As you dive deeper and deeper into syndications and alternative investments like real estate, you will likely encounter a variety of investment offering presentations. They come in all shapes and sizes. Therefore, in today’s quick snippet, I thought I’d take a moment to share the key sections you should look for in an investment offering presentations. If you see any of those missing, it should at least prompt a question (or two or more J) to your lead sponsor to provide you with the clarity and needed transparency on those.
The operator/ lead sponsor’s track record. Most presentations with lead with that section and share who the lead operator/fund manager team is. Ideally such track record will speak not only to the team’s overall portfolio size and geographic footprint, but will also share details on how such existing deals are performing (relative to the original underwrite projections) and how their exits performed (e.g. purchase and sale price, overall returns, and actual vs projected returns and NOI). For operators with sizeable portfolios, this information may be made available via a data room (vs. squeezing it in 5pt size font on a single slide or two).
The team and their roles. It is important to understand who the key team members are, their experience and background, and what their respective roles are. A typical sponsorship team would not have more than 5 key members. You want to see at least 3 (for succession and key man risk mitigation purposes). Seeing too many managers (GPs) raises the question on what their unique role is, especially if the deal is not large enough.
The market. This is key, as after all the market can be the tail wind behind a deal. The market will also drive the underlying underwrite assumptions and will paint the story on why the business plan makes sense. This is why understanding the larger market and the local sub-market is key.
The business plan. As investors we get paid to take risk and we need to be appropriately compensated for the risk. Being able to force appreciation when acquiring an asset (ideally on a good basis) is key in optimizing profits and achieving target returns. This is why it is important to understand the business plan, how the operator intends to add value, why that plan makes sense (relative the current market conditions and relative to their prior track record executing on similar investments).
The underwrite. In most cases, the presentation will likely not have a slide on this as the underwriting spreadsheet can be quite detailed. However, they should at least have a snippet of the baseline financials and the 5-yr pro forma (if the intended hold period is 5 years) showing the numbers all the way down to the cash flow after debt service and fees level. This is where the pro forma assumptions should align with the market, business plan, and finance structure.
Sensitivity analysis. A good deck will also include the sensitivity analysis that shows the various return outcomes should one or more underlying assumptions vary. After all, projections are just that – projections. The pro forma numbers are not set in stone and remain subject to the market and the operator’s ability to execute. As such, it is important to understand what the return profile looks like if key variables, like rent growth or cap rates, do not come out as expected.
Comp analysis (rent and sales). Some decks will include comp analysis in their appendix. As this information is typically an eye chart, the operator might make it available via a data room instead.
Key risks and mitigates. Very few decks include this slide. While the private placement memorandum will typically outline any and all risks associated with a particular investment, it is important to understand the three to five key risks of a deal as well as how they are mitigated and whether you think the mitigates outlined by the presenter are reasonable (this is where understanding the market, the underwrite, the business plan, and the operator’s track record comes in handy).
Clear next steps. Last but not least, each presentation should conclude with clear next steps on how to invest and key contact information of the person you can connect with to obtain additional information or raise follow up questions.
Not all investment decks are made equal. However, a strong presentation will have the key components above.
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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.