Some Real Estate Investors Are Putting More Money in One Basket

Ms. Arthofer and Mr. Starrett invested through a sponsor, Lion Real Estate Group, which finds the buildings. The group is betting that an emerging trend before the coronavirus — the attraction of young people to apartments in cities like Austin, Texas, and Nashville — will be a long-term winner.

That strategy has benefited from the uneven spread of the coronavirus, which has left those cities relatively spared, and from the drop in mortgage rates.

“You have to say, ‘I don’t know what is going to happen in three to five years,’” said Jeff Weller, managing principal and co-founder of Lion Real Estate Group. But if you can lock in a 2.5 percent interest rate, he added, this is the lowest your rents are going to be, so you can also say, “My cash flow in Year 6 or 7 could be phenomenal.”

Unlike investors in real estate funds, which often look to sell properties by a certain time and even unload their best-performing assets earlier to increase their rates of return, individual investors who buy buildings themselves can choose when or if they want to sell.

In group deals, though, they’re limited partners, so while they receive many of the benefits of owning a property outright, the final say on when it is going to be sold is up to the general partners who brought the investors together.

Mark Holdsworth, the founder and managing partner at Holdsworth Group, a family office, invested heavily in real estate after BlackRock bought the investment firm he co-founded, Tennenbaum Capital Partners, in 2018. His focus has been on apartment buildings, and now real estate accounts for around 30 percent of his family office’s investment portfolio, an amount he said he hoped to increase.

Mr. Holdsworth has often invested through sponsors who pull together other wealthy individuals to buy a building. Some of the properties have been sold sooner than he would have liked.


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