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Simplifying confusing return structures

Investing in commercial real estate is unlike any other type of investing. It is more akin to investing in a private equity fund - something only accessible to accredited and sophisticated investors, than something like a stock. But what these deals take away in simplicity, they add back in potential returns.

It is in the investor’s best interest to understand how these return structures work.

If you are invested in anything from common stock to mutual funds and even target date funds found in a 401k, you must keep in mind that you are being Sold an investment. Regardless of how your investment performs, the management team will collect their fees no matter what. It is not a partnership, it is a broker-client relationship. If the asset increases in value, the manager collects its fees. Conversely if the asset decreases in value, the manager will still collect the same fee. There is no real interest on the part of the manager to choose investments that perform.

Compare this with a typical private equity investment where the manager only gets paid when the investment performs. If the asset doesn’t perform, the manager largely doesn’t get paid. If the asset does in fact perform, the manager gets paid once the performance reaches a certain threshold. Typically that is around 7% per year average annual return.

How the asset performs is a function of not only prevailing market conditions, but also how well the asset is managed. A strong manager can make a big difference in performance of the asset.

This 7% is called a ‘preferred return’ is ‘preferred’ because the investor is receiving preference on distributions before the manager. This is powerful tool in the relationship between investor and manager. No longer is it a broker-client relationship, it now is a true partnership - everyone wins or everyone loses together. We call this alignment of interest. Brokers can pay lip service all they want to the quality of an investment, but the moment you ask them if they’ve got skin in the game, the answer is ‘no’. Take it a step further and ask if they’ll still be collecting a fee if the asset tanks, that answer is undoubtedly ‘yes’.

Wall Street has spent decades building a commission and fee structure that largely serves itself.

And we are systematically tearing it down one step at a time in the private equity world. That takes time...and how fast that happens rests largely on the willingness of an investor to educate themselves on their investments and how fees are structured.

Our deals offer a preferred return, allowing the interests of both ourselves and our investors to remain aligned.

Invest with fyre CAPITAL

fyre CAPITAL is a commercial multifamily investment firm. We purchase and/or partner in 150-600 unit, value-add apartment communities in fast-growing Tier 1 & 2 U.S. markets. Together with our strategic partners, fyre CAPITAL represents over 500 Million Dollars of successful real estate acquisitions. Our developers, sponsors and capital partners have amassed a network of over 1,500 unique investors. We provide new opportunities to invest in projects targeting a 14%-21% Internal Rate of Return . If you would like to join us on our next project, your first step is to Submit an Interest Card. We look forward to partnering with you.

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