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EVALUATING THE ECONOMICS OF REAL ESTATE DEALS

Real estate plays a major role in the economy during both good times and bad.  When the economy is strong, there tends to be an ample supply of real estate “deals” from syndicators and developers looking to provide benefits for themselves and to their investors.  These investments are often structured as limited liability companies (LLCs) or limited partnerships and can involve all types of real estate including multifamily housing, industrial, retail, office, self-storage, medical, hospitality and any other types of property (including raw land).  ORBA’s Real Estate Group often assists real estate clients with structuring transactions to attract new investors, as well as investors who look for help in evaluating the quality of potential investments. 

Whether looking at the deal from the promoter’s or the investor’s perspective, we tend to focus on the following factors in evaluating the quality of a deal:

  • The quality, reputation, track record and personal investment of the syndicator/developer in both up and down markets;
  • The demographics of the property, including location, size, competition and financing; and
  • The terms of the specific deal including expected returns, preferences, tax consequences and promoter fees.

Real estate deals can be risky, but also very lucrative for both a promoter/syndicator and an investor.  Returns can be very good, and often, the investment has substantial tax advantages.  They also tend to be long-term, illiquid investments that carry varying degrees of risk.  ORBA can help to analyze this risk from either side and help clients understand what they are getting into.