Q&A / Opportunity Knocks for Private Investors...Even in Today's Real Estate Market

Russell Brenner is a Senior Principal at Syndicated Equities Corporation in Chicago. Syndicated Equities is a national real estate investment company specializing in commercial real estate acquisition, syndication, finance and brokerage. Russell is responsible for identifying new investment opportunities and fundraising for each of the firm's investment platforms. Under his management, Syndicated Equities' brokerage team represents institutional owners and national developers in the acquisition/disposition of more than $100 million in property annually. Much Shelist spoke to Russell about real estate opportunities for private investors in the current market.

Much Shelist: As an investment vehicle, real estate has certainly been affected by the economic downturn. What do you see as the current state of the market?

Russell Brenner: Without a doubt, real estate values have been all over the map, from incredible highs to unexpected lows. While rising prices once grabbed most of the headlines, the reality for most investors was that anticipated profits from the rapid appreciation and turnover of a property were frequently offset by downside risks. Even investors who were simply seeking a secure cash flow and moderate appreciation ultimately found themselves squeezed by the uncertainty of tenant stability and the lack of available credit.

However, human nature is such that people are always seeking opportunities to enhance returns on their capital. And in today's market, there are indeed opportunities for discretionary investors in certain aspects of the real estate market. Even though the era of skyrocketing values has ended, there is the potential to earn greater relative yields by taking advantage of distressed owners' capital restraints.

MS: Where can investors find those opportunities?

RB: There are deals lying in wait in virtually every class of real estate assets, including office, retail, lodging and multifamily housing. Given the economic environment, a number of developers/owners are being asked to finance/refinance their projects based on new valuations and lower loan-to-value ratios available from lenders. In some cases, there is a gap between the current value of the underlying asset and the amount of capital needed to complete or refinance the project. Real estate investors with liquidity can bridge this gap for private and public developers/owners and, in return, receive good risk-adjusted returns on their capital. For example, Syndicated Equities recently put together a $3.5 million mezzanine loan that enabled a student housing developer to refinance a recently completed project at the University of Illinois. By syndicating this mezzanine loan, we provided our investors with access to a project and rate of return that may not have otherwise been available to them individually. Owners, developers and even primary lenders are bringing opportunities like this to our attention on an increasingly frequent basis.

There has also been a surge in the number of discretionary investors returning to real estate over the past several quarters. These investors need a place to put cash and want to diversify beyond traditional investment vehicles. For many, a passive investment in real estate or real estate debt via a syndication represents an excellent addition to their portfolio. However, before making any such investments, investors should be sure to align themselves with experienced professionals who can help them gain access to the best opportunities for their investment criteria.

MS: What types of investors make the most sense for these investments?

RB: The investors who are usually best positioned for these types of real estate investments are business owners, high-net-worth individuals, certain self-directed IRA investors and others who have created or inherited wealth. Such individuals generally have (or should have) diversified portfolios for which real estate is a sensible allocation option that complements existing investments. One area of self-examination is whether or not an investor has the liquidity necessary to support this type of investment.

MS: What types of pitfalls or other issues should potential investors watch out for in this investment arena?

RB: Perhaps most important, investors should take responsibility for conducting their own due diligence, or have a trusted third party handle such investigations for them. Even passive investors should take care to understand both the underlying real estate assets in which they are investing and exactly in whom they are investing. Who is promoting the deal? Do they have a demonstrated track record? If either fails to pass the "smell test," my advice would be to take your investment dollars elsewhere.

If you have questions about real estate as an investment vehicle or would like more information on Syndicated Equities Corporation, visit www.syneq.com or contact Russell Brenner at 312.640.9025 or rbrenner@syneq.com.