Those who have been in The White Coat Investor community for years know I spend a lot of time and effort trying to get people into a position where they can really get started investing. We help them crush their student loans, buy and pay for their dream houses, write a financial plan, put appropriate insurance in place, understand their retirement accounts, and mostly help them get their lifestyle under control enough that they can carve out a big chunk of their income to use to build wealth by paying off debt and investing.
You also know that my investments are relatively simple. I invest in stock, bond, and REIT index funds, real estate, and small businesses/websites that I have significant knowledge about and influence over, primarily Passive Income MD and The Physician on FIRE. You can only talk about index funds for so long (although as Rick Ferri says, “The truth about index investing must be told over and over again because lies are constantly being told about it.”) My index fund portfolio rarely sees any sort of changes, of course. And I generally leave PIMD and PoF to tell their own stories. So which of my investments does that leave me to write about? Pretty much real estate.
Over the years, I've invested across the entire spectrum of real estate investments, from owning and managing an individual property and its tenant to buying and holding a REIT index fund. This has included investments with half a dozen crowdfunding sites, some individual syndicated investments bought directly from the syndicator and private real estate funds. Over time, I've gravitated more and more toward the real estate funds.
The Case For Private Real Estate Funds
Why have I moved toward private funds? There are several reasons, really.
The first is that I want my investments to be very passive. I want to be able to ignore them for months or even years at a time and still be assured that someone is watching the shop and making sure I get good returns. And I certainly don't want to get toilet back-up calls or screen tenants myself. Maybe you do, and that's certainly a legitimate way to invest, but I don't.
The second is that I want my investments to be diversified. Diversification protects you from what you don't know. When you buy part of a syndicated property, even if you do it with hundreds of others through a crowdfunding site, you're only buying one property. When you buy a fund, you are generally buying 10-20 properties. If one or two of them stink, you'll likely still come out fine. Maybe it is my background with ridiculously diversified index funds, but I'm a big fan of not putting all my eggs in one basket.
The third is that I don't have any particular talent at evaluating and selecting real estate investments. When you look at crowdfunded investments, or even a syndicated deal offered directly by a sponsor, I can read hundreds of pages of memorandum, go walk the property, and participate in the pre-offering webinar. But I'm not going to kid myself and pretend I know better than the next guy which property is good and which isn't. Now if you want to talk about physician financial websites, I'm your guy. But real estate? Not so much. So the idea of having someone who actually does know how to do this choosing the investments is appealing.
The fourth is the argument that both private funds and big syndicators themselves make — the crowdfunding sites only get the bottom of the barrel deals (which is pretty amazing considering they're reportedly turning down 90% of what they're brought.) If these sponsors had a better way to raise funds, they would. If they had a really great deal (and especially if they could repeatedly find really great deals), they wouldn't have any trouble raising funds. Funds and direct syndicators also cite the significant additional layer of fees that come from the crowdfunding site, which of course, has to come out of your return. If you can go to one investor and get $2 Million, why are you going to mess around with a crowdfunder to get $2-5K at a time? You're not.
The fifth is that returns for many of these funds have been excellent. At a time when many smart people are talking about 4-6% real returns on equities for the next decade (and that's not even the perma-bears) seeing funds showing audited (nominal) returns of 10-25% become pretty intriguing. Yes, there are higher fees than you'll see in an index fund. Yes, there are serious liquidity issues. Yes, it'll be years before you'll know if these managers can do it again. Yes, you have to be an accredited investor. But geez, for the opportunity to double my money in 5 years instead of 10-15? I'm willing to run some of those risks with part of my portfolio.
Now there are real estate deals of all different sizes, from a $100K townhome to the Mall of America. There are huge REITs and funds that really can only look at the biggest deals due to their size. Consider one of the biggest REITs in the Vanguard REIT index fund, Simon Property Group, Inc. They have 5000 employees. They own 325 properties and are worth >$50 Billion. That's an average of $154M per property. Those are huge properties. They're not buying $100K townhomes. They're not even buying $10M apartment complexes. If you're just buying the REIT index fund, you're not getting access to those other areas of the market. Perhaps the fact that an individual investor can't afford those properties, and the “big boys” aren't interested in them because they simply need bigger deals, leaves space for solid returns to be made in the middle. Now the individual sponsors/syndicators are in this space, getting 100 doctor types together in order to buy a big apartment complex, but then you only get one property instead of a dozen.
The Problem For The High Income Professional
“That sounds great!” you say. “I'd love to make 15%+ and maintain some diversification. I'll just buy 3-5 of these funds to make up 20% of my portfolio.” So you take your $500K portfolio and the $50-100K you save each year for retirement and you go looking for funds. Uh oh, there's an issue you run into right away. These funds all have minimums of at least $50K, usually $100-250K, and sometimes $1M+. If you only want $100K in real estate total, and you want to spread that over a few funds, and those funds all require $200K minimums, well, you're just not going to be able to invest in these funds. Even though you're accredited and you know about them, you're just simply out of luck. To make matters worse, the $100K investors in those funds aren't really ideal for the managers. They really want the folks with $1-5M. Their fund is only $50-300M total and they'd prefer to only deal with 100 investors rather than 10,000. So they often offer better terms to those investors that bring more money, like $1M a piece. Now if you want 4 different funds and you only want 20% of your portfolio in those four funds, you're going to need a $20M portfolio. We've just priced out almost all the readers of this site.
Dealing With The ‘High Minimums' Dilemma
This is why I ended up working with the crowdfunding sites, as an investor and a media company. I could get into a syndication for $2K, $5K, $10K, maybe $20K. As a doctor with a halfway decent savings rate, I could afford to max out my retirement accounts and still meet those minimums in my taxable account and still be diversified. However, I recognized that these probably weren't the best real estate deals out there for investors. Luckily for me, I started making a lot more than the average doc and since we kept living like a doctor, that has freed up lots of capital for us to invest. That allowed us to meet the $75-100K minimums for some of these funds. Unfortunately, that is not the case for most of my readers.
This is the issue that Alan Donenfeld, CEO of CityVest, is trying to solve. His brother, an anesthesiologist, asked him what he should invest in. Alan told him to invest in these mid-range private real estate funds. But his brother came back saying he couldn't afford any of the minimums. So Alan figured out a way for his brother (and others like him) to have lower minimums. CityVest bridges the gap between these funds and accredited investors like you that will never have an estate tax problem.
Unlike most crowdfunding sites, they're not dealing with specific properties and their sponsors. They're only dealing with funds. So they go to a fund that requires a minimum of $100K and prefers $1M+ from an investor and say, “We'll bring you capital to invest.” Then they go to investors and form an “access fund” that might raise $5M to invest in the real estate fund. They let the investors into the fund for $25K, but then provide those investors with the preferred deal from the real estate fund, taking their cut out of the difference between the regular deal and the preferred deal. It's really pretty ingenious and a major service for those of us at this level of assets.
You also get the benefit of their screening of funds. There are 600+ funds like this. Alan tells me the initial screen is a prior fund with an IRR of at least 20%. That screens out 90% of funds right there. From there, he applies some additional criteria until he is satisfied that the likelihood of continued success is high.
Where The White Coat Investor, LLC Comes In
So as I've moved my own real estate portfolio from crowdfunding companies toward funds, I've tried to also reposition the WCI advertising relationships. Rather than write about companies I'm not investing with (and who can blame my readers for not wanting to invest in anything I'm not investing in) and not making any money, over the last year I've been trying to go to the funds I actually invest with and get them to buy ads from WCI or set up an affiliate marketing relationship with WCI. It really becomes a win-win-win for everyone when I can work out one of these deals. It's kind of like refinancing student loans for my readers. The reader wins with a lower interest rate, a bonus payment, and much better customer service. I win with an affiliate payment. The refinancing company wins with more business. Even the taxpayer wins by getting their money back so it can be lent out to the next med student. Unfortunately, I've had limited success so far with these real estate funds. While it would be a win-win-win (the fund gets capital, WCI makes money, my readers get a great investment), there is still the minimum investment issue. These funds just aren't interested in raising money $10K at a time.
Partnering Up With CityVest
So Alan Donenfeld and I put our heads together a while ago to try to come up with a win-win-win-win deal. Unfortunately, the call came while I was out mountain biking on a snowy trail at dusk in late November in the Wasatch mountains. While we worked out the deal, my toes were trying to fall off. But once I got home in a hot shower (and they quit hurting,) I was glad I had spent the time to do it.
Let's look at a specific deal to understand how we all get to win.
PathFinder Access Fund
First, just a reminder that like most of these types of investments, this is only available to accredited investors. That means the investment has a lot less oversight and regulation than a mutual fund. The idea behind accreditation is that you have so much money or make so much money that you can afford to lose your entire investment without ruining your retirement. The assumption, which obviously may not be true, is that because you're rich you must be smart enough to evaluate this investment yourself. Most of my readers either already (or soon will) qualify as accredited investors by having either $1M+ in investable assets or $200K+ in annual income. Okay, let's get into the deal.
How Pathfinder Wins
Pathfinder is a private fund manager. Every year or two they start a new fund, gather money from investors, buy up a dozen properties, manage them for 5 years or so, collect their fees, send some distributions to the investors, and then sell the properties and close the funds, take their fees, and return the capital (hopefully with significant gains) back to the investors. They're now raising money for their 7th fund. Their track record for the prior funds looks like this:
Yes, they've only gone full cycle with a fund once, and it was a pretty small fund. But they've been doing pretty well with three other funds. This isn't their first time doing this. You can actually break it down by the actual investments in the funds (and CityVest does that for you on their site.)
Clearly, this isn't their first rodeo. The Pathfinder guys know how to run a fund. They also know how to choose properties that make money. Of the 72 properties they've gone full circle with, they've only lost money on two and the weighted internal rate of return is 20% per year. I asked Alan about those two losses to see if he had specifics. He did not, but noted that the way that a 100% loss occurs (see NCC Student Housing) is when something materially changes with a leveraged investment. It isn't that the property value goes to zero, but that equity is wiped out by something like a large unexpected capital expense or inability to raise rents as expected. He feels that only losing money on 2 out of 72 investments is a pretty awesome record.
Here are the original terms:
So how does Pathfinder win? Well, they're obviously continuing to raise money for their real estate funds. If you invest, they get more money to invest and charge fees on. In Pathfinder VII, they charge 1.5% per year and after an 8% preferred return to investors, they get 20% of what it makes above and beyond that. (They actually get a little more than that thanks to the catch-up provision you see above.) Their problem is they need more money. Working with CityVest brings them more money and solves their problem.
How CityVest Wins
CityVest is forming their own fund (an LLC) that then invests in Pathfinder 7. They charge the fund a $50K annual administrative fee (yes, I know it says $75K above, the site should be updated by the time this runs and will likely be reduced to $25K) and a one-time $75K organization expense fee (which may also be reduced). Then they charge an annual 0.75% fee (which has been waived for this investment.) The goal is to raise $10M for this access fund, and if they manage to do that, the $75K would be a one-time 0.75% fee and the $50K + 0.75% would be an annual 1.25% fee. It sounds like the raise will be significantly less than that, however.
Yes, there is an additional layer of fees there you would pay for going through CityVest, but as you will see below, those fees are significantly offset and in fact, since the tech and organization fees are flat, they are reduced proportionately the more people/dollars get into the fund.
CityVest's problem is that they don't have 280,000 accredited and soon to be accredited investors coming to their website every month. Working with The White Coat Investor solves their problem.
How The White Coat Investor Wins
Just like CityVest, I don't work for free either. I get paid a commission by CityVest for each investor that invests with them. This is a typical affiliate deal and the way that many bloggers (including me) make money. I get paid for making the connection between the people with money (you) and the people that need money (CityVest/Pathfinder).
This isn't my first rodeo either. I've learned through sad experience that if there is no incentive to go through my links that readers will simply go directly to CityVest and cut me out of the deal. So in order to do an affiliate deal, I demand that my readers get something special by going through my links. Not only does that ensure they go through my links (good for me), but it also allows me to tell my readers that I've negotiated a special deal on their behalf (which is true) that they can't get by going directly to CityVest (good for them.) In some ways, I suppose I'm splitting what I could be paid with my readers, but it's not like that's a bad thing, right?
I win because if I can get even a tiny percentage of the 280K people who come by the site, take my email newsletters, follow me on social media, or listen to the podcast to invest $25K with Pathfinder through CityVest, then a little bit of money for each one can add up to significant revenue for the site. Some of that I can use to create jobs, some I can use to support The White Coat Investor Scholarship, some I can give away to my favorite charities, some I can spend, and the rest I can invest myself.
If I'm investing in the fund as well, I also win by bringing more people and more money into the fund, lowering my share of the fixed fees.
How You Win
# 1 (Hopefully) Outstanding Investment Returns
Yes, you'll be paying Pathfinder significant fees. Yes, those fees are more than the 0.12% you would pay as an expense ratio for The Vanguard REIT Index Fund. But guess what? You keep everything after that. The fund is projecting 12-14% returns. If future performance is like past performance (and obviously there is no guarantee), that could be more like 18% per year, doubling your money in less than four years. But even if the performance is half that, that's probably going to be similar to the returns you get from the equity portion of your portfolio. That's the main win for you. However, there are some more wins.
# 2 You Get a $25K Minimum Investment
Want to cut The White Coat Investor and CityVest out of the deal? Fine. Go straight to Pathfinder. You'll need $100K.
# 3 Reduced Pathfinder Fees
But wait, there's more. By going through WCI and CityVest, you are no longer treated by Pathfinder as a “small fry” with a mere $100K to invest. You are treated like a big investor with $1M+. Instead of an 8% preferred return, you now get a 9% preferred return before you start splitting the return with Pathfinder. That extra return doesn't quite make up for the additional CityVest fees, but it does help reduce them.
# 4 Reduced CityVest Fees
Want to cut The White Coat Investor out and go straight to CityVest? You can do that. But if you go through my link, not only do you support the mission of The White Coat Investor (nobody actually pays me to talk you into becoming financially literate and saving 20%+ of your income, I have to make money doing other things) but you also get out of the 0.75% CityVest management fee for the lifetime of the Pathfinder Access Fund. Did you get that? CityVest is giving you a lower minimum investment and a higher preferred return and the only fees being charged to you are your share of the management and organization fee.
Now, why would CityVest offer that? Well, they are still making money on the fund through the one-time organization fee and the annual management fee. They are also building their business. But mostly, they're not in it for a single fund or deal. They're hoping you're going to keep investing with them over the years. Just like I want a long-term relationship with CityVest (i.e. a long, stable revenue stream for WCI) they want a long-term relationship with you.
If you add up all the likely fees and discounts and the amount the access fund is likely to raise, I calculate that what you're paying to have the lower minimum investment will be something like 2% per year. You don't want to give that up? Go directly to Pathfinder with $100K.
Now down the road the deal for going through WCI links probably isn't going to be quite as good as this initial one (it'll be one year of waived management fees, not waived fees for the entire lifetime of the investment) but that's still pretty nice when added to the higher preferred return and the lower minimum (the main purpose for the existence of CityVest.) We'll take a look at those deals as they come up in the new year.
The Waterfall
The “waterfall” (who makes what in various scenarios) can sometimes be a little complicated. Let's run through a few scenarios so you can see how it works out.
Scenario # 1 – The Investment Loses Money
- Pathfinder gets its fees.
- CityVest gets its fees.
- Everything else goes to the investors.
Scenario # 2 – The Investment Makes 0-9% Per Year
- Pathfinder gets its fees
- Cityvest gets its fees
- Investing get all their capital back
- Everything else goes to the investors
Scenario # 3 – The Investment Makes 9-15% Per Year
- Pathfinder gets its fees
- Cityvest gets its fees
- Investors get all their capital back
- Investors get 9% per year (the preferred return)
- Investors and Pathfinder split additional return 50/50 (this is the catch-up) At 11%, investors make 10%, Pathfinder makes 1%. At 15%, investors make 12%, Pathfinder makes 3%.
Scenario # 4 – The Investment Makes > 15%
- Pathfinder gets its fees
- Cityvest gets its fees
- Investors get all their capital back
- Investors get 9% per year
- Investors and Pathfinder split next 6% 50/50
- Investors and Pathfinder split everything else 80/20
The idea behind the structure is to incentivize excellent performance. However, the usual warnings about investing expenses apply. Pathfinder makes money no matter how badly the investment does. Every bit of return that goes to the manager cannot go to the investor. The less they charge, the more of the return you get to keep. However, this sort of structure exists in pretty much all of these deals, although sometimes it is slightly better than other times. This is the price you pay to play. The game is optional, but this is the price of entry.
Some Precautions
Now don't be stupid. $25K is less than 1% of my portfolio, but it might be a significant portion of yours. Don't invest more than 5% of your portfolio into this fund. Diversification still matters. And this investment isn't going to be liquid. Don't plan on seeing your money for a half decade or more. Think of the high investment return partly as being compensation for being willing to give up liquidity.
If you don't want to play, that's okay. You can watch from the sidelines. There will be more funds, more crowdfunding companies, and more real estate deals out there in the future. There are no called strikes in investing. If this deal (or its timing) isn't right for you, then let this pitch go right on by and maybe we'll catch you on the next one. But this pitch won't last forever, the fund is expected to close by the end of the year.
Some Criticisms
Like any structure or business, CityVest isn't perfect. Perhaps the biggest criticism leveled at CityVest is simply that if CityVest doesn't raise enough money, the flat fees can add up to a large enough percentage to really take a bite out of the returns. For example, on a $10M investment, a $75K/year flat annual fee is 0.75%. But on a $1M investment, it's 7.5%, possibly half the return. In addition, there is the issue that all the investors want to wait until they see how much is going to be in the fund before committing their dollars.
I asked Donenfeld about these two issues. CityVest is about a year old and has done three access funds so far (in addition to the three on the site now) for a total of about $5 Million. He's raised $750k for the Pathfinder fund so far (as of a week ago) and expects it to close at the end of the year with perhaps $1.5 Million. He repeatedly told me he didn't want to gouge the investors, and so with the Pathfinder Access Fund has not only waived the 0.75% annual fee for the life of the investment, but also lowered the flat fees. He expects less difficulty raising more with funds moving forward as there will be months instead of weeks to do it, so I'm excited to see what the new year will bring. I expect that with the Pathfinder Access Fund the fees will add up to around 2% a year to CityVest (plus the 1.5% + a share of profits over 9% to Pathfinder). That's a little more than I'm comfortable with (even if dramatically less than many crowdfunders), but I also have enough that I could go straight to Pathfinder with $100K and save those fees. Remember that the expense ratio (ER) on the Vanguard REIT Index Fund is not directly comparable to these fees because the business expenses of the REITs in the fund aren't included in the ER. Getting access to this type of investment at this minimum may very well be worth paying 2% in fees to you.
Donenfeld summed up the benefits of investing in Pathfinder right now as follows:
- Stellar Historical Performance
- 20% Annual IRR (after fees) – Over 6 Previous Funds and $500 million invested
- 9% Preferred Return – Targeted 12% to 14% IRR
- Low Minimum Investment of $25,000
- Investment Prior to Year End will Receive Attractive 2018 Depreciation Benefits
- New CityVest Investors Pay No Investment Management Fees for the Life of the Pathfinder Investment
Invest in Pathfinder Through CityVest today!
What do you think? Do you invest in private real estate funds? Why or why not? What do you think of this opportunity to invest in Pathfinder? Will you be investing? Why or why not? What do you think about going through a firm like CityVest to get access at lower minimums? Comment below!
Featured Real Estate Partners
WCI,
Very intriguing, and great partnership idea. This might be the sweet spot balancing investment of time and money for me and the fund size and diversity of properties. Couple questions:
1) Are you investing in Pathfinder VII? If so, how?
2) the Pathfinder PPM states it will close by December 31, 2018. Does that mean I must sign up with CityVest by then?
1. No. Mostly because my real estate has been doing well and stocks have been doing poorly so new money is going into stocks right now to rebalance. Sometimes the timing works out well and sometimes it doesn’t. By February or March I’ll probably be looking for real estate again.
2. Yes
I am interested, but this is where you lost me.
“Rather than write about companies I’m not investing with (and who can blame my readers for not wanting to invest in anything I’m not investing in) and not making any money, over the last year I’ve been trying to go to the funds I actually invest with and get them to buy ads from WCI or set up an affiliate marketing relationship with WCI. It really becomes a win-win-win for everyone when I can work out one of these deals.”…..
I’m just saying I’m trying to recruit advertisers from companies I’m actually using (rather than the ones that approach me) because it’s easier to plug them. If I’m going to say nice things about Vanguard anyway, it sure would be nice if I could get them to pay me.
I may be misunderstanding your position.
This may or may not be a good investment.
But you are not actually using this company, you are just plugging them.
Correct?
That’s correct. Of the real estate companies I have plugged on the site:
Crowdstreet
Real Crowd
RealtyMogul
Equity Multiple
Fundrise
Roofstock
Peerstreet
RealtyShares
Origin
CityVest
37th Parallel
I have invested with the following:
RealtyMogul
Equity Multiple
Fundrise
Peerstreet
RealtyShares
Origin
37th Parallel
At the time I started plugging them, I think the only ones I had actually invested in were:
Equity Multiple
Fundrise
RealtyShares
Hope that helps. I typically do an update on my holdings and experience about twice a year. Hope that’s transparent enough.
I have invested in Crowdstreet, Realcrowd, Equity Multiple, Rea;tyshares, Fundrise and Sharestreet. Every crowdfunding platform with the exception of Fundrise (they pay less and less each quarter and is almost impossible to get your money returned. I have over $500,000 of dead money in these sponsors (private equity deals), They have all suspended any distributions ,never sell (Exit) the asset and won;’t even talk to you on the phone only email you.
STAY AWAY FROM THESE DEALS THEY ARE A RIPOFF!!! I wish congress would call on me to testify against them.
Dominick, I founded CityVest on the heels of my brother, an anesthesiologist, who had terrible returns from RealtyMogul. The sponsor of the RealtyMogul deal had never been audited, did not have an administrator, and the underwriting (projection model) was inappropriately skewed to show an attractive deal. CityVest’s mission is to fixed all of the problems created by RealtyMogul, RealCrowd, CrowdStreet, EquityMultiple, etc. CityVest only works with seasoned real estate private equity investment managers that have a prior audited track record, has an administrator, is a diversified fund (not a one off deal), has institutional investors that can verify that prior performance of the investment manager. In addition, CityVest has its own administrator overseeing all of its activities. The hurdle that CityVest had was gaining access to the best investment managers who had minimum investment amounts of $500,000 or more. So CityVest created the Access Fund allowing a group of investors to gain buying power. As a group with $2 million to $5 million, not only do we gain access to the best managers but we also have negotiated better investment terms as a $4 million investment is significantly higher than $500,000. Take a look at CityVest: http://www.CityVest.com/investors.html or give me a call: Alan Donenfeld 212-593-1600
I find it bizarre that all of your investments are dead, all of your distributions are suspended, all of your investments never exit, and nobody will return your emails or talk to you on the phone when I have had just the opposite experience with them, at least the three I have invested with. In fact, I think your statement is probably so untrue that it likely qualifies as libel.
Even during the pandemic I’m getting distributions and deals are going round trip and I’m getting more communication than I have time to read or watch.
WCI, I think your comment is directed at Mr. Albano regarding his negative comments about CrowdStreet, RealCrowd and EquityMultiple.
Alan I don’t need to get in an shouting match with this individual and not trying to get into your business. I am just trying to help some novice investors with some helpful advice and would be glad to tell my story to anyone considering investing in crowdfunding. I am sure there are many good deals out there and I just may have picked some bad ones. I hope everyone has great success just be very careful.
You’re free to tell your story, but it is important when naming specific people and companies to stick to the facts to keep both me and you out of trouble for libel. Listing six specific companies and alleging certain bad things about all of them is highly likely to be libel in at least some respect. You can just say what happened with each one and stick to the facts, but if you say something is a scam or a ripoff or that someone is a crook you had better be willing to back it up in court, because that is where it often ends up.
What are the tax implications of such an investment? Does it function like a Reit held in a brokerage account from a tax standpoint, how are the distributions taxed, do I need to form a llc?
1. The income, insomuch as it isn’t sheltered by depreciation, is sheltered by depreciation which is recaptured upon selling the investment unless you exchange it. Gains upon selling, if not exchanged, are taxed at long term capital gains rates. It’s basically like owning a property yourself, except you own multiple properties and you don’t have to manage them and you don’t get to decide when stuff is bought and sold.
2. REITs are very tax-inefficient, although a little less so now with the 199A deduction..
3. You don’t need to form your own LLC. Heck, there are already two of them (the pathfinder one and the cityvest one). You’re only on the hook for the amount you have invested.
Regarding tax implications: what type of account would be best to hold this investment?
I prefer a taxable account for equity real estate. But some use a self-directed IRA or 401(k).
Are there state income implications like with the syndicated investments? Would I have to file state income taxes in the location of each investment?
Depends. Some states are income tax free. Some states allow composite returns so that is what the fund does. Other times, yea, you end up filing a bunch of returns. Good question for CityVest/Pathfinder.
Cann investments be made with a self directed IRA?
I believe so.
Or how bout self directed HSA?
I’ve never seen a self-directed HSA. A google search on the term turns up nothing, at least in the sense of an account you could use to buy an investment property. The low contribution limits are probably a big reason why.
How are these different from newer non-traded REITS? Unlike the non-traded REITS of old, many now have no-load share classes and have greatly reduced ongoing expenses.
I guess I would think of a REIT as having more turnover. The way a typical equity fund works is they buy 10-20 properties over a year or two, hold them for 4-8 years, then sell them over a year or two.
A debt fund/REIT functions very similarly and in fact one of the funds I owned converted to a REIT this year to allow the 199A deduction to be taken.
I have typically been going in at $100k/clip per syndicated deal.
If you were going to invest at $100k is there any advantage of going through CityVest then? I know you mentioned you get a preferred return but also went on to say that it doesn’t completely wipe out the additional layer of fees. Curious if there are other advantages garnered for an individual that plans on putting in $100k each time, or if you were in my shoes, would Pathfinder direct investment be the better play in the long run.
With $100,000 you can invest directly into pathfinder and receive an 8% pref, while the CityVest fund negotiated a 9% pref. If you want to speak to someone at pathfinder, I can introduce you. (I just watched Miracle on 34th Street.)
Isn’t the 9% vs 8% only valuable if returns are between 8 and 9% because of the catchup provision?
The bottom line is that I want Pathfinder to return my money plus the 9% return before they start participating in the profits. Their track record of producing a 20% net IRR on $500 million of realized real estate acquisitions gives me comfort that they can continue to achieve strong risk adjusted returns.
Not trying to be argumentative, but you didn’t actually answer my question. I’ll assume by your answer that I was correct and understand the waterfall? Just trying to assess the benefit of 8 vs 9% for someone with $100k.
Mathematically, the 9% pref will always generate a higher after fee return above an 8% pre-% of profit fee return. As a result of the small fee that CityVest charges, the net net return to you may be a toss up between investing directly in Pathfinder and investing in Pathfinder through CityVest.
No, it’s valuable between 8% and 15% returns (including the 12-14% target return range). Above 15%, it doesn’t make a difference and it’s all about the 80/20. For example, if it were 8% instead of 9%, and the fund earns 12%, you’d get 10%. Since it is 9%, if the fund earns 12%, you’d get 10.5%. That’s the benefit of the higher preferred. I disagree with Allen that the higher preferred by itself cancels out the entire cost of going through CityVest to get the lower minimum (I calculate that out at about 2% given the anticipated fund size and the fixed fees-the CityVest variable fee is waived) but it certainly helps.
Yea but that 10.5% gives up additional 2% to the tune of 8.5% net return after cityvest fees vs a dude that went straight to Pathfinder and gets to keep the 10%.
Just wait and have 100k saved and invest in such a fund. A person investing 25k again and again is doing what exactly ? If that doctor invests it 4 times via this method that exactly 100k in Pathfinder like fund – both approaches are diversified (end point being multiple properties).
While initially this appears to let folks in at a min of 25k, you are just creating more layers of fees in the name of “diversification”.
People: run some numbers.
I see this disproportionately benefitting “other” players rather than investor.
Newb, you’re right, of course. However, now that I’m part-time, I don’t have a ton leftover to invest in taxable. Informal chatter in the docs’ lounge suggests that even most full-timers are in a similar position.
I would rather not liquidate holdings to raise money for something that is somewhat speculative and definitely out of my control. Besides, unless this correction continues, my LT and STCG tax would hurt more than the CityVest rake. And if this correction continues…I’d rather be buying equities than investing in pathfinder.
I think you’re looking at it right, at least for this particular deal. Is the lower minimum worth 2% more in fees to you? For some, it may be. For others, maybe not. I mean, if $100K represents 2 years of retirement savings for you, then that’s probably not going to be a hurdle you’re going to be able to clear any time soon. There are a lot of docs in that boat. So if those folks want to get into real estate and don’t want to buy their own properties, they’re left with a few choices:
Vanguard REIT Index Fund – downsides include higher correlation with equities and that you only get to invest in the largest properties
Individual deals through crowdfunding companies – downsides there include platform risk, diversification (lack of) risk, and fees similar to or even higher than what CityVest is charging or
CityVest and its competitors – downside is the extra layer of fees compared to going directly to the fund (which isn’t an option because you don’t have the cash.)
I get that, and you are very open about the downsides here which is good. I was merely pointing out to folks to consider everything and run numbers before just jumping in seeing the carrot and FOMO.
If you are putting in 25k now, your goal shouldn’t be to just have 5 years of lets say 10% returns. Thats you earning 12.5 k in total then. Good, but most docs thats a month of salary. What you are going for, probably/should be, is increasing that allocation. If so, waiting for the whole sum of 100K to then get a higher return is better for the long haul.
To be frank, if you become accredited doesn’t mean you should just go for RE exposure. That phase may be a young attending still paying debt off in year 3-4 of practice typically. Folks who want to jump in this hopefully are the ones with money sitting there to be invested and are usually the ones who can lump sump 100K in a diversified fund anyways.
Think long term, young investors.
Thanks for that perspective. Some may choose to wait a few years until they have $100k laying around then plunge head-first into this arena. It seems there would be some opportunity cost to that strategy but it may still be better in the end than paying the fees with CityVest. Or maybe in a few years we continue to have more money chasing fewer good deals and returns in this space are lower. It’s impossible to know. For my situation I think it makes sense to commit 1-2% of my portfolio to try this out and figure out if if these vehicles are “for me” rather than wait a year or two and then try to convince my spouse (and myself) that we should drop $100k worth of eggs into this basket.
On a side note, I don’t see the relevance of $12.5k being a month of salary. It seems like the relevant comparison is what the $25k would have earned in some other investment (and maybe thinking about the trade-off in liquidity).
You are right. No relevance, except I was just pointing to it being not a big amount. Also diversification doesn’t mean much to me on small scale specially when it comes to RE. Usually folks who are serious about RE tend to know it well, otherwise its better to stick to public liquid funds. Prime example is some punk blogger talking about diversification and putting $1000 in lending club and doing affiliate linking. Ok. Yea.
If you want to try it, its reasonable for 25k albeit not a unique opportunity (heck you can put $500 in fundrise which claims similar IRR and experiment with less money…basically there are funds with similar returns with lower limits).
I looked at the Pathfinder website and I see a minimum investment of $1,000,000 for Pathfinder VII. Are you saying the actual minimum investment is $100,000?
Hmmm….I was under the impression that it was $100K for this particular fund, although it takes a million to get the 9% preferred and eliminate one other fee.
I just went thru the brochures on the Pathfinder website, and I now believe this is correct. $100,000 will get you in. The main info sheet they had posted only referenced 5,000,000 for a general partner and 1,000,000 for a limited partner. In the application form, however, $100,000 is listed as the minimum. I wonder how communication is between a small fry $100,000 investor and PathFinder. I am mainly concerned about getting questions answered at the start, “did you receive my wired funds, what type of K-1 depreciation are you expecting this year, etc”
I have money that is currently in a traditional IRA with Vanguard. Can I rollover this money from vanguard and buy into pathfinder with cityvest?
You can invest in CityVest fund through a self-directed IRA custodian such as Pensco. We could facilitate that but it takes around 2 weeks so it would be difficult to complete that by the end of the year. If you wish to start the process it would involve an IRA account transfer to Pensco or one of many other similar custodians. Here is Pensco website if you want to consider them or I can recommend many others: https://www.pensco.com/
Yes, although it takes time to do a rollover and it might be pushing it to pull off by the end of the year. I’d check with CityVest.
This is not a good deal. Fees are high. They also share in profit, although risk is assigned 100% to the investor. Best to invest with Fundrise. They are regulated, offer diversified funds, and have performed very well.
I was wondering the same: CityVest vs. Fundrise?
The typically split of profits with syndications is at least 70/30 with 70% of profits going to investors. This split of 50/50 is a horrible deal
It’s a little bit of a wacky set up with this fund I agree. It’s 50/50 for a while and then 80/20. Whether that comes out better than 70/30 overall depends on the return. Worse in the targeted return range.
CityVest does not earn any part of the profits. While we do charge 0.0075, this is more than made up by the fact that as a group investing $1mm or more from our access fund, our investors receive a 9% pref, as compared to any individual investor below $1 million will only receive an 8% pref.
Regarding the profit split, Pathfinder get only 20% – investors’ get 80%. I do not know what JayZ is referring to.
FundRise has generated poor performance. Here is the FundRise returns from their website -https://fundrise.com/historical-performance:
FundRise Average Annualized Returns
2014 12.25%
2015 12.42%
2016 8.76%
2017 11.44%
By comparison, Pathfinder has substantially more experience investing in real estate and has generated a 20% net of fees audited IRR on over $500 million of real estate investments over the past 5 years. Pathfinder’s audited returns of 20% Net of fees is a fantastic. CityVest reviewed over 300 real estate private equity funds to find them.
I think he’s referring to the catch-up where it is 50/50.
Not sure I’d call 9-12% “poor performance” although it is certainly less than 20%.
Appreciate the information. Can you elaborate more on the rationale behind the 50/50 profit split vs other syndicators with 70/30 split?
Sure. To be clear, Pathfinder receives 20% of profit after, and only after, investors have received a 9% preferred return. Many fund managers ask for 30% of profits and only offer an 8% pref, but Pathfinder has lower fees than most. Regarding the 50%|50%, this is called a catch up and I’ll admit this is a little confusing. Here is what that means. Pathfinder will pay investors 100% of capital gains until they have returned all of investors’ investment plus the 9% preferred return, then the split of profits is 50/50 until Pathfinder has received 20% of profits (the so called catch up) and then Pathfinder gets 20% and investors get 80%. The 50//50 catch up is not material, the important number is the 9% pref and the 80/20 split. Some funds offer 70/30 which I do not this is adequate for investors. By the way, CityVest does not take any percentage of profits.
I wouldn’t say it isn’t material. If the fund earns 15%, the investor gets 12% and Pathfinder gets 3%. In those cases if the fund earns 15%, the investor gets their 9%, then 80/20 above that, for a total of 13.8%. 1.8% a year is a pretty big deal to me. At 9% it doesn’t matter, but in the range of the targeted 12-14% return it absolutely does matter. Even if the fund earns 20%, the investor gets 16% and pathfinder gets 4%. After paying the Cityvest/Access fund fees/costs that would leave the investor with something around 14%.
I don’t know what percentage of funds do a catch-up like this (at least one other one I’m invested in does and in fact it doesn’t even split it 50/50 like Pathfinder does, it’s 100% until the manager gets their 20%) but obviously without it the investor return is higher.
On the CityVest Investment Overview page, it lists amount closed as $45,000,000. Is that different from the $10M goal mentioned in your article? I’m just curious about how much has been committed since it makes a big difference in how the flat fees are distributed. If the $45M is not applicable to this feeder fund, would there be any way to find out how much they’ve raised before jumping in? I realize that the structure of a deal like this incentives people to procrastinate.
Hello Charles, CityVest is closing in on $1 million for the Pathfinder Access Fund. We expect to raise around $2 million. The $45 million is the amount that Pathfinder has raised directly, however they are now over $50 million. We have waived CityVest’s usual 0.75% fee for WCI investors.
The $45M so far is for the Pathfinder fund. The $10M is for the Pathfinder Access Fund (i.e. Cityvest). Donenthal told me the Access Fund expects to hit $1.5M. I agree with the incentive to procrastinate issue. It would be nice to see that solved somehow. I think the solution is to get earlier investors something special that later investors don’t get.
This is an intriguing concept, because it does attempt to solve the problem for many investors of high minimums in private real estate. But I’d urge caution here. West Coast multi-family market is extremely competitive and cap rates have compressed considerably over the last six years. Many deals now sell for cap rates of 4% to 5%, even for value-add product. Rents have skyrocketed since 2012 and many Funds that closed back then have enjoyed great returns. There’s no outline here that explains how Pathfinder believes its business plan can continue to generate above-the-mean returns in a much tighter market. An extra point on the pref (from 8% to 9%) won’t matter much if the fund ekes out a 4% overall return. And much — if not all — of that return will disappear in fees. That said, it could all go gangbusters, too. So good luck to those who invest.
Caution is always appropriate.
I agree that in hindsight it was easy to make outsized returns in the last 5 years. Pathfinder generated a 20% net of fees return (approximately double the returns generated by FundRise) over the last 5 years. Going forward, Pathfinder plans to be opportunistic in its investments and take advantage of over leveraged and anxious sellers. Over the next five years I’ll take real estate over the stock market.
In addition, an institutional $50 million fund like Pathfinder who has completed over $500 million of real estate acquisitions is shown a huge number of deals, has the ability to negotiate and obtain better acquisition terms and get better financing rates than one off sponsored deals put on crowdfunding platforms. Pathfinder is targeting a 12% to 14% net IRR for their fund. That’s a great return given the attractiveness and stability of real estate relative to the volatility of stocks.
It’s a bit concerning that Pathfinder, Cityvest and WCI are all collecting fees of some sort on this deal but none are committing their own money as equity investors in the fund. If the returns are as projected or higher then everyone wins. But if the returns are poor (or even negative) then Pathfinder, Cityvest and WCI still make $ while the rest of us are suckers. Basically the incentive here is for Pathfinder/Cityvest and WCI to talk us all into a risky investment.
That is correct. If you invest through these links, I make money whether you do or not.
You can find it concerning, but it’s pretty standard that real estate funds charge fees that you pay regardless of how the fund does. Pathfinder isn’t working for free.
Cityvest is getting you in a door that would otherwise be shut in your face, so there is going to be a fee associated with it as well.
I haven’t looked at it in depth but pathfinder probably has a chunk of their own equity going into the fund, so it’s not like they have zero interest in it performing,
It’s riskier than an index fund sure, but that’s why the potential returns are greater. There is nothing inherently scammy about it.
The 50/50 catch up is not exactly common, but an 80/20 beyond that is more favorable than you usually see so it offsets it somewhat, 70/30 or 60/40 (without a catch up) is fairly common.
The management of Pathfinder is investing $5 million into this fund. So they have strong belief in their own capabilities to perform. In addition, most funds only offer an 8% pref, while Pathfinder has a 9% in our case so Pathfinder will only participate in the upside of the fund after investors have a 9% IRR. After the 9% return then investors get 80% of profits, other funds are less generous and only provide 60% or 70% to investors. CityVest reviewed hundreds of funds to find Pathfinder, and we think it is a winner. Our job is to find very experienced and top tier investment fund managers with audited track records of out performance and for CityVest to structure an access fund to allow investments of $25k, $50k and $100k. I believe it is a win-win.
Thanks for the info – although I would like to see WCI and Cityvest endorse the fund by contributing their own money, the fact that Pathfinder is contributing $5m to the fund alleviates much of my concern.
I figured I would make less money here because of not investing (and also figured people wouldn’t like that Alan wasn’t putting his money in either) and went back and forth for a while about it. Even last night I almost changed my mind again (to invest). Mostly I’m passing on this deal because I’m underweight stock. I’m also trying to get my real estate “chunks” bigger (like $100K each) to simplify my portfolio. The last couple of years I had a bunch of $5K chunks and they were a pain to keep track of. Those have almost all gone round trip now and been moved into larger chunks. But like Warren Buffett says, there are no called strikes in investing. If the time isn’t right for you or you don’t like the investment, there will be another one along in a few months. Kind of funny that the main reason I’m not investing is that the similar investments I own are doing so well eh?
An intriguing concept. I think I’m the target audience as I like having real estate in my asset mix and looking for something with more upside than the TIAA real estate account available through my employer. I have no interest in doing all the leg work myself so it seems only fair to pay some fees to get that done. It seems like the primary question is whether or not you believe that this arrangement will outperform a crowdfunding platform by enough to offset the fees. I have a more narrow question for Alan about this benefit:
•Investment Prior to Year End will Receive Attractive 2018 Depreciation Benefits
As someone who has only held real estate in tax advantaged accounts, how much guidance would I receive on the tax paperwork needed to get these benefits? I also have a similar question about the out-of-state tax returns that other comments mentioned.
I think depreciation is included in the net income that shows up on line 3 of the K-1. It could be reported on line 13 though, I’m not 100% sure. Either way, you don’t have to do anything special to get it other than enter your K-1 into Turbotax when you get it.
But neither Pathfinder nor CityVest is going to give you tax prep advice. You either have to learn to do that yourself or hire it out.
CityVest, Pathfinder nor WCI provide tax advice. However, the CFO of Pathfinder is extremely knowledge and smart and know tax rules. Pathfinder has said that they expect to generate taxable losses (due to depreciation deductions) for 5+ years while they execute each properties’ business plan. While we do not calculate your investment returns on an after tax basis, the depreciation benefits are significant and the after tax returns are very attractive.
Pathfinder will take care of every state filing through a composite file except in the states that a taxpayer normally files in. So investors will not have to file in any additional states that they normally do not file.
Thanks for that. The tax filing was my final question.
That information was very helpful. As a follow-up, do those depreciation deductions get recaptured when Pathfinder completes the cycle? If so, is there a way to roll over into a new Pathfinder cycle to keep deferring?
Thanks again.
Exchanging with the same fund manager or a different one can be tricky, but it’s certainly possible. I don’t know if Pathfinder has incorporated this or not given that they’ve only been round trip once so far I believe.
I understand your questions to be, upon generating a capital gain in future years, can you defer that gain from tax. The answer is yes. Under the most recent tax law changes, there are brand new and highly favorable provisions which allow investors to defer, reduce and eliminate capital gains taxes. Generally, the new rules allow you to invest the capital gain amount in an Opportunity Zone Fund (OZF) within 18- days of realizing that capital gain, and then that gain is deferred until 2026 and the tax that you will then pay will be reduced by 15%. If that were not enough, the amount that you invest in the OZF, if it is sold after 10 years, then the gain is tax free. Amazing new rules. CityVest is working on several of these funds right now.
Is this platform open to accredited investors outside the USA?
Would there be withholding taxes on any distributions paid to Canadian investors?
YesCanadian investor are subject to withhold tax rules.
In the interest of full disclosure, you should probably mention somewhere that this deal is available through RealCrowd with a $50K minimum…..
Haven’t looked there but now looking at it you only get the 8% preferred in that deal, not the 9% you get at CityVest. Plus you need $25K more to get in. But you do avoid the fixed fees from CityVest. If you don’t have or want to put in $50K, you’re still going to be better off with CityVest. Am I missing any other difference there?
If you prefer the RealCrowd version of the deal, here’s the WCI link: https://www.whitecoatinvestor.com/realcrowd
I don’t think there is any real difference, but since the main purpose of investing through CityVest is to work around the $100K minimum, it seems only fair to mention that you can invest with a 50% lower minimum (albeit of course higher than through CityVest) through a different platform without any fees on top of the sponsor fees .
Competitive market isn’t it? The best deal requires the largest commitment:
$1M – go straight to Pathfinder, get 9% preferred, avoid 0.35% fee acquisition fee
$100K – go straight to Pathfinder, get 8% preferred, pay 0.35% fee
$50K – Go to RealCrowd, get 8% preferred,
avoidpay 0.35% fee$25K – Go to CityVest, get 9% preferred but pay Cityvest fees, avoid 0.35% fee
Come to think of it, the RealCrowd deal looks better than the $100K Pathfinder deal. I wonder if I’m missing something.
Your RealCrowd calculation is not correct. If you invest $50k thru Real Crowd you will have to pay the acquisition of 0.35%. In addition, RealCrowd charges fees to Pathfinder of something around 3%. I do not know how those get reflected on the investor’s capital account, but somebody is paying those fees.
Thanks for the update on the acquisition fee.
I agree it’s not clear where those additional fees are being paid.
Hey WCI, I really like this idea in theory, I just have a several questions about some of the nuances. Perhaps the PathFinder or CityVest rep can chime in as well:
1. How do they pick the deals? (Do they prefer 200unit class B apartments or 60unit class C properties? Do they go purely based off of IRR? 20% seems a little overzealous considering the market may plateau soon. Do you or any of the other partners get a say in which real estate deals are chosen for the fund?)
2. Is there a predefined time period to raise all the capital and find deals? (If the sponsors feel pressure to invest all the capital within a certain length of time how do we know they won’t invest in less than ideal real estate deals due to the time crunch? )
3. What happens if properties can’t be refinanced at the projected rates or sold in the year with the best IRR? (With many investors feeling like there is an impending housing market crash, the possibility of not being able to refinance, sell, or exit the deals when desired is a very real possibility. How will the fund manage that?)
4. Who is the investor relations person and how will they communicate with the LPs?
5. How will the sponsors account for the drastically different housing markets? (Housing markets vary widely by region and some cities are much more volatile with quicker market cycles than others. Is there a particular region or city that will be the primary focus for these deals?)
6. Will there be a “family and friends” clause for sophisticated, non-accredited investors? (Typically, most good deals only allow for accredited investors UNLESS there is an unaccredited family member or close friend who wants to invest in the deal that undoubtedly understands the business and with whom you can affirm as a “sophisticated investor.” Does this rule apply?)
1. You can see the types of investments they invest in above. Here’s what Pathfinder says about Fund 7:
I agree 20% seems overzealous. Apparently they do too. While that’s what they’ve done in the past, they’re shooting for 12-14% returns.
Not sure what you mean by partner, but I certainly have zero say in what they invest in and as a limited partner in the fund you won’t either.
2. I think they’re done raising by year end. I think they’ve been raising since March as I recall. Yes, that’s a risk in a fund that raises all the money up front.
3. Returns are worse than pro-forma. Sometimes funds sell early and sometimes they hold properties a year or two longer than planned to try to get a better exit price. You should be prepared for this investment to be VERY illiquid for YEARS.
4. I would expect your communication to come from CityVest. Here’s the staff: https://www.cityvest.com/ourteam.html
5. See above. Seattle, Portland, San Diego, Phoenix, Denver and, to a lesser extent, Sacramento and Las Vegas
6. I don’t know.
Hopefully Alan can answer some of these better than I can.
WCI did an excellent job answering and I would be happy to provide additional details on a call.
Here are 3 options to get in touch with me:
1. Call me at 212-593-1600
2. Set up a time for a call through my online scheduler at: https://calendly.com/cityvest
3. Join a conference call on:
Monday December 24th at 1pm EST or
Wednesday December 26th at 1pm EST
by calling:
Tel: 515-739-1038
ID: 688350#
Alan Donenfeld
CEO
CityVest Capital
[email protected]
212-593-1600
Thanks for the responses. Alan, I’m going to try to make one of the conference calls, if not I’ll set up a call through your scheduler.
Has this deal been fully subscribed? I signed up for info on Wednesday (from the link provided here), received an auto reply email that someone would be contacting me, and I have not heard anything since.
No. They’ll get to you, you’re just not alone. They are now expecting to raise more than I was initially told. Perhaps as much as $3M for the access fund.
I would like to address and question you may have. Could you email me at [email protected] or call me at 212-593-1600. Or you call set up a time for a call through my online scheduler at: https://calendly.com/cityvest
Alan Donenfeld
Intriguing post and comments.
I wonder if I am interpreting WCI’s Pathfinder Fund Track record chart correctly?
For Fund 1– the cumulative return was 5.0M from 3.8M invested, it appears over ~ 10 years. Since the fund’s status is completed, I assume that all properties in the fund were sold and the fund was dissolved/closed… So is the bottom line that the annualized return was 3.2% per year {[5M-3.8M)/3.8M]/10}??
Thank you.
My interpretation was the $5M in distribution was in addition to paying back all the principal.
Ok, that would be a big and substantial difference.
Would it please be possible to verify your interpretation with Pathfinder?
Thank you.
For the first Fund, the column with $5mm says Total Distributions so that includes both the initial investment and all gains. So the $5mm amount returned 134% of the original investment – just as it says in that column. In real estate investment industry terminology that is called Multiple on Invested Capital or MOIC and after IRR, MOIC is the other metric for measuring investment return. The incorrect assumption you have made is that the return was over 10 years. In fact if you look at the subsequent chart on full cycle investments by acquisition it is safe to assume the the first fund included the first two deals from 2010 which were held for less that 2 years and returned 1.6x and 1.3x and as a result of the quick sale returned Net IRRs of 24% and 45%.
The distributions include the principal? That’s a weird way to report them.
I think the colum says Cumulative Distributions which means all payments to investors. It makes sense as distributions of 90% would be less than the amount invested, 100% would be the amount invested and 160% or 1.6x would be your money back plus 60% more. Distribution of 1.3x and 2.0x are solid Multiple of Money Invested (MOIC). Then the question is how long did it take to get a 1.3x. One year would be 30% IRR but 3 years would around a 10% IRR. Note that you cannot simply divided the .3 by 3 years to calculate the IRR. The IRR is a complex mathematical equation the takes into account each and every cash flow and the time value of money. So in the 3 year calculation, if distributons are received quarterly, and a big refi happened after a year generating another large distribution, with a final sale in year 3, then a 1.3x over 3 years could be a 15% IRR.
Thank you for the follow-up information.
I may be ok with my money being illiquid in this type of investment for the entire duration of the fund (let’s define as “x” years), if at the end of x years the return is on the order of 8% annualized or more.
So for me (and perhaps other WCI readers?), it would be useful to know what the annualized return was for Pathfinder’s Fund One overall— recognizing that any individual’s final annualized return would be (I suppose) somewhat less, given the waterfall structure and fees that go along with investing in Pathfinder and Cityvest.
From the information provided by Mr. Donenfeld, I think we would calculate the annualized return for Pathfinder One as:
{[5M-3.8M]/3.8M}/x
What was x? If we do not know for sure, are you able to please find out from Pathfinder?
Thank you.
I think Alan said x = 2 years in his last comment.
I participated in the conference call this morning and appreciate Mr Donenfeld’s transparency. I was bummed to hear that they haven’t achieved $1m in investments yet (I think he said they’re at $750k now, but are hoping for $2m).
Say they only get somewhere in the neighborhood of $1m, is my math correct in that the fund would have to achieve a minimum 11.5% gain in the first year before investors get paid (5% for the initial fee to CV, then 5% annual fee to CV, then 1.5% to PF)? This would then go down to 6.5% for each subsequent year (5% annual fee to CV then 1.5% to PF). Additional investments over the $1m mark would dilute the CV portion of the fees.
Is this accurate?
Thanks
Yes, my interpretation is similar. The more people invest, the more the fees are diluted. At $1M, 5% of the net returns comes off the top and then again every year. The more people invest, the more I am interested investing, too. At $3M, it’s only a 1.67% haircut off the top and annually, much more palatable.
I wonder if people are having trouble getting their investments in, like I am. I keep getting into a feedback loop that asks for my contact info and someone will get back to me soon. It appears to be a glitch in their website (or perhaps my incompetence at navigating it). I was planning to email Alan on Wednesday about this, but I know that he and WCI are both monitoring this thread.
Maybe they’re hesitant to include anybody associated with a screen name of “vagabond”…?
We’ll see how this turns out.
You may not have noticed that we reported that we are now over $1 million In addition, we reduced the annual fee to $25,000 after the first year. So the annual fee is less than 2.5%. Our goal is to raise $1.5 million and then the annual fee will be 1.7%.
I’m not sure exactly where they’re at and I’m sure Alan will chime in (probably not tonight or tomorrow given the holidays) but my understanding was he was already at $750K from WCIers alone, so I don’t think that’s the total, but I could be mistaken.
At any rate, yes, the issue with a relatively small fund is that the fixed CityVest fees become a larger percentage of the return.
I had indicated to WCI previously that I would reduce our fees if we just reached the $1mm amount. So I agree to reduce the $50k annual fee to $25k after the first year. At just $1mm that makes the annual fee a maximum of 2.5%. Merry Christmas ?
Hello TK, you may not have noticed that we reported that we are now over $1 million and we reduced the annual fee to $25,000 after the first year, so that will be less than 2.5%. Our goal is to get to $1.5 million and then the annual fee will be 1.7%.
Thanks for that.
So just to clarify, the fees in 2019 would be $50k (organization expense fee) + $50k (annual fee). Each subsequent year, the fee would be $25k. Is that correct?
Thanks
Yes, that’s it.
So I hear that once you learn to master the art of buying and selling real estate, you’re pretty much a virtual walking bank. Is that so? 🙂
Any word on the final tally of investments in the fund?
Three wires are still pending. Without them, we are at $1.42 million, but could be at $1.5 million. So the $25,000 annual fee has come down to 1.8%.
Is this fund closed as of now? Following the link gives the impression that it is still open to WCI investors?
The Pathfinder investment opportunity is closed and will be marked as such this week. CityVest will post a new investment by Friday and we are working to provide WCI readers with exclusive benefits such as a reduced fee and a lower minimum subscription.
Has anyone who invested heard anything about a K-1 for 2018?