It was great to see so many of you at the Alternative & Direct Investment Securities Association’s 2018 spring conference held this week at Rosen Shingle Creek in Orlando, Florida. ADISA always does a fabulous job with the educational track and networking opportunities at these events, and this spring’s conference was no exception. Here are my key takeaways from the conference.
Read my lips
It’s all about taxes.
What’s old is new again, as the ADISA spring event was dominated by sponsors of tax-deferred 1031 offerings. More than a few sponsors have ditched plans to raise capital in a fund format if the assets qualify for 1031 tax treatment. With the major tax reform that solidified tax-deferred exchanges for real estate, and nothing to suggest a disruption in the capital markets soon, DST offerings will continue to feature very prominently in the alternative investment landscape for the foreseeable future.
The story is similar for real estate offerings with conservation easement options. ADISA’s undercard event for the year showcased no less than five conservation easement sponsors. The IRS issued a listing notice in late 2016 requiring material advisors to these offerings file with the Service. Whatever its purpose, it hasn’t deterred these syndications, and likely won’t impact overall demand either. However, firms are requiring more stringent diligence on these programs. As more capital flows into these complex programs, firms must be ready to conduct the most thorough diligence review possible.
Let’s keep this private
Several registered product sponsors sponsored the ADISA spring conference, but the week belonged to the private, unregistered products and their sponsors.
Those seeking capital are increasingly concerned, however, that the independent broker dealer channel won’t be enough to fully fund larger offerings. Just like the market for non-traded REITs, the total amount sought for private offerings currently outstrips the capital available to invest. Many, if not most, will not be fully subscribed. One prominent new sponsor recognized the need to get more RIAs involved in fundraising. This industry of alternative investments and the RIAs are moving closer together, but significant obstacles remain.
Don’t confuse the real estate markets with the non-traded real estate markets
The current state of the non-traded real estate market is relatively well understood, but despite its struggles, the real estate markets continue to hold opportunities for investors. Of course, making money in real estate isn’t as easy as it was in 2012. Savvy investors, however, recognize for instance that the cost of multifamily development is rising at a much faster rate than inflation, and new development is beginning to slow as a result. Given the demographics and shift away from homeownership among some cohorts of the population,
select pockets of multifamily will continue to be good investments. Older vintage units in particular will drive new profits again soon. Healthcare isn’t dead either. Again, making money in healthcare isn’t as easy as it once was. Nonetheless, opportunities exist.
The question on everyone’s mind these days is whether accredited investors in our space will continue to have the best access to these opportunities, or if the stars will align for the mass affluent to get a better shot at them as well.
Speaking of conferences, don’t forget to save the date for FactRight’s 5th Annual Due Diligence Conference, held October 3-5 at the Westin in Edina, Minnesota!
