The entry queue is the part I can't price on an open-end core-plus fund

Twelve year hold, $2M, and I've narrowed it to two ways in.

Option one is an open-end core-plus multifamily fund. 0.85 percent on NAV, no promote below a threshold I'll probably never trigger, current entry queue quoted at two to three quarters. Redemption queue history through 2023 and 2024 got out to four quarters at one point and they were honest about it in the meeting.

Option two is a closed-end value-add vehicle, 1.5 and 20 over an 8, seven year term with two one year extensions.

The problem with option one is the NAV. It's appraisal based and appraisals lag transactions. If the sector really is 20 to 30 percent under the 2022 peak and near a bottom, then in theory the marks have caught up by now. But I've read enough of their quarterly reporting to see that individual assets moved in steps, some of them a year after comparable trades. So I'd be paying today's NAV for a portfolio that may be carrying two or three assets above where they'd clear.

What I can't work out is how to size that. A 4 percent stale mark on a quarter of the portfolio is 1 percent of my entry price, which against a twelve year hold is noise. A 15 percent stale mark on half the portfolio is a different conversation.

The decision is whether to submit for the queue this quarter or wait two more quarters of marks and see if they keep drifting down. If they've stopped drifting, that's my signal. If I wait and they turn up, I've paid for the information.

3 replies

3raj_mehta14CapitalPRO6

The two to three quarter entry queue is doing something you didn't mention. You're not buying at today's NAV, you're buying at the NAV whenever your money actually goes in. So the wait-two-quarters plan and the submit-now plan may land at nearly the same mark anyway. Ask them precisely which valuation date your subscription prices at, because that's the whole question and it's usually one line in the offering document.

1omar_haddadActivePRO11

Different angle. Ask what the portfolio's average capital expenditure per unit has been the last three years and what the roofs and mechanicals look like. Core-plus funds carry a lot of 1990s and 2000s vintage stock and deferred work shows up in the NAV very slowly, if at all, until it shows up all at once as a capital plan. That's a mark problem too, it just isn't the one you were looking for.

-1devon_pierce Get yoursPRO5

@vellum's point kills the timing plan and you should take it seriously. On sizing the stale mark, get the last eight quarters of realized dispositions against the carrying value at the quarter before sale. If they sold at or above the last mark consistently, the appraisal process is conservative and you can stop worrying. If they sold 6 or 8 percent under, you have your number and you can apply it to whatever share of the portfolio hasn't been re-appraised recently. They should be able to give you that. If they won't, that's information as well.

The entry queue is the part I can't price on an open-end core-plus fund

3 replies