A Student of the Real Estate Game


How Fairway America is Disrupting the Small Balance Real Estate Space

Mar 30, 2016 | Entrepreneurship, Innovation, Passive Investing, Technology

The most profound change to real estate over the past several decades is the institutionalization of the business, especially as it relates to finance. Real estate has become a Wall Street business. However, the sub-institutional space (sub-$10mm deals generally speaking) remains largely a localized business driven by personal relationships. This fragmented market provides outsized opportunities for operators who have an advantage in information/analysis and investors who have access to these direct investments through personal relationships. Real estate crowdfunding has opened up a few of these opportunities, but it’s difficult for investors to sift through the deals/platforms and most of the best deals never make it online.

Fairway America LLC (“Fairway”) created a platform, ‘Small Balance Real Estate Funds’ (SBREFunds.com), dedicated to the Sponsors that play in this space and investors who want access to these deals. I’m a member of their CapitalFlow/DealFlow platform which provides access to educational content including investor due diligence 101, past webinars, and past SBRE Summit Presentations. The platform also provides investors access to a marketplace of vetted deals and provides sponsors with a flow of self-identified accredited investors interested in their deals. The site is a treasure trove of content and opportunities for investors and sponsors. I personally enjoyed watching all the sponsor pitches from past SBRE Summit’s including Trion Properties and Pathfinder Funds.

Today, Barry Johnson, Senior Portfolio Manager and Matt Burk, Founder & CEO of Fairway America, provide a macro view of all the services provided by Fairway America and how Sponsors and Investors can utilize their tools/services to learn more about the SBRE space, build their investor base, find deals or partners, and launch their first fund. This is the first in a series of posts that will dive deeper into each of these service lines.

Enter Matt and Barry:

The SBRE world is a highly fragmented space that is too rich for the local investor, but overly cumbersome for institutional capital. Throughout the country we meet SBRE entrepreneurs who fall into this space, whether they are currently doing one deal at a time and matching friends and family money with that investment, syndicating deals with an established investor base, or running a private real estate fund. In general, there is a lack of information available to the SBRE entrepreneur regarding best practices, a lack of resources for funding SBRE deals and a lack of awareness from potential investors about the space as a whole. The overriding goal at Fairway is to create a community within this real estate niche that results in win-win relationships for all parties.

Fairway America

Fairway is aware of all these hurdles, now running two funds focused solely on the SBRE space, our sixth and seventh. From disappointing experiences with lawyers trying to draw up documents, struggles with deal flow, spending an exorbitant amount of time on accounting instead of deals and most importantly raising capital, we have firsthand experience with all the obstacles an SBRE entrepreneur faces.

While we have been managing private funds since 1992, it wasn’t until 2013 that we embarked on a mission to solve the dilemmas facing each SBRE entrepreneur. In addition to the launch of our online marketplace for SBRE funds (SBREFunds.com) we also offer an educational component to the website, CapitalFlow. The blog posts, webinars and videos are all geared to provide SBRE entrepreneurs, as well as investors interested in the space, with the necessary knowledge to be successful. Providing a market to invest and education on how to run and invest in funds is only part of what we do. In addition to the educational content on the website, we provide a wide variety of supporting services, which will be discussed in greater detail in subsequent posts.

Here’s an overview of the services Fairway America offers professionals and investors:

  • Advisory & Consulting
    • Fund Creations Services – As the leading SBRE fund advisory firm in the United States, we understand the ins and outs of the space like no one else. We have managed seven pooled investment funds ourselves over 15 years and have played the lead role in helping others structure and design more than 90 SBRE funds in the past 3+ years.

Our Fund Creation services include comprehensive client interviewing, sophisticated pooled fund financial modeling, thoughtful and aligned economic structuring, capital raise consultation, and a full set of turnkey offering documents prepared by third party securities counsel who represents you and your fund.

  • Fund Financial Modeling – What holds many people back from starting a fund is not knowing what the economics are likely to be. We will build and deliver to you a custom model based on your specific criteria that helps you understand the potential returns from your project over a five-year time horizon that is variable driven allowing you to manipulate key components to see what impact they may have on fund performance.
  • Fund Administration – Aside from raising capital, handling the day to day administrative details is often the least appealing component of running a successful fund for most fund managers. Let’s face it – you got in this business to do deals, not to do a lot of detailed administrative work. Yet, there are countless details to properly administering your fund and before investors place their trust into a “blind pool” investment, they want to be confident these details are being handled. Fairway’s Fund Administration platform is designed for the 506 Reg. D small balance real estate asset based fund manager who is just starting out and/or who has AUM (assets under management) from $0 to $100,000,000.
  • PPM Review – Your attorney’s job is to produce documents that comply with securities law. It is not necessarily to provide you with practical, real-world insight and understanding of how all the moving pieces fit together. In fact, it is nearly impossible in most cases for them to provide this to you because they are lawyers, not fund managers. They have not had to raise capital, originate and manage assets, match the timing of the two, track the capital accounts of investors, subscribe and redeem them, or manage the multiple, inter-related facets of running a pooled investment fund.

Mismatched or poor fund design and structure is the number one inhibitor of capital raising that we see. Many people reach this stage (of having a PPM) but cannot seem to get further, are fraught with frustration, and do not know where to turn. Our PPM review can help get you on track and on the road toward realizing your dream of a successful fund.

  • Capital Raise Strategic Plan – Raising capital is the most important issue for most SBRE entrepreneurs running a pooled investment fund. Almost everyone we meet wants and needs to raise more capital, more consistently, and more efficiently. Yet not more than 1 in 50 that we meet has a written plan to do this. When you engage us for this service, we will hold an in-depth interview with you around your fund, your current capital raising efforts, and your particular situation. We will also review any current material you might have (PPM, slide deck, tear sheets, investor letters, etc.) to determine your current starting point and help us craft a customized strategy. After this preparatory work, you will get a comprehensive 8-12 page document that goes into great detail on all the important elements of your plan to raise capital.
  • Live Events
    • SBRE Investment Summit The premier networking and educational conference for SBRE entrepreneurs and investors alike. This two-day event is designed to provide investors and entrepreneurs with a once in a lifetime conference experience. Activities at the Summit include:
      • Real estate investing education presentations for investors and entrepreneurs
      • SBRE Entrepreneur Presentations to investors
      • Multiple networking opportunities for investors, presenters and general attendees to co-mingle and socialize
  • SBRE Capital Flow Conference 2016 The annual conference features the brightest minds in branding, lead generation, search engine optimization networking and capital raise practitioners. SBRE entrepreneurs gather in Portland to share critical insights into how to raise capital for their ventures from high net worth individuals, family offices, registered investment advisors and broker dealers. Featured events at the conference include:
    • Educational Presentations
    • Networking Events, including an afternoon at the Oregon Brewer’s Festival
    • The first annual SBRE Shark Bowl
    • Inaugural SBRE Awards Ceremony
  • CapitalFlow Membership The central source of education and information for more than 800 SBRE investors and entrepreneurs. There is no other place to go to get practical, step-by-step information about real estate investing, from industry veterans and in-the-trenches practitioners. CapitalFlow members have access to:
  • Educational Content
    • The premier source for investors to become educated on investing in pooled real estate funds. Video lessons range from the basics of pooled investment vehicles to in-depth risk assessment for investor asset allocations.
    • Lessons directed at SBRE entrepreneurs help educate new and seasoned managers on topics ranging from the decision to move from a fund economics to raising capital.
  • Online Marketplace
    • The SBRE Marketplace provides investors with an ever-increasing number of pooled investment opportunities. Funds on the marketplace include both open and close-ended vehicles that have strategies spanning the investment spectrum.
  • Capital Raise TV
    • Capital Raise TV is a 5 to 10 minute weekly, online program where the experts from Fairway America take you behind the scenes and share their experiences and insights from raising capital for their own suite of SBRE investment funds that are targeted at high net worth individuals.
  • SBRE Investment Summit Presentations
    • Access to video presentations from every prior SBRE Investment Summit

The SBRE space may not garner the publicity institutional real estate investing receives, but sophisticated investors still expect their investments to be managed in a professional and responsible way. Fairway’s number one goal in offering all these services is to help SBRE entrepreneurs provide an institutional level of quality to their investors, while sticking true to their SBRE roots.

In subsequent posts, Matt and Barry will delve into the various Fairway business lines including the fund creation process, drafting a PPM, and best practices for raising capital.