Mobile home park funds


#9

Thanks Randy, Brandon, and Tony for your input, i will definitely look into this further.


#10

I have invested in both Frank & Dave as well as Park Street partners fund. I completely agree with the comment about communication. Happy with the Frank & Dave’s fund and their communication. It is easy to talk to the managing partners. In my experience, Park Street Partner’s investor communication has been very poor and there are no signs of improving. The experience and track record matters a lot!


#11

Jefferson here with Park Street Partners and now launching my new fund - Park Avenue Partners (www.parkavenuepartners.com).

I wanted to mention that I agree with the criticism that our reporting has been poor historically. And it still has room to improve before it’s ‘perfect.’ But I want to update this thread to indicate that we our reporting has improved since this thread was last updated.

Specifically:

  1. We’ve produced a year-end recording of our deals and their progress and challenges, and posted that to our website for our existing LPs
  2. All P&Ls have always been made available
  3. Brad and I are also only a phone or email away from our LPs, and we do answer questions in a timely manner from our LPs
  4. We are working on more detailed written reporting as well

Also, my new fund will have full accounting support from ‘day 1’ which will improve reporting (Brad and I did the accounting ourselves initially at Park Street). And I will remain just a phone call or email away from all LPs with questions.

I’ve learned from my growing pains, and appreciate the continued support of my LPs - many of whom have now come into my new fund. (Quick plug - my new fund has no fees whatsoever. 100% alignment with investors. Estimated 15% IRR if the industry does not consolidate and there are no portfolio premiums at exit.)

Onward, upward,

-Jefferson-


#12

Jefferson - would you updating us on total $ raised thus far for new fund and what amount you are personally investing?

Any pipeline commentary would also be appreciated.


#13

$3.5mm raised as of this morning from 24 investors.

I’m investing $10k - $20k in the fund. My real skin in the game is not my investment (I’m just not liquid enough to write a $1mm check); my skin in the game is:

  1. I take no fees whatsoever. (Other MHP funds will take up to 12.5% of your investment right off the top for their fees)
  2. I personally guarantee the bank debt with my home, two cars, and modest stock portfolio
  3. LPs receive all 100% of capital transactions (sale, refinance) to get all their capital back before I participate

Please join me on one of my webinars to learn more (or we can hop on a call if the webinar schedule does not work for you). The schedule and a recorded webinar to watch at your leisure are here:
www.parkavenuepartners.com/webinar

Thank you,

-jl-


#14

I have invested in both the Sunrise Capital Fund as well as Park Street Partners. PSP has paid 7.93% over the most recent year and Sunrise has paid the promised minimum of 8.0%. There is a huge difference in reporting. I have a lot of respect for Jefferson Lilly, greatly appreciate his podcast, but was surprised by his comments in response to the post by Andrew. I am one of the investors that has complained for two years about their reporting. It’s a 2 on a scale from 1 to 10 (10 being best). Jefferson was correct that they provide a P&L, but it is very basic and does not include planned vs actuals for expenses or revenue. The investor has no idea if he/she is on a sinking ship or a well-oiled machine, they simply don’t provide any meaningful information. No way to tell how much money has been invested in total let alone each park in the fund, and certainly not any means to determine cash on cash returns or ROI. It is simply a basic P&L out of there accounting system that looks like something from 20 years ago. And it comes six weeks after the close of the quarter. Sunrise comes within ten days of the close. We received the PSP commentary for Q4 2018 about a week ago (Received Feb. 12, 2019) with the team wishing everyone a Merry Christmas……

They may be making money, but we sure don’t know as investors in the fund. Much better reporting by Sunrise Capital. I was reluctant to make this post, but simply don’t know what to do to light a fire under PSP with regard to investor reporting.


#15

I have a bone to pick claiming “no fees” when you’re taking a 50% promote, regardless of what’s market.

And also find it very strange that someone that’s been in the industry so long is putting “$10-20k” - that’s as good as 0 in my mind and inspires the same amount of confidence.

Most sponsors typically contribute 5-10% of the raise or equity in a one-off deal.


#16

Well this one offers no pref to the Class A investors, so does that still technically count as a “promote” :blush: Jokes aside, I disagree regarding the need for co-investment of 5-10%. 10% of the capital on a $5mm raise equates to $500k. Hard to count other people’s money.

I’d be more bothered by the lack of pref than the lack of co-investment. To me, that instills a lack of confidence. If you’re forecasting 30% gross IRRs, surely you can afford to pay your investors an 8% pref. But I guess that’s what the Class B shares are for, and my guess is it’s the more popular option.


#17

It depends on the fund.


#18

Park Street is improving it’s reporting, and I’ve put in place different systems with my new Park Avenue Partners fund to provide all the detailed cash flow figures requested above. We’ll also be doing quarterly reporting with investor Q&A.

(One point of clarification - our newest fund (2017) is indeed paying the 8%; our earlier and more mature fund from 2015 is paying 12%, and our earliest deal from 2014 is paying 14%.)

I’d also respectfully ask folks to run the numbers on what fees they are paying to other deal sponsors of other funds. Many charge a 2% acquisition fee (e.g. 8% of your equity once they lever it up to acquire a property), a 1.5% debt origination fee (e.g. 4.5% of your equity levered up), ongoing management fees, and may also be taking additional fees by running their captive management companies as for-profit entities. The net-net is that only around 87.5% of your investment may actually be buying real estate, and your deal sponsor is taking a preferred return too in the form of those disclosed fees - and perhaps undisclosed profits from their management company.

I’ve also seen large private equity funds have closer to a 2% GP co-invest, rather than 5% - 10% (indeed, smaller funds may be different). And those GPs take significant guaranteed fees for at least 5 years, and thus get back their entire 2% investment in their funds in 2 years or less. Many GPs who invest in their funds actually have nothing to loose by virtue of their fee structure. And they don’t personally guarantee any of the debt.

I’d be interested to hear from anyone who has analyzed the fees of other MHP funds this way. I’m not trying to start a contentious thread here, but would be interested to have greater visibility into the balance other funds strike between investor preferred returns and deal sponsor fees.

Thank you all!


#19

I hate to agree with you MickG but I do. Really like both Jefferson and Brad but sense that things are a little chaotic and that perhaps they are each more focused on raising more $$ than maximizing effectiveness of the $$ that have been invested with them. Communication is a challenge paperwork is vague. Still waiting for a K1…


#20

Based on what I read and receive from PSP I think your assessment is correct (spend much more time on raising money than care and feeding of investors). Jefferson stated reporting will be improved in a recent post. I am very curious as to what we will receive after this quarter (Q1-2019). Let’s you and I both post an update upon receipt of the next report. Maybe we can help drive a change…

Brad & Jefferson - Will we see any improvement this quarter?


#21

@Andrew67

  1. Your best bet is to contact the fund directly to find out about minimums, fees, etc. if you want accurate and up to date numbers.

  2. If you are considering investing in private real estate funds or syndications, and you are an accredited investor, then I recommend that you widen your search beyond MHP funds. Assuming your goal is passive income, and not just to participate in the MHP space for some other reason, there are many real estate funds with long track records and much more favorable terms than the 50/50 backend that most of the MHP funds offer.

  3. If anyone wants to share their math on how a 50/50 split with no fees is better than a more typical 80/20 or even 70/30 split with the normal asset management/acquisition/disposition fees that would be helpful information. I am skeptical but happy to be proven wrong on this…

I appreciate everyone’s comments here. Great discussion!


#22

@jaydub

Agree 100%. If you’re an accredited investor putting money into MHP funds I’d pause and do some research. I don’t think you could find other private Multifamily RE funds with a 50/50 split. That’s pretty bad honestly. And the fund sponsors almost always put in 5-15% of the equity raise. I wouldn’t invest with a fund that didn’t have at least 5% skin in the game, but that’s just me.

I have done a bit of research lately and honestly it just doesn’t make sense to put my money into “emerging” MHP funds that don’t pay close to what an established private RE fund pays.

I am not affiliated with this company in any way but check out some of the investments on https://www.crowdstreet.com/ and compare…

I know there’s some folks on here with skin in the game with MHP funds and I’m not trying to be a jerk, but I suggest people do more research outside the MHP space before committing their money. MHP funds just don’t seem competitive unless you’re just looking to diversify your risk.


#23

I’m not very well versed on the syndication side but on the splits 50/50 or 70/30, doesn’t ultimately it all come down to the IRR where MH funds claim to do 15-20 IRR and then say on an apartment syndicate you get the 70/30 but investor is still backing into a 15% IRR?


#24

Completely agree with this.

It’s one of those areas where you have to reverse engineer the terms offered by the syndication to get an apples to apples view on which is the best investment for you. I wish there was a RESPA or TILA equivalent that standardized terms and aim to reduce hidden fees, whether intentional or not. But it’s not hard, you just have to approach them all skeptically until you’re comfortable. :slight_smile:


#25

Risk diversification is extremely important. It is not the return that matters, but the risk/return ratio.

Since I chimed in before, let me provide that my return for the abovementioned F&D fund investment was in fact more like 50% return over 5 years after all fees, taxes, etc were accounted for. Above I said I was expecting 100%. In hindsight, the remaining 50-50 split after the preferred return was not as high as I had hoped. Nevertheless, I rolled over into F&D’s final fund. I believe the sponsors put in about 5% of the expected or initial capital raise (I’m not sure which).


#26

@Brandon

Thanks for the additional info. I definitely think risk/return ratio should always be at the forefront of someone’s mind. The returns you mentioned certainly aren’t bad, but if I’m investing in private funds I would want more. I could get 50% in five years playing the stock market with a lot less risk/more transparency. I just think MHP funds right now aren’t competitive with other private multifamily funds.


#27

At this point, I’d be happy if they would at least send a K1. If only they pursued their CPA and managed funds with the same zeal that they pursue new investors, I’d be a repeat investor. Instead, I’m interested in selling our PSP shares.


#28

@Marvel_Equity
It’s true that a net IRR of 15% is 15% no matter how you slice it. However, the IRR is something that is only known at “the end of the movie”, as Frank would say. In other words, how well things go with the investment and how well it’s managed will determine the outcome (IRR). For the investor, all things being equal, you’d rather have a larger portion of the proceeds (70/30) than a smaller one (50/50).

Another big factor to consider is the risk. In other words, the likelihood that the deal will go as planned. This relates to quality of the sponsor, quality of the deal, and to some degree chance. A 15% projected IRR can equal 25% IRR in the end. Or it can equal 0% IRR in the end. Or even worse, a negative return. Part of doing DD on a syndicated deal is figuring out which one of those we think is most likely. Doesn’t mean we’ll be right of course.