Financing a real estate investment today is completely different than it was a year ago. The average time to close a deal has nearly doubled. It used to take 20.9 months, but in 2019 it has been reduced to about 11.2 months. This delay reflects several factors, including the impact of the ongoing pandemic, rising interest rates, inflation and increased investor uncertainty, all of which contribute to a challenging environment for syndicators and fund managers. It becomes.
Syndicators managing assets between $10 million and $100 million are grappling with increasingly complex challenges in scaling their operations efficiently. The traditional model of overseeing multiple single asset syndicates is difficult to scale, especially as market volatility increases and investors seek more diverse options for deploying capital.
This change is consistent with broader market trends. Global regulated open-end fund assets rose 1.5% to $70.2 trillion at the end of Q2 2024, with net cash flow of $830 billion, according to recent data from the Investment Company Institute . These numbers are not surprising to us given what we are seeing in the industry.
In response to this change in funding behavior, the team at InvestNext is working to help GPs make intentional and strategic funding decisions in an increasingly competitive funding environment by increasing real estate funding in late 2024 and into 2025. We have begun research and development on a white paper that outlines five key trends in procurement. landscape.
When we put together the report, one insight stood out. Syndicators that employ fund structures in their strategies can quickly access and deploy capital, enabling them to pivot when opportunities arise without operational delays, while offering a wider range of services to investors. It will be. An unstable landscape.
From our perspective, incorporating fund structures into existing syndication strategies is becoming a key differentiator for adaptability and diversification. This approach opens the door to more funding, creates a wider range of opportunities, and enables rapid adaptation to market changes.
Investor behavior is changing the syndication landscape
Investor behavior is changing rapidly, and the data supports it. Real estate financing fell to a five-year low in the first half of 2024, with single-asset strategies bearing the brunt of this decline. This shift is more than just a temporary shift; it is fundamentally forcing syndicators to rethink their capital raising strategies.
Note that syndicators are not completely abandoning syndication. Instead, we are adapting and diversifying our services to provide more stable long-term investments.
This hybrid approach resonates with investors who want the flexibility to participate in new transactions, including distressed assets, financing opportunities, and open-end funds with trusted GPs.
As investor preferences continue to shift away from single-asset strategies, syndicators that can pivot their funding approach will be in a position to capitalize on and deliver on macroeconomic trends in the near future.
Although short-term funding may seem difficult, we are excited about the long-term prospects. Preqin predicts that real estate assets under management will soar to $2.66 trillion by 2029, with an annual growth rate of 8.7%. Coupled with the 15.1% jump in the CBOE Volatility Index seen in August, these are more than just numbers. Those are clear signs of great opportunity for adaptable syndicators.
We see this as an opportunity to evolve. Syndicators that adopt fund structures to complement their existing strategies are positioning themselves in a more agile and defensible position.
Funds are greater than the sum of their parts
For the prudent, it’s important to understand that fund structure doesn’t just provide diversification, it’s a path to operational efficiency. By unifying reporting and investor communications, funds can significantly reduce overhead costs and syndicators can free up resources to focus on important activities such as deal sourcing and asset management.
A properly implemented fund structure can improve access to capital by clearly communicating the investment thesis to LPs. Once the funds are raised, you will be able to deploy the funds immediately when the deal is raised.
As the saying goes, “Time kills trades,” and quick access to funds is important in fast-moving markets.
However, we acknowledge that the Fund has historically been subject to skepticism from LPs. LPs may view the fund as a “black box” with limited visibility into the underlying assets.
That’s why we built a platform that provides GPs with unprecedented transparency, builds trust with investors and provides clear insight into how their capital is being utilized.
Single-asset syndication offers specific ties to specific properties and potentially higher upside, while funds offer a diversified risk profile, more stable return potential, and enhanced reporting. and transparency.
Technology is an enabler of growth
The transition to fund structures brings new operational challenges, particularly in managing large pools of capital. InvestNext supports complex fund structures with features such as discretionary entry, exit, and many other innovations that make fund management more manageable.
These features allow syndicators to efficiently manage multiple trades while maintaining the transparency and accessibility that modern investors demand.
Over the past few months, two of our largest customers have seen significant performance improvements since adopting our platform.
Cedar Creek Capital is a great example. By leveraging InvestNext’s technology, we reduced our investor qualification process from 2-3 weeks to nearly instantaneous and increased our investor engagement efforts by 5x.
Similarly, Wasatch Energy Management, another InvestNext user, used our solution to reduce routine investor calls by 90% and grow their investor base by 50%. This frees up our staff for more personalized investor interactions, allowing us to provide the same great experience to more investors.
By adopting our end-to-end investment management solution, both companies will be able to raise more capital and serve their investors while maintaining their striving white glove approach to investor relations. has dramatically improved its ability to
Many of our other customers are experiencing similar growth and freedom by leveraging our technology to make their operations more efficient and investor-friendly.
Looking to the future: Mixed strategies create winning opportunities
The real estate investment landscape is rapidly evolving and we are excited to be part of this transformation. For syndicators, the question is not whether to evolve, but how quickly they can adopt new technologies and funding strategies to stay ahead of the curve.
By offering a combination of syndication and fund structures, syndicators can cater to a wider range of investor preferences and take advantage of market opportunities. We believe this approach will define new leadership in the $2.66 trillion emerging market.
Looking beyond 2025, companies that embrace this transition could emerge as new leaders in the $2.66 trillion market. Download our whitepaper to learn how to enhance your fundraising efforts and prepare to capture the wave of opportunities coming to the market.
