Lazuli Capital

Last Saturday, we had a great meetup in the Bay Area with folks interested in Commercial Real Estate, passive investments, and syndications. Some of our current investors joined as well. There were a lot of great discussions where we all shared our various experiences and many things to learn about the various asset classes, deals, and how to select sponsors.

We ended up finishing quite a bit over time which is a great sign. There are so many things to discuss, especially in these very troubled times. It is great to look at these other passive investment opportunities that have shown better risk-adjusted returns, even during recessions and high inflationary periods.

The stock market is so volatile and unpredictable. We are not even talking about crypto. Bonds have been very disappointing for the past year, so we are glad to use Real Estate as a way to provide diversification in our portfolios with a strong return. These meetups are a great way to learn from others how to invest in income-producing buildings.

We'll do another meetup in the Bay Area in November. Feel free to reach out to us if you are in the Michigan/Ohio area, as we are looking to organize one there too!

Michigan / Ohio Investors: Would you like to have a meet-up in person? Please comment below your city/town.

What are the roles of the GPs and LPs in a syndication?

The GPs (General Partners), also called sponsors or managers, will care for everything in a syndication. They negotiate the buying price for the property, take care of the loan with the bank without impacting your debt ratio, take care of the tenants and the repairs. They follow up when remodeling the property and negotiate with contractors to reduce the various costs and take advantage of the economy of scale. They want to make sure that the property has a good cash flow. Then, when the timing is right, they will refinance or sell the property with a significant profit.

Often the GPs will invest their own money alongside the other investors. Investors, also called LPs (Limited Partners), provide the cash necessary to close on the property. They will get their money back in priority and some initial return (also called preferred return), usually around 8% per year. The leftover profit is split between LPs and GPs with a progressive formula, called a waterfall. Limited partners delegate all the management and day-to-day decisions to the managers.

The waterfall is defined so that if the GPs are doing their work well, they will earn more money. Because the profit is shared with the LPs, it also means that the LPs will profit more. This provides a big incentive for GPs to outperform. Watch out that not all waterfalls are created equal. Some are more GPs-friendly than LPs-friendly. And there can be some additional fees too paid to the managers. You want to make sure that the alignment of interest between GPs and LPs favors the LPs. In some cases, the sponsor may not even earn money unless the return is at least greater than 8% per year.

Obviously, like all investments, there are risks, and losses are possible, even in Commercial Real Estate. The higher the return, the higher the risk. A good diversification, choosing wisely your sponsor, the market, the deal, and the risk-adjusted return will make a big difference. If you invest for the long term, regularly, with diversification, these risks are significantly reduced.

We, at Lazuli Capital, can guide you through these investments through our fund.

Want to invest in the remodeling of a multifamily building for 10% to 20% per year?

Remodel of Real Estate properties is quite common in the U.S. It’s primarily used in single-family homes for a quick flip, but it is common with syndications, too, although the time frame is a bit longer. Often, these are multifamily apartments that are decades old. The interior and public areas are dated and do not provide a high rental yield compared to more recent properties. A syndication sponsor would look for a good deal based on solid underwritings and make a fair offer. Since the initial rental yield is low, the purchase price is lower than what could be achieved after a remodel. The sponsor’s goal is to study the investment required per apartment, calculate the duration and cost of the complete remodeling, and estimate how much the monthly rent could increase after the remodel.

If the monthly rent can increase by 15%, the sale price can also increase by 15% (if the Capitalization Rate, and everything else, stay the same). If the renovation cost is 5% of the purchase price, 10% of the sale price will be a profit. With a loan-to-value ratio (LTV) of 70%, 10% of total profit implies an increase of the invested capital by 33%. To this, you add the annual rental yield, which can be 5% at the start, 10% or more at the end, especially if the occupancy is improved and market rents increase. And there you have it. You get a return of 20% per year if the renovation is done in 2 to 3 years. As an investor, you brought the capital, and the sponsor took care of everything.

It sounds easy on paper, but obviously, the reality is quite different. Of course, you have to choose your sponsor carefully, choose a location with high growth that will maintain high rentals and reduce vacant apartments. Many of the big cities in Texas and Florida are great for this because they thrive. You can find more details in our previous posts.

Remodeling is much less risky than building from scratch, with much fewer moving parts. You can renovate a few apartments at a time while you rent out the others. This still gives you some consistent cash flow. If the market slows down or the rent increase doesn't deliver the expected return, you can stop the remodeling and potentially sell the complex at a profit (not as much as if all the work was finished, though). Unless there is a severe economic crisis or the sponsor does not know what they are doing, you can make a good profit with less risk.

But there is still a risk. The Capitalization Rate could expand instead of staying the same or compressing, there could be many vacancies or renters not paying, and you would not get as good of a return. When picking any Commercial Real Estate investment, you have to check the underwriting to make sure the assumptions make sense. We can advise you on that.

Nevertheless, this multifamily remodel, commonly called Value Add, is a passive investment. It is stress-free for the investors, and you can feel good about improving the quality of living for the community. As part of our fund, we invest in multiple multifamily syndications, which diversify our portfolio. Reach out to us if you want to know more.

Two high-growth states for an annual return of up to 20%?

Texas and Florida are two great states to take advantage of some passive income through real estate.

First of all, they both have strong population growth. 1.7% in Texas and 1.5% in Florida in 2018. But above all, the number of inflow of people puts them at the top of the list. + 379k in Texas and + 322k in Florida.

https://www.statesman.com/news/20181224/us-census-texas-again-leads-in-population-growth

And this growth is mainly in large cities.

In Texas, it's Houston, Dallas-Fort Worth, and Austin.
In Florida, it's Miami, Orlando, Tampa, Jacksonville, and Tallahassee.

This growth boosts rental yield, and some multi-family syndications expect an annual return of 20% per year. Some of the underwritings even plan for a 3-4% rent increase year after year! Time will tell if these are too aggressive or too conservative.

Why so much growth?

Texas, especially Austin, is increasingly becoming a technology hub, where Silicon Valley companies prefer to expand their offices to reduce costs and seek out new talent.

Florida's growth is due to the warmer climate, cheaper cost of living, and significant tourism activities. Many military companies are there too, which helps the industrial development.

Has COVID-19 changed that?

Not at all! With the push to working remotely, US companies have sped up the process. Oracle and Tesla will move their headquarters to Texas, and Apple is opening a big campus too. Many are leaving from Silicon Valley or LA to have a cheaper life.

What about Florida? Indeed, tourism and especially the short-term rental market suffered in 2020, but this is recovering. Many people are uprooting from states further north, like New York, to Florida for the long term too.

Growth will continue over the next few years (and New York will continue to lose some of its population, same for overcrowded places in California). And this growth will put more pressure on the price of real estate, for both buying AND renting. More growth means fewer empty apartments, and it becomes much easier to raise rents.

And a significant advantage for those who move, and for us as investors too? No state income taxes for Texas and Florida. So if you invest in a syndication in Texas or Florida, that is less of a hassle and fees when filling out your tax forms.

One of Texas’s disadvantages is the weather-related issues, like the cold front in Texas and even hurricanes. The latter can be a significant issue in Florida too. Commercial buildings are much more robust and better insured than single-family homes, and the risk is better distributed. Still, you should expect the insurance cost to increase over time.

At www.lazuli-capital.com, we search for the best deals out there for our investors. And we are taking advantage of the growth in Texas and Florida. As part of a diversified portfolio, we believe you should too.

Lazuli Capital – Your trusted Investing Partner in CRE We are a dedicated commercial real estate investment group founded by investors for accredited investors. We identify and evaluate real estate syndications and make strategic investments via our fund, delivering healthy ROI while mitigating risks. Register for free to get access to the hottest deals...

What are the asset types for syndication investments?

Commercial Real Estate through syndications can take various forms. For example, it can be:
- Some multifamily buildings with 100s of units (plus amenities like gym, swimming pool, barbecue area, parking, etc.),
- An office space (potentially some with very well known tenants),
Hotels (think Hilton or Extended Stay, for example),
- Some mobile Homes, Storage spaces, even car washes (niches that can be very lucrative in the US),
- By making loans for other Commercial Real Estate investments, cannabis farms, or office investments, etc.
- Even a vertical development, such as a new building. A complete construction will be riskier but will provide a higher return. A bit less risky would be the remodel of a building, where you can incrementally improve the property (think a value-add in a multifamily complex).

All of this brings a lot of diversification that would be almost impossible to do by yourself. It is much simpler with syndications by picking good sponsors and good deals, doing proper due diligence, sending the money, and enjoying your freed time.

Different states can give you additional geographical diversification too. It is good, however, to understand the taxation between the various states. Some are more investors friendly than others. For example, Texas and Florida do not have state income taxes and have robust growth.

Lazuli Capital – Your trusted Investing Partner in CRE Lazuli Capital is a dedicated commercial real estate investment group founded by investors for accredited investors. We identify and evaluate real estate syndications and make strategic investments via our fund, delivering healthy ROI while mitigating risks. Register for free to get access to the ho...

Why invest in syndications in the US?

You may not have heard about syndications in the US. Syndications are partnerships, usually LLCs. They are set up to raise money for Commercial Real Estate investments. They target better risk-adjusted returns than REITs (Real Estate Investment Trusts). The profits are shared between the investors and the managers, and they can provide a high return, between 10% and 20% per year, and often more. Syndications became more common these past years, with the SEC enabling wide access to accredited investors. They offer an easy diversification of your portfolio while maximizing profit entirely passively. Investors take advantage of the fact that fees are controlled and that their interests are aligned with the managers.

The minimum investment can be $25,000, and often more. Syndications provide opportunities to access unique assets with a high return. Before August 2020, it could be challenging to be accredited due to income or net worth requirements. It is now accessible to all through passing a series 65. The cost is around $500, and quite a bit of study time.

Most syndications buy one or multiple properties. The properties invested are often worth tens to hundreds of million dollars. They are usually improved, managed, and rented by the manager. Once the return has been maximized, managers sell the property for an additional profit, which can be significant.

How is this different from REITs (Real Estate Investment Trusts)? Unlike REITs, all the fees and profit shares are disclosed at the beginning when you enter the partnership. As an investor, you evaluate the terms, do your due diligence, vet the deal and the sponsor. If interested, you can then participate in the investment by e-signing all the paperwork and wiring your money. Once in the partnership, you have a signed agreement, and you will start receiving regular distributions and profits due to refinancing or sale.

Unlike public REITs, the syndications are illiquid investments. The duration of the partnership varies, but it is often 3 to 5 years. You should only invest money that you don’t need in the short term. With syndications, there is a strong incentive for managers to reduce their fees to attract investors. This allows the interests of the managers and investors to be aligned. This setup enables better risk-adjusted returns at the condition that you pick the proper sponsor and deal.

We created www.lazuli-capital.com to share our expertise and enable accredited investors to discover and invest in Commercial Real Estate through the best deals and sponsors.

Lazuli Capital – Your trusted Investing Partner in CRE Lazuli Capital is a dedicated commercial real estate investment group founded by investors for accredited investors. We identify and evaluate real estate syndications and make strategic investments via our fund, delivering healthy ROI while mitigating risks. Register for free to get access to the ho...

Lazuli Capital is a dedicated commercial real estate investment group founded by investors for accredited investors. We identify and evaluate great real estate syndications and make strategic investments via our fund, delivering healthy ROI while mitigating risks.

The Fund pools assets from all investors to offer superior diversification and targets 13% to 15% net IRR.

Register for free TODAY to get access to the hottest deals and investment opportunities.

https://lazuli-capital.invportal.com/setup