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This article and podcast are sponsored by CityVest, providing investors with insider access to pre-screened, institutional real estate investments historically unavailable to individuals.
Alan, please tell us about your background.
My name is Alan Donenfeld, and I’m CEO and founder of CityVest. Over the past 40 years, I’ve invested billions of dollars in private equity, real estate, and other investments. I have served as president of several public companies, founded an SEC-registered/FINRA broker-dealer, and founded a top-performing hedge fund. Honestly, I have seen it all, and at this point in my career, I have learned how to “crack the code” to successful investing. Specifically, in the last couple of years, I began investing for family and friends using the same investing knowledge and methods used by successful institutional investors. I am now committed to working with individual investors, primarily physicians and CEOs, to help them protect and grow their wealth through investing in real estate. I do this through an online investment platform at CityVest.com that is easy and secure.
Why are you focused on real estate?
My goal with investing is to achieve the highest rates of return while being mindful of the investment’s level of risk. After 40 years of investing, I have found that only one investment meets those criteria: real estate. I’m not the only one that knows this. Over time, an overwhelming consensus has developed that real estate is the one investment that you should overweight in your portfolio for the long term. It is widely quoted that about 90 percent of the world’s millionaires have been created by investing in real estate. A groundbreaking paper published by the San Francisco Federal Reserve revealed that over the last 100 years, real estate not only provided the best returns of any asset class tracked, but it also did so with significantly less volatility. In a recent study by Cliffwater, an institutional investment consulting firm, over the past 20 years, real estate investments achieved a 53 percent higher return as compared to U.S. stocks. The TIGER21 investor group, for individuals with a minimum net worth of $10 million, has over 20 percent of their investment portfolios allocated to real estate. Given the simplistic demographic statistic that the U.S. population is growing by 2.3 million people per year and is targeted to reach 440 million people by 2050, it is easy to understand the steady growing demand pushing real estate valuations higher.
Naturally, the smart money follows returns, which is why private equity giants like Blackstone, Apollo, KKR, and Carlyle Group, which manage over $1 trillion, have expanded their real estate investment activities. Blackstone says they “invest in real estate with conviction through all market cycles and across the entire risk spectrum” and have a massive $341 billion invested in their global real estate portfolio.
Overall, institutional real estate private equity funds have dramatically outperformed all other methods of investing in real estate such as syndicated real estate deals, crowdfunding, and REITs because larger real estate funds have the best deal sourcing capabilities that enable them to identify and execute opportunistic acquisitions with speed and at the most attractive pricing. Syndicated deals, crowdfunded deals, small deal sponsors, and REITs just cannot compete with institutional investment funds. Unfortunately, institutional real estate private equity funds have been inaccessible to individuals due to their multi-million dollar minimum investment required. And the more experience a real estate manager is, the more capital they attract. I set out on a mission to change this.
What role does CityVest play with these institutional real estate investments?
CityVest provides individual investors with unique access to invest in top-performing institutional real estate private equity funds. Individuals can participate alongside the “one-percenters” in investing in top institutional real estate private equity funds through CityVest unique Access Funds for the first time ever. And we make these investments available through our easy and secure online investment platform at www.CityVest.com. CityVest is simply the best and smartest way to invest in real estate.
Please walk me through how CityVest got started.
My own journey investing in real estate started with a single condo purchase in the 1980s. Then a couple of 4-plexes. What a pain in the neck. That was not passive real estate investing – mortgages, renovations, and tenants. I tried a couple of syndications and crowdfunding investments, but they invariably performed poorly due to the deals being small, the fees were too high, and the sponsors were, well, less than honest.
My first real estate private equity fund investment was made around five years ago. After considerable due diligence, I found an institutional real estate fund with a great historical audited track record, an administrator, and experienced professional investment management. Given that the fund targeted institutional investors, the minimum investment required was prohibitively high. This was not surprising since top-performing institutional funds attract so much capital.
Unfortunately, the high minimum investment required by the best real estate funds was far more than I wanted to invest. So, my brother and I and a couple of friends aggregated our capital into our own feeder fund to meet the large minimum investment requirement. We pooled our capital, like a co-op, and formed our first Access Fund.
After the first couple of feeder funds or Access Funds, I made several improvements to the structure, making it even better. I knew that I wanted to build something that I wished others had built for me. The goal remained: Obtain higher returns with lower risk. It was clear to me that I had to invest alongside smart institutional investors and avoid being a part of a little retail crowdfunded syndication. I wanted to make sure that there was an audit and an administrator. And that the investments in which I participated were managed and supervised from start to finish by professional real estate investors.
Why do people say that CityVest is the best way to invest in real estate?
So, I created CityVest’s Access Fund as a way to access top real estate private equity funds. As our Access Fund investment amounts grew to $5 million per offering, we were able to negotiate better investment terms, such as a minimum 12% preferred return. Ever mindful of our goal of higher returns with lower risk, we have steadily improved our ability to find the best real estate private equity funds.
What is one of CityVest’s mottos?
Trust but verify. To maintain our high standards and reduce risk, CityVest requires a verified due diligence report on all of our real estate funds from a highly acclaimed independent due diligence firm, Buttonwood Investment Services. The Buttonwood Report confirms everything from investment manager background checks and scrutiny of their track record to confirming fund governance and manager skin-in-the-game. CityVest is unique in providing this third-party due diligence report on its investment funds, and we make it available on our website. In addition, the requirement that our funds have auditors and administrators provides CityVest’s investors with a level of safety that far exceeds what is provided by other real estate investment sources. Investors can trust CityVest.
So to recap, CityVest screens and vets best-in-class real estate funds, negotiates better investment returns, and provides access to those funds.
What do you find gratifying about what you do?
My investors often write to me, and they say things like:
“I wish I had found CityVest when I started investing years ago.”
“Thank you for the level of screening and due diligence that you do.”
“I invested in the same fund through another platform with worse terms; I’m sticking with CityVest for now on for all of my investments.”
Alan Donenfeld is founder and CEO, CityVest, providing investors with insider access to pre-screened, institutional real estate investments historically unavailable to individuals.
Image credit: Shutterstock.com
Transcript
Kevin Pho: Hi, and welcome to the show, where we share the stories of the many who intersect with our health care system but are rarely heard from. My name is Kevin Pho, founder and editor of KevinMD. Today we have a special sponsored episode. Alan Donenfeld is the founder and CEO of CityVest, providing investors with insider access to pre-screened, institutional real estate investments historically unavailable to individuals. Alan oversees all investment, technology, and administration of the company, and over the past 40 years, Alan has invested billions of dollars in private equity, real estate, and other investments. They can be reached at CityVest.com. And full disclosure, I currently invest in one of CityVest’s offerings. Alan, welcome to the show.
Alan Donenfeld: Kevin, great to be here. Thanks for having me on your show.
Kevin Pho: So please briefly share your story and journey to where you are today.
Alan Donenfeld: So as you’ve described, I’m Alan Donenfeld, CEO and founder of CityVest.com. We’re a real estate investment platform. This year, I have 40 years of experience in financial services. I’ve done about a billion dollars, a couple billion dollars, of transactions in private equity, real estate, and stocks. I am president of an SEC and FINRA broker-dealer. I’ve run a hedge fund and worked at very large investment banking firms here in New York City, where I live.
And over the past 40 years, I’ve learned how to, what I call, crack the code to successful investing. Specifically, over the last couple of years, I have begun investing for my friends and family, and my own capital, in real estate transactions, and I’m now committed to relaying that sort of information to other investors, primarily physicians and CEOs, to help them protect and grow their net worth. So all of that happens through our online investment platform at CityVest.com.
Kevin Pho: So on KevinMD and on this podcast, multiple guests say that real estate is the most common way for physicians to create another source of income and potentially be financially independent. Why focus on real estate?
Alan Donenfeld: That’s a great question. So my goal with investing is to achieve, first and foremost, the highest rates of return while being mindful of the level of risk of the investment. And after 40 years of investing, I found that only one investment meets those criteria, which is real estate. And I’m not the only one who knows this. An overwhelming consensus has developed over time that real estate is one of the best investments that you can make and should be in a portfolio seeking long-term returns. You know, it’s widely quoted that 90 percent of the world’s millionaires have become millionaires through real estate.
Some of the specific statistics that are important to know: There was a groundbreaking paper published by the San Francisco Federal Reserve, which revealed that over the past 100 years, real estate has not only provided the best returns of any asset class, but it did so with significantly less risk. That was from the San Francisco Fed. There’s another pension fund consulting firm named Cliffwater. They’re an institutional investment consulting firm, and over the past 20 years, their pension fund clients have achieved a 53 percent higher rate of return as compared to those pension funds’ stock investments. That’s a ringing vote of confidence for real estate.
There’s a very high-net-worth, ultra-high-net-worth investment club named TIGER 21, mostly made up of individuals with net worths of 10 to 50 million. And that class of investor, they have to submit their portfolio to their club, and typically that membership has their highest allocation of investments to real estate. Right now it’s about 22 percent, which is higher than what that class of investor allocates to stocks or bonds or other asset classes.
And just, quite simply, we have about 350 million people that live in the United States. We’re projected to have about 440 million people by 2050, so that’s a significant increase, about 90 million more people in the next 30 years. Those people all have to live somewhere. There’s going to be significant demand for real estate, for all sorts of distribution facilities, senior living, and student housing, and I think that will all serve to increase the valuations of real estate.
One other area that I think is important to look at is the smart investors. The smartest investors are typically the very large private equity funds, like Blackstone, Apollo, KKR, and Carlyle Group. Together, they manage over a trillion dollars. All four of those private equity funds have been increasing their allocation to real estate, and specifically, Blackstone’s comment in their latest quarterly report said that they invest in real estate with conviction through all market cycles and across the entire spectrum, and they have a massive 341 billion dollars invested in their global real estate fund.
Generally speaking, regarding real estate, institutional investors as a class have far outperformed all other investment groups investing in real estate. So there are ways of investing in real estate through REITs or crowdfunding platforms or syndicators, but real estate private equity funds, whether it’s an investment manager, typically in a private limited partnership or LLC, have significantly outperformed REITs, crowdfunded deals, and syndications. And it’s no wonder that they outperform, because they have opportunistic capital sitting in the bank looking for assets, and when they see something that they want, they can deploy that capital from their bank account, rather than a syndicator or crowdfunder, who first has to raise the capital. Those investors can’t compete with private equity funds in terms of the opportunistic acquisitions that private equity funds can complete.
Kevin Pho: When it comes to real estate options, physicians have a lot of choices. Just on my Facebook feed, I have dozens and dozens of real estate companies advertising to me. So tell me the story of CityVest and how it got started.
Alan Donenfeld: Sure. So my own journey in real estate got started in the 1980s. I first bought a condo and rented it out. Then I bought a small multifamily, I think it was a three-family, a three-plex, and rented it out to a couple of families. Unfortunately, both of those required significant active management. I got calls all the time regarding toilets or trash or leases, and, you know, tenants that would leave in the middle of the night. So it’s not really passive real estate investing, and it’s not a lot of fun to own direct real estate where you’re then managing it.
A couple of years ago, about six years ago, my brother did not have a great experience on a couple of different crowdfunding sites, and he wanted to improve his real estate investing. That’s when I started my focus on real estate private equity funds. They’re diversified funds with professional managers, and we found a couple of the funds. Obviously, the best funds that are in the hundreds of millions have multimillion-dollar minimum investments, so we were precluded from them. But even smaller funds, funds that manage 30, 50, 100 million dollars, may have a 500,000 or million-dollar minimum subscription.
So with my money and my brother and a couple of his other physician friends, we decided to pool our assets into a feeder fund, which CityVest calls an Access Fund. And what we did, by pooling our capital together, we ended up in that first deal with 500,000 and made our investment. By the third time that we did this with a group of other physicians, they had heard that we were doing great things with our investments, and what we found was that that pool of capital had risen to about two million dollars. And we were actually able to negotiate not just access to these best real estate private equity funds, but we were also able to negotiate better investment terms because of the size of our investment through our feeder fund, or Access Fund.
Kevin Pho: You mentioned earlier about institutional investments. What role does CityVest play with these institutional real estate investments that you mentioned earlier?
Alan Donenfeld: Yeah, so our goal, as I stated from the beginning, is to get the highest return with the least risk that is available, with an institutional-type fund with a professional investment manager that does things like obtain an audit, have an administrator, and have a full accounting staff. These things just aren’t available with a syndicator or a crowdfunded deal.
So I’m looking for the top-performing institutional real estate private equity funds, and we’re making that available for the first time to individual physicians and CEOs, with minimum investments that may start out as low as 25,000, so that, by combining the pool of assets together, we can look like an institutional investor and make an investment alongside those one-percenters, the pension funds, the family offices, the investors that have millions of dollars to invest in these institutional assets.
Kevin Pho: Now, from all the other real estate options that advertise to the physician audience, what separates CityVest from these other options when considering real estate?
Alan Donenfeld: So let me get into some details about exactly what we do, because it’s not a simple process. It’s very time-consuming. We look at about 700 real estate private equity funds each year. We are looking at their private PPM documents and limited partnership documents, and we’re looking for those funds that have at least 100 million in prior assets under management as a first test to see if they are professional and experienced. In addition to having 100 million in assets under management or more, which is a size requirement, we also want to make sure that that investment fund manager has audits and administrators. This keeps those funds honest with regard to their numbers and is the professional way to manage an investment fund. Another step is that we want to find that that investment fund has a prior track record of a 20 percent internal rate of return, or annual return, or greater. So now we have a professional team, lots of assets, significant experience, and a great track record to back all that up.
We then commission a third-party due diligence firm named Buttonwood, who writes a report to make sure that there isn’t anything bad in their background. So they look through SEC and FINRA records. They go to specialized databases to check on liens or bankruptcies or drunk-driving arrests. They actually read the audit and administrator engagement agreements to make sure that they’re engaged to perform those services for the fund. They make sure that there’s a minimum-size investment that they’re making in their own fund, something we call skin in the game. We require a key man life insurance policy on the person. So there’s a number of steps that are required in that third-party due diligence report to make sure that that fund is as safe as possible.
We then create a special purpose vehicle, and we refer to it as a feeder fund. Our site calls it an Access Fund. It’s a limited liability company into which we aggregate the capital at the end of approximately a one-month period of time. We’re allowed to have 99 investors, and that pool is typically anywhere between 3 million and 6 million in total, which we would then invest in that fund. Because it is a sizable investment, we’re able to negotiate, through a side letter agreement, better investment terms for our investment in that fund, and those better investment terms typically are a 12 percent preferred return. That’s as compared to an 8 percent preferred return that you might get if you were a direct investor in that fund.
In addition, we typically require 80 percent of profits over that 12 percent preferred return, while direct investors may only get 60 percent, or a 60/40 split, or a 75/25 split. We require an 80/20 split, meaning 80 percent of profits over that 12 percent pref go to our investors. We make all of this available in our Access Fund at that minimum investment size of 25,000, so it becomes accessible to a lot of investors, although most of our investors that have dipped their toe in the water at 25,000 are now at 75,000 or 100,000 after making a couple of investments.
Kevin Pho: Now, can you share a success story of a physician who was initially new to the real estate space and then overcame their hesitation and eventually invested in a CityVest offering?
Alan Donenfeld: Sure. So the best way for a physician to get started investing in real estate and the investment process is to join one of CityVest’s group conference calls. We do these every single day. I allocate an hour of my time. They are group calls, and the benefit of that is someone may not want to ask questions or may not feel like they understand real estate terminology, and someone else may ask a question such as, “What is an IRR? How is it calculated? Is that an annual return?” Which it is; it’s also compounded. So there’s some details of investment terminology. What’s a cash-on-cash return? What are cap rates? You know, what is the impact of rising interest rates on capital? A number of questions get asked to me or shared by other members on these group conference calls.
So I would say, right off the bat, if somebody would attend one of my group conference calls, that would be a success. You don’t have to invest. It’s kind of like a real estate 101. If you want to attend multiple calls, maybe you’ll get a real estate 201 or 301. Maybe you’ll watch three investments go by, and then on the fourth investment that we send you an email about, maybe after joining the group conference call on the fourth deal, you’ll feel comfortable and educated enough to be able to make that investment. I would say that would be success. Most of our investors have done that. Not everybody invests after a 30-minute or hour-long group conference call. Sometimes it takes a couple of direct calls.
I can also send out videos or podcasts, like this one that we’re doing now, but I have many others to help educate physicians. And we have an education article section on our website with about 20 different articles, which also go through some of these terms, like IRR, cash-on-cash return, and cap rates, and also an analysis of various sectors in real estate, such as multifamily, retail, office, medical office, student housing, industrial, and senior living, all of which are different sectors within real estate and have different dynamics, and different dynamics depending on where in the country you might make that investment. So success for me is educating a physician on how to invest in real estate and why CityVest is, I believe, the best way to invest in real estate.
Kevin Pho: And where can we sign up for these calls?
Alan Donenfeld: If you log into CityVest.com, there’s a couple of different places that will say either “Login” or “Information.” So there’s a couple of different places on the website. Once you register on the website, you’ll be on our mailing list, and for any group conference calls or transactions that we’re working on, we will send you information. Always look for my phone number on any of that material, and feel free to call me directly.
Kevin Pho: Can you give some examples of the kinds of real estate private equity fund investments that CityVest makes?
Alan Donenfeld: Sure. I’ll try not to be too verbose in talking about this, but as I described, there’s a bunch of different sectors: medical office, student housing, self-storage, and industrial. Our particular focus is typically in the multifamily area. We believe that everybody’s got to live somewhere. The overall dynamic of population growing to 440 million people over the next 30 years is just going to put significant strain on housing and residences. We already know that real estate prices have gone up significantly over the past year. I think that’s just a realization that everybody has to live somewhere.
And within the multifamily sector, we like the value-add area the best. It does provide a significantly higher rate of return on the multifamily investing, as opposed to buying, say, a Class A piece of real estate that doesn’t need fixing up, where you’re not going to be able to get the rents up any higher because the residents are already paying that maximum price. But in the value-add property, if something is a Class B or even a C property, and maybe it was built 30, 40 years ago, it has had little renovation over that period of time, rents have likely declined, and it’s looking pretty shabby. But sometimes those properties are owned by a group of investors, tenants in common, and they’re stripping out all of the cash flow from those investments, but none of it is going into renovations.
A sophisticated fund in any specific market, whether it’s Phoenix or Denver, Seattle, Portland, Sacramento, Atlanta, Dallas, Houston, wherever that might be, if they go in and they see a Class B, B-minus, or C property, they know exactly how to fix it up. They know the two-tone paint to put in. They know which appliances, stainless steel appliances, look the best, the best countertops, the best bathrooms, etc. And on a very small budget, they fix up apartments in a multifamily development, which might be three, four hundred different units, over a period of three years after the acquisition. They fix up those units, and they know the percentage increase in rent that they’re likely to get, given comparable class apartments in the immediate surrounding area of that apartment. They do a pro forma of increasing rents over a period of years, and that’s how they get to a targeted rate of return, using the modeling of increasing rents over a period of years, given increasing expenditures for renovation of those properties.
So the example, to your question, is we prefer multifamily investments, specifically value-add properties. And a subset segment of that, which we’ve had great success with in producing greater than 20 percent IRRs, is a general partner, or GP, co-invest fund. This is where the investment manager allows us to co-invest with them so that we can share in a percentage of profits that that manager might get from his limited partners that invest in those individual properties. So we’ve done quite well. We’ve done several of these deals. We have a couple more that we’ve identified that we’re working on right now, and hopefully we’ll have a greater than 20 percent IRR on those investments, like the couple of GP co-invest funds that we’ve already done.
Kevin Pho: Now, what are some of the risks or things to watch out for when considering CityVest?
Alan Donenfeld: Sure. So generally, the risk in real estate and real estate private equity funds, and CityVest for that matter, is illiquidity. That’s the biggest risk in real estate. Real estate has typically been an illiquid asset. It’s not easy to buy. You have to get your mortgage lined up and credit. So typically, real estate investments are longer-term investments. Our shortest fund is about three years. Most of them are around seven years, and it’s illiquid during that time. There is the possibility that your interest could be sold, and CityVest is putting into place a liquidity solution, so that we will probably next year be in a position to buy back your interest, which would take care of this level of risk. But that is the first and foremost risk in real estate investment, as well as all real estate private equity funds, and CityVest and CityVest funds.
There are some other risks. CityVest, quite frankly, is a somewhat small company. We’ve been in business since 2014. We’ve done tens of millions of dollars of transactions, but we are still a small company. We do put in a provision in all of our documents that if anything happens to me or CityVest, the investors in our Access Funds could vote to remove CityVest as the manager of that Access Fund, and you can appoint anyone else, an accounting firm or a specialized management company, to manage that Access Fund. So I think we’ve taken care of the level of risk of anything happening to me or CityVest, so that the funds can continue. The primary risk is really with the underlying investment fund manager, not with CityVest. We would be relatively easy to replace. There are other managers who can do what we’re doing. So I don’t think that is a significant level of risk.
I would point out that the one excellent thing about real estate private equity funds is they are diversified, and you want to be diversified in any investments that you make. Specifically, a fund might have anywhere from five to 15 different real estate investments, making it very diversified. If you did three different fund investments, you’d have your money spread out among a lot of different assets. So it’s important to be diversified. If you do a syndication or a crowdfunded deal, you might find that that’s just one piece of property, and if it ends up being in Northern California, where there’s a fire, or in Houston, where there might be a flood, or Miami, where there might be a hurricane, it would be dangerous to make those kinds of investments in one single property, as opposed to a more diversified fund, which reduces the risk.
Kevin Pho: You’re listening to a special sponsored episode of The Podcast by KevinMD. We are talking to Alan Donenfeld. He is the founder and CEO of CityVest, providing investors with insider access to pre-screened, institutional real estate investments historically unavailable to individuals. They can be reached at CityVest.com. Alan, what are some of your take-home messages that you want to leave with the KevinMD audience?
Alan Donenfeld: So one message, and it goes to our motto, trust but verify. So we do a significant amount of due diligence. We then commission a third-party due diligence firm to also do a level of due diligence, including the background checks and audits and administrators. So we think that we can deliver safer investments by having us screen through 700 funds a year, doing a level of due diligence, and obtaining a higher rate of return for your investment, which is the 12 percent preferred return and the 80 percent of profits thereafter. So one takeaway is I think we’re doing a great service for physicians and other investors to deliver some of the best real estate private equity fund investments to our investors.
Kevin Pho: And again, for people who want more information, how can we reach you?
Alan Donenfeld: My email address is [email protected]. You can go to the website. We have education articles at the website, and a couple of videos and podcasts. My phone number, if you want to call us, is 917-747-3091. Feel free to call. I love hearing from investors. I love educating people. And I appreciate the time that everyone has spent to hear me wax on about the benefits of CityVest and real estate. I appreciate your time.
Kevin Pho: Alan, thank you so much for sharing your time and insight. Thanks again for being on the show.
Alan Donenfeld: Kevin, thanks so much. I appreciate it.
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