The X-ray Beam: Alpha Investing
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Welcome to another installment of the X-ray Beam series.
I first came across Alpha Investing when reading a post about real estate syndication on Passive Income MD.
I was intrigued and contacted Alpha Investing and spoke with, and subsequently met, the CEO, Fark Tari.
I was so impressed with the platform and mission of Alpha Investing that I decided to invest in one of their latest offerings.
I thought some of the questions I had during the vetting process of Alpha Investing would make for a good interview and introduction of the company to my readers.
Thankfully, the principals of the company accepted the invitation and agreed to be placed under the beam.
[Disclaimer: I do have financial ties with Alpha investing as an individual investor and also as an affiliate partner.]
Can you first give us a little background on the history of Alpha Investing? When was the company formed and what was the purpose/mission?
The genesis of Alpha Investing was a few friends and family members co-investing in several senior housing projects together in 2014.
This was around the time that real estate crowdfunding really started to take off.
We evaluated the space and decided that we wanted to build a platform that combined the better parts of crowdfunding and traditional real estate private equity.
What resulted is the Alpha Investing private capital network – a group of investors cultivated from the founders’ personal and professional networks that participate in direct, real-estate investment opportunities with a select group of pre-vetted, institutional sponsors.
Access is available by invitation or referral only.
Crowdfunding has recently become popular, giving average investors an opportunity to buy commercial real estate that previously was only available to extremely high net worth individuals.
How does Alpha Investing differ from crowdfunding?
In short – Alpha Investing is not a true crowdfunding platform.
As a private capital network, we are built on relationships – both with our members and our sponsor partners.
We do use a deal structure that looks similar to crowdfunding (i.e., we aggregate investors into a single investment entity that invests directly with our sponsor partners – this allows Alpha members to participate in deals with significantly reduced investment minimums).
We also utilize technology to streamline the investment process, handle admin items and share performance reports, tax documents, etc.
Our similarities to real estate crowdfunding (more or less) end there.
Recently one of the big players in Crowdfunding, RealtyShares, essentially closed its doors which sent some shockwaves through the crowdfunding community as well as raising some concerns about some of the fundamentals of crowdfunding.
Did the demise of RealtyShares have any impact regarding the operations of Alpha investing and its real estate arena?
How would you address concerns of potential investors that a similar thing could not happen to Alpha Investing and their investments?
Success in our industry is largely dependent upon the ability to build a sustainable business predicated on long-term, fundamental value.
One feature of venture capital investment is that it allows early stage companies to grow faster – often times before they could otherwise support that growth with actual revenue.
This results in a “grow at all costs” mentality.
We’ve never felt that approach made sense for real estate investing – particularly where we want our incentives to be as closely aligned with our investors as possible.
We are primarily backed by successful real estate executives and professionals who understand the benefits of exercising patience in the context of a long-term growth strategy.
In turn, we’ve emphasized capital efficiency to ensure the financial stability and longevity of the firm’s operations.
In other words, we do not need continued capital injections for Alpha to exist.
In short – we are well positioned to continue to grow in a disciplined and responsible manner.
One of the big financial principles in the personal finance blogosphere is to minimize fees as much as possible.
By eliminating the “middle man” individuals tend to accumulate greater wealth and thus the popularity of index funds, for example, skyrocketed.
These very same individuals are therefore likely to hesitate when they first learn of the fee structure of Alpha Investing.
First can you give us details on how Alpha Investing gets compensated?
What is your response to potential investors that are concerned about this additional layer of fees and the negative perception of being “the middle man?”
It is of course important for any investor to fully understand that Alpha Investing has fees that are distinct from that of the sponsor.
We apply a standard structure for each deal.
This includes a one-time 2% origination fee, which covers our legal costs, setting up our entities, our underwriting and diligence, etc.
Then on an annual basis, we have a 0.5% annual management fee, which helps cover operations, technology, admin, tax returns and K-1s, etc.
Our origination and management fees effectively allow us to “keep our lights on” and continue providing investment opportunities to our network.
Before any Alpha performance fees are earned, an investor must receive 100% of their initial investment capital back and a 10% average annual return over the life of the investment.
If the investment does not reach that return threshold, we do not take any performance-based fees.
Our fees are structured to align incentives with our investors.
The value we provide to most investors falls under three distinct buckets.
First, we allow our investor members to participate in transactions at significantly reduced minimum investments by aggregating their capital with other Alpha investors.
In most cases, our sponsor partners require $250k-$1m+ minimum check sizes, which is typical of institutional private equity.
For many of our investors, they would not be able to access the opportunities we provide were it not for the reduced minimums.
In addition, we provide a thorough layer of underwriting and diligence (which we complete on all projects we evaluate – not just one’s we share with Alpha members).
Most investors don’t have the time and/or the expertise to perform this level of underwriting and diligence on their own.
From start to finish, we typically spend over 100 hours evaluating any given investment opportunity.
This time is spent reviewing financial models, market reports, touring properties (and comps), creating sensitivity and scenario analysis and vetting the sponsors themselves.
We then continue to monitor property performance on a monthly basis.
By creating a process that allows investors to efficiently gain access to and evaluate investment opportunities that have historically only been available to institutions, we’re able to provide the individual investor with access to multiple sponsors, geographies and asset classes through our platform.
Then we make the actual process of investing as simple as possible with a technology-enhanced investor portal that provides a streamlined and user-friendly investment experience.
We understand that having a second layer of fees doesn’t work for everyone, and that is OK.
Nonetheless, we strive to provide real value to all of our investors, particularly those that want to be able to invest in real estate in a more passive manner.
Then we of course encourage investors to compare their investment alternatives net of all fees.
We are always happy to discuss this topic further with anyone that has questions or concerns.
Is there a particular real estate asset class that Alpha Investing specializes in? (multifamily, retail, storage, etc.)
While we evaluate a wide variety of acquisition opportunities, we tend to focus our investments on a handful of asset classes that we find particularly attractive in the current market cycle.
As such, a majority of our past transactions have been in the multifamily and senior living asset classes.
We have also invested in a few student housing properties and self-storage facilities, as well as one office building.
We also invest quarterly in a commercial real estate debt fund.
Can you explain the process from when Alpha Investing first hears about an opportunity to when it is placed on the investor platform as an investment offering?
How many deals typically cross your table before you find one worthy of presenting to your investor base?
At the very top our deal evaluation hierarchy is the experience and track record of our sponsor partners.
As such, all investment opportunities that are eventually shared with the Alpha investor network originate from sponsors on our approved list.
Prior to being placed on our approved list, we complete extensive due diligence and vetting of these potential sponsor partners.
Among other things, this process includes an evaluation of the sponsor’s track record and existing portfolio, a review of prior deal case studies, numerous calls, in-person meetings and conversations with current investors, debt relationships and other references.
Access to investment opportunities from institutional sponsorships is core to the Alpha Investing.
What this means, is that at a minimum, the principals of our sponsor partners have acquired and managed hundreds of millions of dollars in real estate transactions.
More often, the acquisition track record of our sponsor partners extends into the billions.
How many deals has Alpha Investing managed so far?
Have any deals gone through full cycle?
Since 2014, our investor network has invested in 36 properties across the United States, which have a total capitalization of over $1.2 billion.
We have also invested a commercial real estate debt fund.
Several of our equity transactions have had cash-out refinances, while one has gone through full cycle.
Given the majority of our investments are projected to have a 3 to 5 year hold, we expect to see several more exits in the next 12 – 18 months.
What is the minimum investment amount required for a typical offering?
How does this differ from other syndicators in this space?
Our minimum investment is $10,000.
This is in line with many real estate crowdfunding platforms, but is significantly lower than the required entry point to invest directly with real estate sponsors.
What is the typical hold period for an investment?
Is there any way an investor can get access to the initial capital if needed, such as a financial hardship scenario, or is the money tied up until the investment goes full cycle?
Most equity real estate projects are underwritten for 3 – 7 years, but like the returns in any one of our offerings, the hold period is a projection.
If a sponsor is successfully executing their strategy and they get an offer that makes sense earlier than expected, they may sell before the underwritten hold period.
Or if a project was underwritten for five years, but in five years time, it’s not an opportune time to sell, the sponsor may hold on to the asset for longer.
Every investor should understand that these are illiquid investments and should never invest with capital that they can’t afford to go without.
In addition to the equity offerings that we provide, we do have a debt offering where investors can contribute new capital on a quarterly basis, and also have the ability to redeem their investment on an annual basis.
It should still be viewed as a long-term investment, but it does provide investors with an annual liquidity option.
At the end of 2008 the real estate bubble burst, sending the economy into recession.
What lessons has Alpha Investing learned from this period and how are they positioned to navigate through a potential future similar scenario?
Alpha Investing is a sponsor first company.
We strive to establish the right partnerships with a small group of high-quality sponsors, then invest with them on a recurring basis.
To cultivate our network of high-quality sponsors, we conduct comprehensive due diligence and disciplined underwriting.
Our process includes a review of each sponsor’s track record and an evaluation of their asset class and geographic expertise, along with careful analysis of their investment strategy and the experience of their senior management team.
In short, our approach is to invest with highly experienced and/or established sponsor groups that we believe have the right equity and debt relationships and the right investment strategies to succeed in any stage of the market cycle.
Some experts are predicting that real estate is nearing an end of a cycle and do not expect returns to be as great as had been in the past with increases in interest rates and citing “Cap Rate Compression.”
What are your thoughts regarding this sentiment and do you see any potential issues with future investment opportunities for Alpha Investing?
We also believe that we’re in the late stages of a market cycle and will not function as a volume-based deal company.
Rather, we will continue to apply a disciplined and responsible approach to investing, focusing on projects from institutional sponsors that we believe present well on a risk-adjusted basis.
As the real estate market continues to evolve, we expect to be well positioned to reap the rewards of our long-term oriented strategy and focus.
How large is Alpha Investing’s current investor base?
Alpha Investing has ~ 300 active investors and 850 members.
Many crowdfunding platforms tout having communities of 100,000+ accredited investors.
Our approach has been to focus on curating a much smaller, but much more active and engaged group of members and investors.
We believe investing in real estate private equity requires a higher-touch approach than many crowdfunding platforms provide.
In turn, we develop a relationship with all Alpha members prior to sharing our investment opportunities.
In our earliest stages, we first grew with investments from close friends and family.
As such, we endeavor to engage with all members of our network in that same manner.
For an individual interested in joining this Alpha Investing investor base, what are the requirements/criteria necessary for them to qualify?
Say an individual does meet these criteria, what are the steps needed for he or she to become part of the Alpha Investing investor base and gain access to the investing portal?
All Alpha members must meet the SEC definition of an accredited investor.
In addition, we require every potential new member to speak with one of the firm’s principals so that we can ensure that he/she is an individual that we want to work with and vice versa.
This also provides us with an opportunity to begin direct relationships with all of our investors and members.
We believe it is critically important that all Alpha members have access to multiple principals at the firm (and feel comfortable reaching out).
If your interest is piqued about investing in syndicated real estate, and in particular with Alpha Investing, please click on the following link and schedule a no obligation phone call with one of the principals in the company.
You will then gain free access to the Alpha Investing investor portal which allows you to peruse any of their current offerings again with no commitment or pressure to invest until you feel ready.
If you are interested in checking out previous individuals that were brave enough to expose themselves to the beams of the X-ray, please check them out here.
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