This post originally appeared on LinkedIn and is reprinted with permission from the author.
The following is a guest post from Mark Robertson, a professional investor who is personally invested in over 50 offerings, and the founder of an independent due diligence firm, CrowdDD. In this post, Mark is addressing issues many investors face when working with investing firms who don’t always provide clear-cut reporting.
This is an open letter to all real estate sponsors.
Investors want better reporting. Concise, short, informative, and easy to read reports.
Unfortunately, most sponsors do a poor job of communicating results with investors. I have over 50 equity crowdfunding investments and the quality of the quarterly reports varies wildly.
The poster child for good reporting is Praxis Capital led by Brian Burke. They have a one page report with graphs, relevant statistics, and a short write up of the past quarter’s results and commentary. The key features of their report are that they inform the investor of the only 3 things investors truly care about.
What Investors Care About
- How much is MY distribution? What is the cash on cash return? What is it as a percentage of my investment? How does it compare to your projections for this quarter?
- The properties performance. Most importantly is the NOI. What is this quarter’s NOI compared to the projections made by the sponsor at the time of my investment? What is occupancy compared to both last year’s quarter and compared to projections?
- If actual distributions are below projections, or if NOI is below projections, we want to know why. What we really want to know is how you plan to correct the shortfall and WHEN do you expect to get back on track.
Including the full income and balance sheet is great, but what we really want to know is: is the investment performing as you promised? and where is MY DISTRIBUTION?
In the end those two factors are all that really matter. Again, so it will sink in.
How much money am I getting and are you meeting projections? We should know these 2 factors within 30 seconds of looking at the report. The last thing we want to do is to dig and dig, hoping to find this information.
At the start of every update it should say: “The project, life to date, is running xx% over/under proforma.” And “For the last quarter, the project was xx% over/under proforma”.
Unfortunately, I usually pull up the original offering materials and try to determine if the actual results are as projected.
Investors should not have to do this. That is the sponsors responsibility.
Investors also appreciate guidance for the upcoming quarter or year based on market conditions. Be proactive and manage expectations.
Other Pet Peeves:
- It should never take longer than 45 days after a quarter to prepare the report.
- Reporting that distributions for the quarter were $x00,000 with no context. I want to know what I am getting and if it’s what you projected. Don’t make me dig around to see if $x00,000 is good or not.
- Sending out the ACH distribution without a clearly identifiable notation of who the ACH is from. Email the report before the ACH so we can expect the distribution.
- Justifying a quarter’s miss because of seasonality. Your projections should have accounted for seasonality. You knew the seasons were coming when you asked for my investment.
- Comparing results to the budget and the budget is not the proforma numbers or the projections at the time of the investment. Wrong on so many levels.
An informal poll of the 240 accredited members of the 506 Investor Group concur that inadequate reporting is one of the most vexing problems with investing in syndicated and crowdfunding real estate deals.
An industry standard like Praxis quarterly reports would go a long way to solving this issue. CrowdDD will host a template for sponsors to help facilitate a concise, informative, and clear quarterly report.
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