questions-that-commercial-real-estate-investors-should-ask-but-never-do

Questions That Commercial Real Estate Investors Should Ask but Never Do

This is a topic that I have been noodling on with our marketing folks for some time and, given the turbulent market conditions and general craziness of the world we live in today, I thought now was the right moment to begin this series.

Questions That Commercial Real Estate Investors Should Ask but Never Do

This is a topic that I have been noodling on with our marketing folks for some time and, given the turbulent market conditions and general craziness of the world we live in today, I thought now was the right moment to begin this series.

As I have been toying around with this concept, I thought I would ask ChatGPT what questions it thought people should ask before investing in commercial real estate?

Here is what it spat out (condensed for brevity’s sake):

  1. What is the purpose of the investment?
  2. What is the current state of the local real estate market?
  3. What is the condition of the property?
  4. What are the zoning laws and regulations for the area?
  5. What are the potential risks and rewards of the investment?
  6. What are the financing options available?
  7. What are the property management requirements?
  8. What are the potential income and expenses associated with the investment?
  9. What are the potential exit strategies?
  10. What is your overall investment strategy?
Now you can quibble a bit with the particulars of the above, but these ten questions do a decent job of covering the waterfront for an initial diligence review. But ChatGPT produced what I thought it would: the predictable questions that investors already know to ask or, better put, the issues that GP’s and Sponsors know to address up front in their pitches.

The real magic lies in asking the questions that nobody else does.

#1 What does your tech stack look like?

I am constantly amazed by how infrequently I am asked about how our firm leverages technology. So much so that I usually find myself awkwardly trying to bolt it onto the tail end of our pitch because of how proud I am of our platform and how critical it is to our operations.

Aside from direct calls and meetings, which are cumbersome, inefficient and increasingly disfavored by limited partners, there are three platforms in our tech stack we use as our primary mode of communication, reporting and transparency for investors:

  • Juniper Square: Our all-in-one database where investors can review offering materials for new opportunities, complete subscription documents, track current investments and upcoming distributions, update financial information, and access documents related to their investments in a highly-secure manner.
  • Hubspot: Our CRM platform that allows us to send thousands of emails at once, manage deal flow with automated sequences, and keep in touch by tracking the last time we communicated so we know when to initiate a follow-up.
  • Salesmsg: Our texting service that notifies investors when their distribution hits their bank account or a new deal is available.

The investor experience and journey is largely dictated by these technological solutions and service providers.

You may scoff at that statement but if your distributions go to the wrong account or your K1 is not uploaded in a secure and timely fashion, I promise you will care. We’ve worked diligently to streamline the business where we can, so we can spend more time delivering results and making our investors happy.

#2 What is your Uber passenger rating?

As a limited partner, there are several factors that you should consider before deciding to invest in a particular opportunity. We are all familiar with the well-worn traditional inquiries into financials, markets, underwriting assumptions and the like. And while these are of course important, there is one key component that is much more difficult to assess and quantify: the quality of the management team.

In the question above, I considered the importance of inquiring about a firm’s tech stack. Now, I’d like to encourage you to examine their character.

Effectively and efficiently evaluating a manager’s skill and competence in squishy, hard to evaluate areas like leadership, communication and character is a herculean task and often given short shrift compared to granular diligence about investing acumen.

At first glance, this may seem like an odd metric to consider when evaluating a company’s potential for success. However, investors should ask managers what their Uber rating is because it can provide some insights into their character, interpersonal skills, and level of professionalism.

A manager’s Uber passenger rating is a direct reflection of how well they interact with others and treat people they may never see again. This can be an indication of their ability to effectively communicate with their employees, customers, and other stakeholders. A high passenger rating can be a good sign that a manager is skilled at building relationships, resolving conflicts, and providing excellent customer service.

The corollary is that a low Uber passenger rating can be a warning sign that a manager may
have trouble working with others. This could manifest itself in a variety of ways, such as difficulty delegating tasks, an inability to take constructive criticism, or a lack of empathy for others. These traits could ultimately hinder a manager’s ability to effectively lead a team and achieve the company’s goals.

Additionally, the Uber passenger rating can also be a reflection of a manager’s attention to detail and overall professionalism. A high rating can indicate that a manager takes pride in their work and pays attention to the small details that can make a big difference in customer satisfaction. Conversely, a low rating may suggest that a manager is disorganized, careless, or unprofessional in their interactions with others.

This may seem like an unconventional metric to consider, but it can serve as a proxy for
a manager’s leadership style, communication skills and overall professionalism.

#3 Can you provide a reference?

While satisfied clients and partners can provide positive feedback, their viewpoint may be limited to successful experiences.

Instead of asking for a reference from a firm’s current investors or partners, consider the untapped wisdom that can be gained from engaging with those in underperforming deals, 3rd party vendors that are involved in daily activity, or former employees who have moved on.

These three, often-overlooked groups can provide valuable insight for investors seeking to make informed decisions:

  1. Former investors/ investors in deals that didn’t go well
    a) Investors in deals that didn’t perform well possess a unique perspective on what went wrong. Engaging with them opens the door to learning from failure, identifying potential pitfalls, and gaining insights into a firm’s ability to adapt and recover.
    b) A firm’s true strength lies in its ability to bounce back from setbacks. References from investors who have experienced disappointment shed light on how the firm handles adversity, navigates challenging situations, and learns from mistakes. These references provide a deeper understanding of a firm’s resilience, adaptability, and commitment to growth.
    c) A firm that encourages contact with former investors, even in less successful endeavors, demonstrates transparency and a willingness to learn. Their openness allows you to evaluate how they take responsibility, rectify issues, and improve their future investment decisions.
  2. Current 3rd party vendors and service providers (lawyers, accountant, property managers, leasing brokers)
    a) The strength and quality of a firm’s partnerships with third-party vendors and service providers can indicate their ability to build successful relationships and manage complex networks. By reaching out to these professionals, you can gauge how the firm collaborates, communicates, and navigates challenges within their broader ecosystem.
    b) These experts interact closely with the firm on various matters, gaining firsthand knowledge of its professionalism, integrity, and competence. Their feedback can provide a different perspective on the firm’s reliability, adherence to regulations, and overall ethical standards.
    c) Evaluating a firm’s operational efficiency is crucial for your investment decision. Third-party professionals can shed light on the firm’s organizational capabilities, responsiveness, and adherence to timelines, helping you assess whether they are reliable and capable of meeting their commitments.
  3. Former employees of the firm
    a) Former employees can offer unique perspectives on a company’s culture, management practices, and potential red flags that financial statements may not reveal.
    b) Understanding the reasons behind an employee’s departure can provide valuable insights into the company’s inner workings. Their response may shed light on issues such as poor management practices, a toxic work environment, or potential conflicts of interest.
    c) The company culture has a significant impact on employee satisfaction, productivity, and long-term success. Asking former employees about the company culture can help investors gauge whether it aligns with the organization’s stated values and whether it fosters a conducive environment for growth. Look for responses that touch on transparency, collaboration, innovation, and the overall treatment of employees.

In conjunction with traditional due diligence methods, these three groups can help to form a well-rounded assessment of a firm you’re looking to partner with. Investors can gain a deeper understanding of a company’s culture, potential risks, and ethical practices.

Dig deeper and ask the questions that are often overlooked!

Previous Articles

the-ultimate-guide-to-commercial-real-estate-investing

The Ultimate Guide to Commercial Real Estate Investing

Learn everything you need to know to assess the benefits of a commercial real estate investment and make the best decisions to get started.

Tax Planning For Real Estate Investors

Tax Planning Tips for Real Estate Investors

Investing in commercial real estate offers numerous advantages, with a significant one being the potential for substantial tax benefits.

What Is Distressed Real Estate

What Is Distressed Real Estate?

The current real estate market has opened up a unique window of opportunity for investors looking to capitalize on distressed real estate.

Adapting To A New Commercial Real Estate Landscape

Adapting To A New Commercial Real Estate Landscape

Insight for Investors Navigating Today’s Market. In this brief, we’ve identified the biggest challenges faced in commercial real estate this year.

Real Estate Accounting Fundamentals

Real Estate Accounting Fundamentals

Real estate accounting plays a crucial role in the financial management of investment properties, and it’s important to be aware of…

Navigating Investments In An Election Year, Strategies for Consideration

Navigating Investments In An Election Year, Strategies for Consideration

Investing during an election year can feel like a daunting prospect, given the uncertainties and apprehensions that often accompany political transitions.

embracing-distressed-opportunities-in-today's-commercial-real-estate-environment

Embracing Distressed Opportunities in Today’s Commercial Real Estate Environment

A myriad of formidable obstacles has opened up innovative pathways to success.

The Benefits of Infrared Saunas, Red Light Therapy & Cold Plunges

Join us as we sit down with Kristen Nicholson, entrepreneur and owner of Nashville’s first contrast therapy studio, Urban Sweat. Kristen is a healthcare professional with a background in health administration…

Why It Feels Impossible to Keep Up in Today’s Society

In this episode, host Brian Adams sits down with COO Jarrod Arnold to discuss the disconnect between the financial perceptions and realities facing younger generations today.

Excelsior Capital

A real estate private equity firm that owns and operates high quality multi-tenant office assets in emerging secondary markets.

Interested in learning more about Excelsior's investment opportunities?

Excelsior Capital

104 Woodmont Blvd, Suite 120
Nashville, TN 37205

investors@excelsiorgp.com

Disclaimer: Under no circumstances should any information presented on this website be construed as an offer to sell, or solicitation of an offer to purchase any securities or other investments. This website does not contain the information that an investor should consider or evaluate to make a potential investment. Other materials related to investments in entities managed by Excelsior Capital are not available to the general public.

Share This