$40k with a sponsor I met at a conference. Two updates in three years.

This one is closed now, or at least my money came back, and it came back at 0.94x after three and a half years. So I lost about $2,400 and three and a half years of anything else I could have done with $40k.

What went wrong wasn't the property. It was a small self storage facility in a secondary market and it performed roughly okay from what I can piece together. The problem was that I never actually knew what was happening. Two updates in three years. I emailed maybe nine times. Got answers to three of those emails. When it sold I found out from a distribution notice, not from a conversation.

The step where I went wrong was the very first one. I met this guy at a conference, he was impressive in the room, he had a deck, and I wired money to him about six weeks later without ever speaking to a single person who had invested with him before. I did read the docs. The docs were fine. That's not where the failure was.

What I'd do differently: before wiring, get names of prior LPs and call them, and specifically ask how often they heard from him and what happened when they asked a question. I think that one screen would have caught this.

Answer

1marcus_hale41CG4A

You've diagnosed it correctly and I want to sharpen one part. Reporting quality is not a soft factor. It's the only window you have into an asset you don't control, and a sponsor who won't answer email in a fine year absolutely will not answer it in a bad one. The 0.94x is almost the good version of this story. The bad version is the same silence attached to a deal that needed a capital call, where you find out about the call and the reason for it in the same message.

On getting prior LP names. Sponsors will hand you three references and yes, they're selected. Take them anyway, and then at the end of each of those calls ask that person who else they know in the deal. The second-degree names are the ones worth talking to. Also ask the references a question with a date in it, like when did you last get a financial statement, because that flushes out generalities fast.

One more thing that costs you nothing. Ask for the last two quarterly reports from a deal they're currently running before you commit to a new one. Some will refuse on confidentiality grounds, which is a fair answer, and some will send them redacted. What arrives tells you whether reporting exists as a habit or as a promise. A sponsor whose reports are a page of prose with no rent roll and no variance to budget is telling you exactly what your next three years look like.

The conference thing I'd let yourself off for. Presence in a room is real information about fundraising ability. It's not information about asset management.

$40k with a sponsor I met at a conference. Two updates in three years.

1 reply