Investing in private real estate involves risk. While each investment prospectus features an important discussion about risk—which advisors and investors should consider in detail—our goal in this article is to provide additional context around our approach to risk management and touch on key points of differentiation.
Our Approach to Illiquidity
Many market participants describe private real estate as inherently risky; however, we believe the emphasis is better placed on the illiquidity and time horizons of the asset class, rather than risk in the traditional sense. From this perspective, we believe liquidity management can help de-risk a real estate investment by reducing the likelihood of needing to deviate from the business plan or sell in the middle of a project—actions which inject real risk.
Our philosophy around managing illiquidity is evident in how we construct our funds. We prefer to hold a blend of short-, medium-, and long-duration investments. In reality, lenders are cyclical, investors are cyclical, and real estate is cyclical. In the face of these cyclical forces, a fund may struggle to meet its objectives if each and every holding has a long-dated time horizon.
Let’s consider an example: Say we’re going to repurpose a vacant office building—an opportunistic project with a multi-year timeline. Years one through three are going to be rather illiquid. We may mitigate some risk associated with this investment by directing capital to assets where we’ll pursue a light value-add strategy, such as apartments that need three to six months of work to increase leases by 15%. If we enter a scenario in which capital markets start to gyrate or freeze, we’re now better positioned to liquidate one of the apartment assets on the shorter end of the curve to meet needs for the longer-dated adaptive reuse project. As such, we can use thoughtful placement of capital to efficiently mitigate risk, to the extent possible.
Offering a Range of Products for Investors
Our approach to illiquidity and risk management is also evident in the range of products we offer to investors. We offer access to multiple investment horizons and multiple investment theses that allow investors to diversify their investments in real estate assets across assets at differing points of stabilization, and in varying states of cash flow optimization. We believe this diversity of products, along with robust educational resources, can help investors better manage the risk of private real estate in their portfolios.
Risk Mitigation in Our Investment Process
We follow a rigorous diligence process to identify and qualify each of our investments. We utilize and consider both qualitative and quantitative data in the identification and selection of our investment opportunities. We consider data from varying sources, including proprietary market analytics, cost of capital, and internal financial modeling projections.
Empowering Specialized Investment Professionals
Our investment professionals play a key role in risk management. The team is responsible for the full life cycle of an investment, from evaluation, through execution, to exit. Investment professionals generally submit investment opportunities for review and approval by our investment committee. The investment committee is comprised of executives and senior leaders of the company.
When evaluating investment opportunities, the investment committee may consider, without limitation and depending on the nature of the investment and its strategy, the quality of the asset in which the fund proposes to invest, likely exit strategies, factors that could reduce the value of the asset at exit, and a range of economic and interest rate environments, macroeconomic trends in the relevant geographic region or industry, and the quality of the asset’s business operations. Our investment committee also incorporates, to the extent appropriate, environmental, social, and governance factors into the investment decision-making process.
Existing investments are reviewed and monitored on a regular basis by investment and asset management professionals. In addition, our investment professionals and asset managers work directly with our portfolio companies’ directors, executives, and managers to drive operational efficiencies and growth.
Experience Where It Counts
Real estate investment models are driven by assumptions—and assumptions are only as good as the person making them. As such, we are sharply focused on experience, seeking to hire and retain professionals who have track records in our targeted asset classes and geographies. Our team members have been through numerous real estate cycles; they understand where we are currently in the cycle and appreciate the likelihood of what is to come—two instrumental factors for mitigating risk.
Our team dynamics are grounded in respect. To attract and retain top talent, we give our analysts room to manage their own careers. Although compensation is important, we believe investment professionals also need to know that their opinions are respected and that they have access to the growth they desire. We listen to our team and seek to provide our professionals with access to capital to put together creative, lucrative deals.
Caliber’s Advisor Resource Hub
To learn more about investing in real estate, visit our Advisor Resource Hub or contact our team today.
About Caliber (CaliberCos Inc.) (NASDAQ: CWD)
With more than $2.9 billion of managed assets, including estimated costs to complete assets under development, Caliber’s 16-year track record of managing and developing real estate is built on a singular goal: make money in all market conditions. Our growth is fueled by our performance and our competitive advantage: we invest in projects, strategies, and geographies that global real estate institutions do not. Integral to our competitive advantage is our in-house shared services group, which offers Caliber greater control over our real estate and visibility to future investment opportunities. There are multiple ways to participate in Caliber’s success: invest in Nasdaq-listed CaliberCos Inc. and/or invest directly in our Private Funds.
Investor Considerations
The information contained herein is general in nature and is not intended, and should not be construed, as accounting, financial, investment, legal, or tax advice, or opinion, in each instance provided by Caliber or any of its affiliates, agents, or representatives. The reader is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances, desires, needs, and requires consideration of all applicable facts and circumstances. The reader understands and acknowledges that, prior to taking any action relating to this material, the reader (i) has been encouraged to rely upon the advice of the reader’s accounting, financial, investment, legal, and tax advisers with respect to the accounting, financial, investment, legal, tax, and other considerations relating to this material, (ii) is not relying upon Caliber or any of its affiliates, agents, employees, managers, members, or representatives for accounting, financial, investment, legal, tax, or business advice, and (iii) has sought independent accounting, financial, investment, legal, tax, and business advice relating to this material. Caliber, and each of its affiliates, agents, employees, managers, members, and representatives assumes no obligation to inform the reader of any change in the law or other factors that could affect the information contained herein.
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