By Jeffrey A. Coopersmith, CREC Real Estate
Fairly often, potential new investors ask us whether our consistently strong investment results are the product of a “secret sauce.” There is no secret sauce, but this question recently triggered an internal discussion to try to define our actual perceived advantage. Our conclusion was that CREC’s superior long-term performance is a result of our size, our ability to be very focused, and our commitment to a highly disciplined investment strategy.
It’s no secret that the largest 100 private equity real estate investment firms attract the majority of equity capital inflows. But having a large profile doesn’t automatically get you big results. There is a strong case for emerging (smaller) firms like us. For us it’s all about the discipline we have created coupled with a structure that allows us to be a speedboat in a market full of ocean liners. Time and time again, size brings bureaucracy, and bureaucracy kills culture and performance.
The “speedboat” and “discipline” capabilities have allowed us to generate results that attract attention. Since the firm was founded in 2001, our team has acquired 58 assets. Across the 40 investments that were acquired between January 1, 2005, through December 31, 2020, 23 have been sold and have delivered a weighted average IRR of realized returns of 14.8% with performance for the combination of realized and unrealized returns of 19.6%, as of December 31, 2021.
With respect to the speedboat analogy, the “ocean liner” private equity real estate firms are well known and often considered “safe bets,” thus attracting a lot of investor equity. However, the bigger the volume of capital inflows, the more pressure to deploy it. In some cases, that pressure can result in investment decisions that are less selective and less disciplined. Additionally, how people are compensated to deploy capital can greatly influence acquisitions, performance, and ultimately, IRR. Compensation plans can be structured as a carrot or a stick. The pressure to deploy, coupled with compensation plans based on deployment rather than on return metrics, has the potential to reduce focus on investment returns.
Aligning interests. At CREC, the acquisition team and the broader company is structured with an incentive plan that focuses on finding outsized results for our investor. It’s not about deadlines or pressure to get capital out the door. The incentive for CREC team members is participating in the GP carried-interest component, which aligns interests for all parties and prioritizes the acquisition team’s focus to maximize our investor’s returns over a longer-term horizon.
Local knowledge. The “ocean liners” typically need to write a big check in order to deploy capital efficiently. The CREC speedboat can explore smaller multifamily properties in growing secondary geographic locations with compelling population and job growth prospects, especially those that have been inadequately managed, or are in need of strategic capital reinvestment. Our boots on the ground, with or without JV partners, allows us to understand the local market to find investment opportunities with more upside.
Collaboration. Large firms often suffer from bureaucratic “silos” that impede collaboration and result in less agile investment decision-making. CREC has fostered a strong cooperative culture that prizes and rewards collaboration to achieve maximum performance. Those charged with raising capital work closely with those tasked with investing it, as well as those ultimately responsible for managing the acquired properties. CREC’s size and incentive structure allow us to align everyone’s interests, and that in turn reinforces collaboration.
At CREC, we believe our investors have benefited from working with us as a 21-year “emerging manager.” Our speed, discipline, flexibility, culture and size have matured over this long-term lifecycle to provide the consistent strong performance we have earned for our investors.
About CREC. CREC Real Estate, LLC (CREC) was formed in 2001 as a private equity real estate investment firm. Based in Columbus, Ohio, the firm sponsors real estate investments through its private fund and private placement offerings and has more than $1.3 billion of real estate assets under management. Employing a value-add strategy, the firm specializes in multifamily investment in secondary cities throughout the United States.
To learn more about CREC, visit www.crecrealestate.com.
1. Internal Rates of Return (“IRR”) represent an average IRR weighted by the investment size of each asset investment made by direct private investment vehicles managed by CREC, compounded on a property-specific basis, and net of all fees, promote waterfalls and carried interest.
2. Unrealized returns are based on actual distributions plus hypothetical sales of properties at an amount determined by appraisals performed throughout 2021 and broker opinions of value performed in Q4, 2021. Performance quoted is based on a combination of unaudited past performance and internal calculations of remaining investment value.
The information on this page: is for informational purposes only, does not constitute investment advice, and is not an offer or solicitation to purchase securities of CREC or its affiliates. Real estate related investments of CREC are only offered as private placements and only made pursuant to a private placement memorandum (PPM) made available to accredited investors. Investments in private placements are speculative, illiquid, and may lose value.
PAST PERFORMANCE IS NO GUARANTEE OF COMPARABLE FUTURE RESULTS
Many of the properties included in the performance listed herein were acquired in a favorable economic environment. There can be no assurance that any investment opportunity with CREC will be able to realize its investment strategy, achieve its investment objectives, or avoid substantial losses. An investment in a CREC private placement will involve various risks and uncertainties which are outlined in the PPM of that offering.
Unrealized Performance: Unrealized performance metrics are for property assets that have not yet been sold. The metrics are theoretical and based on the assumption that on the date of calculation the estimated value of the property from the 2021 third party appraisals or broker opinions of value will be achieved. The estimated values are based on subjective factors and assumptions which may be incomplete or incorrect, and unanticipated events and circumstances may occur which can materially affect them. There can be no assurance that the listed performance metrics for unrealized assets will be achieved. Full and actual performance will not be realized until the property asset is sold. In addition, there can be no assurance as to when or at what value the property will be sold. A property’s estimated value is subject to change and the various risks that pertain to real estate investments sold as a private placement and that are identified in the PPM of each investment offering.
Core Financial, LLC, an affiliate of CREC, and a broker-dealer registered with the SEC and member FINRA / SIPC, serves as placement agent for private placement offerings sponsored by CREC and/or its affiliates.