6 reasons to put down a deck

Welcome back and happy Thursday!

This week I forwarded ~100 different investment decks for LPs to review given their criteria (feel free to reach out if you’re looking to place $500k+, I don’t charge), and an LP’s email made me realize something… here it is below:

Email from LPThere’s a massive benefit to reviewing a ton of deals at the same time because you can immediately spot differences in disclosure, terms, professionalism, etc.

What I’ve found is that many LPs are often looking at deals in a vacuum - 1-3 at a time, perhaps, and that makes it easy to miss the forest for the trees.

Today I’ll give you 6 reasons to put down a deck immediately (i.e. move on!) because, in probability, the investment is probably not great.

Announcements (article continued below):

• **Last premium post: **The dangers of “trust but verify” - what’s so bad with trusting but verifying when it comes to LP investments?

• **LP Cohort: **Review 4 deals with me and other LPs to learn what to look out for - please reply to this email if it’s of interest.

• LP Topics: a more advanced ongoing biweekly 1 hour meeting with other LPs where we'll go over investment decks, capital call / distressed situations, and modeling. Please reply to this email if you’re interested.

A few disclaimers before everyone attacks me with the one counterexample 😊:

• Yes, there will be counterexamples.. but if you run an experiment containing any one of the 6 below and compare the results to a group that doesn’t have these, I have very strong conviction about the results (read: returns) of the latter group being better .. in other words, I’d bet that 70%+ decks with the below factors will underperform across a large enough study

• I hate to be the one to remind you of this (not good for my business!) but just because you can investment money, doesn’t mean you need to .. and so if you see one of the below in a deck, chances are the return on hassle (more here on that here) on the diligence won’t be worth the return

• Secrecy, dishonesty, caginess, or exaggerated language and pressure

• More on why you should have a low bar/tolerance for this here, and why trust comes before the property analysis itself here

• This could be around background, the property.. or even the assumptions that were used

• Many people ask me if it’s standard to ask for something or not - there are definitely market standards, and you’ll learn those over time.. but the bottom line is if you’re not comfortable, don’t invest - it’s that simple and it’s your money

• If you’re thinking about investing money you’re in the middle of a sales process, whether you like it or not - these are the facts, and that’s ok! Checking in once in a while is normal, but any abnormal pressure likely means you should walk away

• The word “guaranteed”

• Guaranteed returns, guaranteed preferred returns, guaranteed ______

• More on the topic here

• PS I don’t care if there’s a personal guarantee involved or it’s preferred equity or debt investment, put down the deck and go take a walk :)

• Unwillingness to provide detailed track record or unclear involvement in deal

• Track record - For context, I’ve seen some operators with “a decade long track record” decline to provide it (or delay the request), while a 30 year veteran provided the track record on every single deal since inception (including the losses) within minutes

• For newer GPs - it’s ok if it takes some time for them to put this together.. give people grace, but that doesn’t mean they don’t need to send it to you (or that you should invest without it)!

• More on the topic in Track Record Audit

• Involvement - make sure you understand who you’re speaking to, how they’re being compensated, and what their involvement is in the deal. You can read more on what to look out for here

• Coinvest, in dollars < Acquisition Fee, in dollars

• Simply said, this means that your money (which is where the acquisition fee comes from!) is contributing to the deal for the GP

• To understand why is so important read:

• Why acquisition fees matter

• Fees erode more equity than you think

• Alignment of interests

• Extra credit: Spotting GP/LP misalignment

• Cap rate compression or extreme refinance assumptions

• You’re trying to make a real estate investment, not a macro one

• Yes - real estate investments are impacted by rates, but you should make sure they’re not dependent on them

• Read more on Cap Rate Compression Traps and Refinance Assumption Traps

• No return of capital clause

• If you see this, put down the deck immediately… more on the topic here

For more on this topic, visit Top 15 Syndication Mistakes, and as always I look forward to your feedback!

I advise LPs on existing and potential positions and write articles here weekly on what I see in the marketplace that could help you invest better. You can find me on LinkedIn or Twitter.

Whether you’re an LP, want to learn to become one, or affiliated with LPs (GPs, Attorneys, CPAs, Financial Advisors) I hope you’ll consider subscribing and sharing this post to help others make more informed investment decisions.

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• Limited Partners:

• Potential positions - you’re considering investing and need an independent opinion

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If you’d like to speak on the phone, you can reach me at aleksey@hey.com.