Although an individual might only be investing $25,000 with us, they are investing in a platform that manages investments for banks, foundations, pension funds and the like. As a result individual investors also benefit from institutional-quality investment and asset management and institutional quality investment reporting.

Development deals move slowly, so unlike a stock portfolio that might issue reports on a monthly basis, our reports tend to be issued on a quarterly or bi-annual basis. These might become more frequent as a project leases up and there is more daily activity to report.

As we do a deep dive, collect information from sponsors, and before issuing reports to investors, we use a variety of software programs to track, highlight, and flag various metrics or deal decisions that need to be made. As an asset manager, we provide acute attention to reporting and the metrics therein.

Conclusion

When people think of institutions, they tend to think of pension funds, banks, insurance companies and the like. But private equity firms like Greybrook are institutions if not in name, in nature. Our team has more than 70 people with about $17 billion worth of development at various stages.

For us, what makes us an “institution” is scale expertise and the fact that at our core we have institutionalized and systematized processes. It is about our leadership, mindset, and decision-making authority. We bring this institutional lens to each project and each relationship, thereby providing individual investors with the institutional-caliber service they deserve.