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LPs: Valuations & extra cap-ex needs cannot be a "head in the sand discussion"

NAREIM Capital Raising & IR meeting key takeaways

December 8, 2023

Institutional investors are looking to deploy capital in 2024 to take advantage of vintage year distress - but are hyperfocused on current valuations to understand extra cap-ex needs.

During the NAREIM Capital Raising meeting in New York this week, investors shared insights into capital allocations, new manager relationships and likes/dislikes in communication. The key takeaway: For managers not to bury their head in the sand when it comes to new capital needs for existing deals.

It was agreed that valuations and the ability to make peer comparisons was a challenge today. But right now transparency around whether assets needed additional capital was paramount. “It cannot be a head in the sand discussion.”

During the meeting, investors said they appreciated talking to new manager relationships – even if their own portfolios didn’t need a certain strategy.

Key advice offered to managers included:

  • Make your team – all of them – accessible when an LP calls. One investor said they needed to know that when they called, the team was available to chat rather than trying to get off the video or phone call after 20-mins.

  • Almost all investors prefer email. And even if you don’t get a response – you are part of their research. One investor said they use their inbox as a CRM of investment strategies in the industry. So even no response to an email, means your fund has been logged – and could be called on in the future.

  • Talk away from the book in a meeting. Don’t flip the book. Come in 2-3 things you want to talk about. An LP jumping around and asking a lot of questions is also a good sign. It means they’re engaged.

  • Understand the multiple levels of approvals investors have to go through. A RE officer may like the idea – but it needs to go through a CIO, board, trustees and directors before any go-ahead.

The Capital Raising & IR meeting also heard discussions on ESG commuciations; how to raise capital from non-DB (defined benefit) sources and the realities of structuring and liquidity for retail; DC (defined contribution) capital.

Key takeaways included:

ESG communications

Three-quarters of managers are changing pitchbooks to address ESG concerns for select state pension plans however modifying marketing documents could flag the interest of the SEC.

A poll during the meeting revealed, one-third of managers were creating separate versions of pitchbooks, while one quarter were adding/removing slides and another 16% were editing slides.

More than 30 states have proposed or passed legislation to prohibit or restrict ESG activities by state pensions, to date. However, legal experts advised that creating separate or different marketing documents or pitchbooks – one that does cover ESG and one that doesn’t – could be seen by the SEC to be misrepresentative. 

Instead, the focus should remain on the fiduciary duty of managers to mitigate risks, drive returns and ensure the resilience of assets.

Retail Capital

With just 2% of RIA and family office allocations targeting alternative, illiquid investments, there is a massive potential to raise capital from retail, high net worth (HNW) and registered investment advisor (RIA) sources. However, the reality of raising retail capital is significant, the meeting heard:

  • Getting on an RIA-distribution platform is hard.

Firms such as JPMorgan, Goldman Sachs and Morgan Stanley will charge 2-3% fees upfront to access their platforms – with personal relationships critical to getting the attention of the professionals running the platforms and dealing with the appeal and portfolio construction of their own line-ups. If you can get traction, due diligence takes at least 18 months.

  • Be prepared: You will never talk to the NHW investor, and may never even speaker to the financial adviser

Some platforms do not let you talk to the financial advisers advising the HNW investor. And where you can access financial advisers, you’ll rarely speak to the end-client, the HNW or retail capital investor.

  • Educate the financial adviser – and have education materials ready as soon as you get on a platform

Financial advisers and platforms love to see education materials they can use for their own clients, white papers and thought leadership digging into different property types and strategies – and how commercial real estate can complement residential assets already owned.

  • Without education or a differentiated strategy, you’ll likely struggle to raise capital

Understand what and how many products/strategies are on the same platform as your vehicle and how you stand out. Everyone is vying for the attention of financial advisers – and being differentiated is critical. Currently CRE debt and 1031 products are rare.

  • You need staffing and team resources

You’ll need to cover thousands of RIAs and financial advisers to make an impact. Blackstone hired 40 wholesale professionals to sell registered products to accredited investors and to get access to a majority of platforms.

Defined Contribution

Raising capital does not require an “army” of distribution professionals, like retail capital – and managers can use existing ODCE and open-ended funds as the foundation of their DC product.

During the meeting, managers heard most investment managers start by utilizing a core ODCE or open-ended fund as the underlying private real estate investment strategy, coupled with a sleeve of REITs or cash to act as the liquidity element.

However, the most critical challenge is whole-firm buy-in owing to the complexity around liquidity and rebalancing by investors as well as daily valuations. “We have never had to focus on liquidity as much as we do today. This is an unprecedented environment. But 99% of the time you are okay – {the current market conditions] feel like this is war-time liquidity [planning].”

That means the whole firm needs to buy into DC capital raising. “It takes support from across the firm.”

Tools to find LP allocation data?

Members were asked where they find useful LP capital allocation data.

Solutions included:

  • Market Lens, Dakota, Investor Flow, BD Corp, Fintrex, Highworth, E-NASDAQ, IREI Q and Pension & Investments. Most agreed Preqin was dated and should be verified against LinkedIn.

How do you create a sense of urgency for an open-ended fund raise?

One member said a large capital commitment – paid over a staggered schedule – helped create a sense of urgency to commit for other investors. The large commitment was being made in two stages, 12 months apart. That helped the manager create urgency for other investors to get ahead of the large LP in the queue.

The attendee list and presentations can be accessed by emailing IvyLee Rosario at

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