In today’s snippet, I will be sharing my key takeaways from the 2025 Best Ever Conference, the premier commercial real estate conference for active and passive investors. This has become an annual event for me. I choose to endure the freezing cold year over year (usually the conference takes place in cities known for or in close proximity to ski resorts) in exchange for hot off the press updates and building warm relationships.
As usual I selected to share below the key highlights relevant for passive investors specifically. If you’d like to learn more about my takeaways relevant for active investors and sponsors, connect with me one on one.
This year’s conference was even smaller in terms of attendance – a true illustration of the real estate cycle (which I believe is at or near at bottom). I was keenly observing who is there and who is not – potentially an indicator of who is choosing to be present and in it for the long run.
That brings me to one of the first conference talks presented by Veena Jetti. Veena is one of the few females in the space and someone I look up to and respect. She brought up a great analogy about the cow and the buffalo and how they each respond to a storm – the cow running away from the storm and as a result staying in it for longer and the buffalo facing the storm head on and running into it and as a result getting through it faster.
It reminded me of the current market, which is best categorized as a winter storm. As investors and business owners we all have a choice – keep our head underground as an ostrich and hope we pass the storm unscathed OR face the issue head on, find a solution, build on the experience and the lessons learned and grow from there. I shared with you in a prior snippet my lessons learned from a failed deal I passively invested in. Sometimes these lessons learned are the best we can do and takeaway as passive investors (LPs), as we do not control the deal or the market. As active investors, being focused on the solution is key in these situations. Running away from investing altogether is not a solution for me and I know through these lessons learned is how I have become a better investor and will become an more astute investor in the long run.
In line with my initial thoughts above, in his keynote Joe Fairless noted that people at the conference this year are in it for the long haul and reminded everyone how some of the greatest Fortune 500 companies started during a recession. Today’s crisis brings new opportunities and the three key ones he sees are: distress (opportunity to purchase great deals at a good basis and be the solution), relationships (opportunity to strengthen relationship, especially for deals and partners going through distress), and AI (leverage technology to become more effective and efficient and instead spend time on one’s zone of genius and what one loves doing best).
Jim Pfeiffer from Passive Pockets then led a panel with Aleksey Chernobelskiy (LP advisor), Paul Shannon (fund manager), and Chris Lopez (active and passive investor). They discussed their perspective on a number of insightful passive investor topics such as –
Evolution of LP preferences since 2021: LPs are doing more and better diligence, diversifying, writing smaller and fewer checks, expecting a higher GP co-invest (as a side note, lenders are expecting the same these days). Many are transitioning to debt instruments (vs. equity).
How to diversify best: It starts with finding the time to learn and being patient as well as having a 10-year outlook when building a portfolio. In addition, having ample capital and becoming accredited in order to have better access to deals to spread across a variety of markets, sponsors, asset classes, and business plans is key.
The most desired asset classes today include: new development and build to rent (Chris), office (Aleksey), and multifamily (Class A or B+) and industrial/ flex industrial (Paul).
The asset classes the various panelists would avoid include: office, hospitality, and retail (Paul), Class C properties and market with or facing legislative risk (Chris), and multifmaily (Aleksey).
When asked about unplanned capital calls (vs. fund capital calls), the panelists all agreed that capital calls are part of the business. Some are good, some are bad, and some are dishonest or disguised in other forms of capital. Transparency and ability to execute are key and each capital call is to be evaluated as a brand new investment. The view was similar when asked about paused distributions.
How to qualify operators: Alignment of interests and experience with the particular asset class are key. Asking for investor references (directly or via a community), verifying claims made by the sponsors and whether they stick to their buy box.
Reasons to automatically pass on a deal included: No GP money in the deal, no return of capital provision in the docs, guaranteed returns, lack of transparency (including willingness to share the underwriting of the deal).
Jeremy Roll, who was a speaker at our last quarterly investor party discussed the importance of reading and understanding the private placement memorandum (PPM) and pitfalls to be aware of. Key PPM areas he covered included –
General language that may give the sponsor too much leeway. In that case it is important to consider whether you have ability to negotiate distribution/reporting/timing requirements and if you are not, then determine if you are still OK with the deal. [Side comment: usually smaller investors coming in with less than $500K into a deal generally do not have ability to get the PPM terms changed.]
Cash call provisions – not all are created equal. It is important as an LP to understand the repercussions and determine if you are ok with the terms and structure or if you are able to negotiate.
Voting rights – lack of or ones where the manager cannot be voted out are an automatic pass for Jeremy.
Indemnification of management (held harmless and defended by the LLC) for fraud, willful misconduct, and mismanagement. Often the operating agreement and PPM require that these are proven in a court of law, which may be costly and/or challenging.
Jeremy also discussed distributions frequency and whether they are mandatory or optional as well as reporting type and frequency.
This last year was nothing but easy, which I shared more about in my annual personal update. Yet I know (at least for me) that I am in this business for the long haul. Despite the challenges, I choose to show up. My investors know that I usually open my investor updates with the challenges and opportunities first and the wins second. Wins are important to celebrate and I do not want to take away all the hard work the team puts behind the scenes (trust me – it is not easy and it is a lot). However, transparency and open communication are even more important.
The last four years have been challenging too in terms of deal flow. There were many times when I felt inadequate speaking to colleagues in the space who were closing a deal every month. Many of these deals are now in distress or getting foreclosed. This taught me the importance of staying the course when it comes to deep diligence and being true to my investing criteria vs. giving into the atrium effect or chasing shiny objects. Our firm only closed on 4 deals over the last four years (vs. our goal of closing on 4 deals a year). I am grateful that none are being foreclosed on, in distress, or burning cash.
And just like that another year has gone by. I plan on attending The Best Ever conference next year and would be curious to see who else is still standing and who will exit. And in the meantime, I am looking forward to a great 2025, serving and protecting my investor community, educating and empowering investors, and standing in the arena.
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Disclaimer: The information presented does not constitute legal, accounting, tax, or individually tailored investment advice. Past results do not represent or guarantee future performance.