According to a recent study by GoBankingRates, 90 percent of Americans don’t invest in real estate during an economic downturn. However, this is unwise since savvy investors are aware of the long-term stability and attractive returns the alternative investment market—specifically real estate—provides.
These investors are incessantly looking out for private real estate opportunities that allow them to get access to assets as if they’re a part of a professional developer’s inner circle. Fortunately, the opportunities we offer access to fit this criteria—and can provide significant diversification and compelling wealth accumulation for investors.
It’s why shrewd accredited investors are always interested in learning how our private real estate investments are structured. Read on to learn more.
A quick recap about partnering with us.
First, let’s give you a brief reminder of how you partner with JLAM. If you’re an accredited investor, the first step is to meet with Doug Motley, one of our managing principals. During this meeting, he’ll tell you the JLAM story–how we successfully help accredited investors like you build wealth through our approach of creating places people want to be, and how this philosophy delivers results for our partners. You’ll learn about how since 2011, we’ve deployed more than $400 million in capital across commercial, multi-family, and residential real estate in the mid-Atlantic and Southeast regions of the US. (These are regions Motley and our other managing principal, Nick Hammonds, have worked in over the last 10 years, and have extensive knowledge of.) Through this, our completed projects have delivered an average Net IRR over 21 percent, and an average 1.91x Net Multiple.*
After you receive introductory materials about us and learn more about the firm from Motley, you can decide if you’d like to receive access to our opportunities. Typically, we offer 3-5 private real estate investments per year, and we send an investment book for each one to potential partners. If the opportunity is something that makes sense for your portfolio, you complete the subscription documents for the asset. But before you do that, knowing how our private real estate investments are structured is a very important part of your decision-making process.
How are our investments structured?
Remember, we want to make our investments as clear, transparent, and easy to execute as possible, so they are truly passive for you. Therefore, we provide access to the subscription documents through our investor portal, which allows you to formalize your investment in the limited partnership. Within this portal, you can securely complete the documents through DocuSign.
Our investments are typically structured as Delaware limited partnerships. This enables us to form a specific partnership to invest in a particular property. A JLAM affiliate serves as the general partner while investors are limited partners.
There is an important reason why our private real estate investments are structured this way.
Why does this matter?
Our limited partnership structure gives accredited investors certainty around their commitment, or exposure, to a certain investment—the dollar amount you commit to is your maximum contribution. This helps you with asset allocation and diversification, which, according to the SEC, helps an investor protect against significant losses. “By investing in more than one asset category, you’ll reduce the risk that you’ll lose money and your portfolio’s overall investment returns will have a smoother ride.”
In addition, the limited partnership structure grants further protection for our partners. Investors aren’t responsible for any debt, financing, or exposure beyond whatever equity commitment they sign up for.
What is JLAM responsible for?
If an accredited investor isn’t responsible for any of the above, who is? JLAM and its principals. As the sponsor, we source any financing and, if required by the lender, provide loan guarantees (including personal guarantees for certain loans) associated with project financing.
When we have equity raises for our assets, they generally are for $10-20 million per deal and involve 20-40 investors. Keep in mind, the number of investors doesn’t affect an individual partner. If you invest $1 million in a $10 million opportunity, you are 10 percent of the limited partnership interests, no matter how many partners we have. Similarly, if you put in $1 million out of $20 million, you are five percent. Your ownership in the partnership is simply your capital commitment relative to the total equity raised.
What else is JLAM responsible for?
Some other responsibilities we have in the limited partnership include developing and implementing the business plan for each project. This involves, but is not limited to, running the daily activities associated with the investment—the countless activities involved in developing and operating each asset.
This also means taking care of:
- The books and records.
- Finances, accounting, and tax filings.
- Loan management.
- Operational decisions.
- Revenue optimization and expense management.
- Capital investment planning and execution.
- Investor reporting and communication.
Operating decisions can include establishing and optimizing rental rates, builder and contractor negotiation and selection, and service provider management. (For more information about our process, read our How Our Real Estate Investment and Development Process Works blog.)
How are decisions made?
All operational decisions we make are guided by the original business plan. However, the business plan can be adjusted over time as market conditions change, and this is where the value of the deep experience of the JLAM team is magnified. Our job is to maximize value for our investors, so we do this on a daily basis.
What else should I know about the deal structure?
Some other things that are important to know about are our fees. We have a fee-light approach, which means we have a very clear and limited fee structure. While many of our competitors charge a full gamut of fees (which can have a material negative impact on the returns you actually receive), including acquisition, transaction, origination, administration, and disposition fees—among many others, JLAM’s approach is very straightforward. In most cases, we simply charge a development or asset management fee. This typically ranges from 1-2 percent of the equity raised. Depending on the project specifics, there may be an additional fee; however, any such fees are clearly disclosed and explained upfront.
Our primary compensation component is the performance fee (also known as carried interest). This aligns our interest with our investors, meaning we win when they win. Since we invest a significant amount of our own money alongside our investors in every deal, and our money is treated the same as our investors’ money. Keep in mind, though, our investor’s money is paid out before our performance fee—our performance fee is subordinate to investor funds. We tailor the waterfall structure of the partnership based on the investment strategy and risk profile of the asset, which provides even more alignment.
If you’re interested in learning more about how our private real estate investments are structured, schedule an appointment with us. We can help build your wealth.