Why Fund Managers Love Leverage in Real Estate Investments

For many, following the subprime mortgage mess, real estate investments have lost their allure. However, for Jonathan Feldman of Millennium Drilling, real estate continues to be the choice option. “Investing in real estate,” says Jonathan, “remains more secure than many other channels of investment. However, it’s no more a game of returns with your eyes closed. Like every other sector of investing, in real estate today, you need to be aware of advantages and pitfalls of a confusing number of choices. You also need to be aware, why a fund manager may promote a particular vehicle, and why what is good for the manager, may not be good for you.”

Leverage in real estate investment, says Jonathan, is one of those highly controversial avenues whose advantages cannot be ignored, but whose disadvantages are often glossed over, particularly because leverage in real estate investment is attractive for fund managers.

Jonathan says fund managers stand to gain distinctly on three fronts when they allow leverage on real estate investment:

• First, leverage allows managers of investment portfolios with access to more capital than they are able to raise from investors. Wise use of those resources can lead to more fees and a higher market share.
• Leverage increases the chance of higher returns and for fund managers that means performance fees can trigger off. However, less than expected returns is not going to hurt the fund manager. So, for the fund manager it is always better to take chances on leverage in real estate investment
• Leverage, by providing access to greater resources, helps fund managers to be more flexible. This in turn helps fund managers to service their clients better in matters like redemptions and dividends.

Even though most fund managers have switched from a gross asset value based to a net asset value based management fee, fees are still related to the size of the portfolio when it comes to acquisition and disposition, and the power that leverage in real estate investment brings to fund managers is difficult for them to ignore.

However, leverage increases the risk-return profiles of investment and is generally not advantageous for tax-exempt investors who are not fully involved in making informed decisions about investments. In the right hands and with correct decisions, leverage in real estate investment can work out as very good tools for investors in some circumstances, but what one needs to be aware of, is that it is a good choice for fund managers under almost all circumstances.

The Pitfalls of Using Leverage in Real Estate Investment

“Leverage in real estate investment,” says Jonathan Feldman of Millennium Drilling, “has been a much abused concept, but since 2008 investors have become sharply aware of its disadvantages.” It is a tool to be used with great responsibility and is not suitable for every person seeking to invest in real estate opportunities.

Theoretically, a high amount of leverage can lead to higher returns if its effect on risk and on mixed-asset portfolios is disregarded. According to Feldman, traditionally investors have marked the biggest advantages of leverage in real estate investment as the following:

• Interest payments can be used as a tax shield and used to reduce tax burden while increasing the risk-to-return profile of the investment
• Leverage helps in the creation of diversified portfolios and is good for smaller investors
• Leverage brings in liquidity and flexibility in managing a real estate portfolio
• Leverage increases the chances of return on invested equity and remains attractive to investors who can afford to disregard an increase in risk profile of the investment
• High levels of non-recourse financing provides windows of opportunities between rising and falling property markets

However, despite its advantages, leverage in real estate investment has some critical drawbacks that can be catastrophic for unwary investors.

Jonathan Feldman of Millennium Drilling has been in real estate investments for practically all his life and he knows what he is talking about when it comes to disadvantages of leverage in real estate. Since Jonathan is also into investment for the elderly, high net worth individuals and private placement life insurance, his concerns reflect the concerns of that sector.

“For tax-exempt investors,” says Jonathan, “adding leverage in real estate vehicles often leads to value destruction, especially in a mixed-asset portfolio that includes fixed income.” Also to make things work, investors need to hold on to real estate investments for longer periods of time, because quite often we find that the credit quality of the real estate vehicle is poorer than that of the investor.

Jonathan says one has to be very concerned about risk-return profiles of investments, especially in case of tax-exempt investors, because leverage introduces interest rate volatility without improving the risk-return profile. Even though leverage is good for fund managers from many angles, including increase of flexibility and access to more resources – what is good for the manager is not always good for the investor, and leverage in real estate investment, if done unwisely, is one of those things.

So, next time you think of leverage in real estate investment, think twice.

Real-Estate Market Poised For Growth: The Time To Invest Is Now

Jonathan Feldman of millennium drilling says that the prognosis for the health of the American real estate market is incredibly strong. The grim scenario that was prevailing over the last few years is history and a very strong rebound in real estate is on the cards. So much so that Mr. Feldman himself has decided to shift from his drilling and related energy production investments and dive whole-heartedly into real estate.

Mr. Feldman says that since you have to invest your savings somewhere and there can be no better place to do it than the real estate. Such confidence and assurance coming from a man of proven credentials and one who has achieved outstanding success with his investments, by the age of twenty seven, he was already managing one hundred and forty four apartments without any assistance of third-party investors and his real estate investment track record includes successful investments in commercial and residential properties and advising on assisted living facilities and nursing home acquisitions worth more than $200 million, leads one to conclude that his admonition should be taken with serious deliberation and consideration. It could be the wisest decision we may ever make in our lives.

What then are the reasons for Mr. Jonathan Feldman’s optimism?

ActiveRain, the biggest real estate social network in the country sought information from almost 2500 real estate professionals and they expressed great optimism and hopefulness for the future of the country’s real estate as well as its economy.

The economy is showing signs of improvement and signs are that 2013 will see a rebound and it will be on the back of the real estate industry. The commercial real estate sentiment index reached its uppermost spot in eight years and housing starts are now on the brink of touching their highest 4 year peak.

Banks are becoming more lenient and approving more mortgage applications which is seeing more and more home buyers entering the fray. Increasing buyer confidence will see a surge in buying and investors can hope to get higher prices and get excellent return on their investments.

The last few distressing years saw many foreclosed and distressed properties hit the market. Banks held on to them waiting for better prices, but they can hold on no longer, as they need to dilute their surplus inventory and ensure that they do not run beyond schedule in liquidation and bankruptcy proceedings.

Apart from domestic buyers there is an increasing base of international buyers who are evincing great interest in US real estate. The country’s transparency and lucidity in the real estate market has seen many overseas buyers investing in what they feel is safe and secure refuge for their money.  According to the National Association of Realtors, international sales increased from $66.4 billion to $82.5 billion over the last 12 months, till March this year.

America is going through energy resurgence and is poised to export energy worldwide over the next few years. Shale and natural gas extraction across the board will also enable abundant electricity to be produced and that too at considerably cheaper rates than before – this will surely drive the real estate market, especially in places like Texas, North Dakota and other places where energy extraction is taking place.

With fixed rate mortgage remaining fairly constant and on the low side and rents flying off the roof, people are becoming wise to the financial equation that monthly mortgage payments are actually less than the rent they pay. This has led them to prefer buying a house rather than rent one.

So  Jonathan Feldman of Patriot Exploration is right, if you are looking for a place to park your investments, the best place to do it is in real estate. By all accounts it is the safest haven in the US for secure and safe investments and promises bountiful returns as well.

Real Estate Investment: Securing Your Future

If you look up any realistic list of the wealthiest people in the United States, you will find that investing in real estate has played a big role in their wealth creation. They may not have earned all their wealth through their real estate investments but it is at the core of their wealth. One can safely infer from this that if you decide to invest in real estate, you are thinking like a billionaire.

Jonathan Feldman from Greenwich Connecticut is a COO and CEO with more than two decades of experience in identifying opportunity, as well as generating value in niche markets, especially real estate. He is of the opinion that choosing real estate for investments is a wise and prudent decision, given its immense money generating potential.

Mr. Jonathan  Feldman of Millennium Drilling  feels that people are living longer these days and postponing retirements and the need for assisted living facilities will continue to grow over the next thirty years at least. This and many more reasons predict a bright future for real estate and this is the right time to get into it.

To date, Mr. Feldman has acquired, developed and managed assets in excess of $650 million dollars. Through his investing activities he has consistently generated high returns. Mr. Feldman’s portfolios have largely focused on real estate and energy-related holdings. Among his real estate investments have been residential and commercial properties, as well as senior and assisted living facilities.

Advice coming from a person with such proven acumen and expertise in investment strategies is worth considering seriously. However, here are some tips to follow, to ensure that the first-timer enters the field with enough knowledge to invest wisely and with the appropriate safeguards and protection in place.

Enter On A Small Scale:

Evolve in the business. Let your learning curve become expertise through a learning curve that minimizes risks. Spend as least as possible on your first deal. Spend more time studying the aspects of real estate and spend as little as possible on the property that you are investing in – spending more money and less time is a surefire way to losses and off-putting disappointment.

Never Speculate:

Speculating is best only on the gambling table and best left to the casinos. Invest in real estate that has cash flow and that has the potential of capital gains – assuming that it will increase, or that all property increase in value is a dangerous supposition.

Choose Land That Can Be Monitored:

Visit the property you have purchased on a regular basis. That can only be possible if it is in close proximity to where you are living.  Observe signs of how things are perking up in the area. Talk to people in the area about the latest property trends.

Don’t Panic If You Make Mistakes:

Making mistakes the first time around is no cause for sounding the alarm bells. It’s human nature to make mistakes. Of course if you take the requisite precautions you minimize the chance of mistakes but it is a learning process and every mistake will make you that much wiser and will teach you lessons no real-estate guru can ever teach.

Two Myths You Should Never Believe In:

Never assume that all land will increase in value and that if buy cheap it is definitely going to be profitable. The low price may seem attractive, but a careful evaluation will find that there is some problem with the property – cheap could actually turn out to be extremely expensive. Don’t believe everything that the realtors tell you – they will always paint a rosy picture and never the true picture.

Why Advisors of High Net Worth Individuals Love Private Placement Life Insurance

Advisors of high net worth individuals face significant planning challenges and private placement life insurance of PPLI is one of the best tools in their arsenal. Usually a PPLI is a customized product, specifically developed for solving the investment needs of a high net worth individual.

PPLI pops up in estate planning discussions of rich people because it establishes a tax-free environment within which the individual can designate a fund manager or a hedge fund to manage the investments made into the PPLI policy. This allows the money to grow without paying taxes, and allows the money to pass onto heirs tax-free. The money can also be used to fund trusts and estates for humanitarian work as assigned by the policy holder, following his death.

For investment advisers, PPLI is a prime option for investment and income-tax planning. As a life insurance product, PPLI gets the income-tax benefits of traditional life insurance including tax-free accretion of investment earnings on policy assets. PPLI also allows the policy holder to withdraw and borrow from the policy free of income tax, and death benefit proceeds remain income tax free.

So, PPLI greatly reduces estate tax liabilities while allowing investment advisers such as Jonathan Feldman of Millennium Drilling to plan for proceeds to pass on to the beneficiaries of their client free of any federal income tax.

Besides the advantages of PPLI discussed, it also acts as an extremely powerful asset protection tool as it offers great financial privacy and is difficult to attach by creditors.

For high net worth individuals and communities of rich people, PPLI provides much more flexibility in negotiating terms and conditions, assigning or choosing fund management and no surrender charges. While on its face, a PPLI seems a simple method of saving tax and passing on the investment to beneficiaries, it can also be structured with the help of investment advisers in varying degrees of complexity to provide further benefits.

This is why, private placement life insurance, or PPLI cannot be ignored by any finance or investment adviser of a high net worth individual.

Why Event-Driven Investing is Critical to Many

Even though the term “event-driven investing” has different connotations in the modern economic world and are concerned basically with opportunities that rise before, during, and after corporate events, humanity has been doing event-driven investing as long as civilization has existed. Broadly seen, whether it is investing in certain goods before medieval trade fairs, or stocking up before winter – it’s all event driven investing that leverages resources to cash on opportunities that can be forecasted with tolerable certainty.

Similarly, investors like Jonathan Feldman from greenwich ct have sophisticated information access and risk analysis skills and knowledge engage in investments based around corporate events like spinoffs, mergers, bankruptcies, and etcetera.

Event-driven investment also has to be extremely methodical and with documented and cogent analyses, because event-driven investments based on simple intuitions can be hard to justify against allegations of insider trading.

Event-driven investment strategies are critical to many, not only because they offer better opportunities, but also because they offer greater downside protection. However, it’s a game for professionals and investment experts, and people who are specialized in event-driven investing.

On the other hand, traditional fund managers are usually under equipped to analyze situations and make decisions at the speed required by event-driven investors. For example, in case of an impending bankruptcy a traditional manager may sell off the stock retrieving what can be retrieved from the free market. However, an expert event-driven investment manager, may not only hold on to stocks, depending upon his/her in-depth analysis of the situation, but in fact may end up buying the stocks from the traditional fund manager and then reap a profit by trading in bankruptcy claims.

In fact, event-driven investment managers often deal in the very things that a traditional fund manager would rarely touch. Things like distressed securities, bankruptcy claims, trade claims, bank debt, and similar instruments are seen as opportunities by event-driven investment managers.

One of the best features of event-driven investing is its greater downside protection and attractiveness during tight economic situations like the one we are experiencing. However, like all other investment opportunities, event-driven investments can also fail, and this is why it must be done by well-equipped and sharp investment managers who can react according to clear signals and are in a better position to predict outcomes of a corporate event.

Five Safety Tips for Trading in Bankruptcy Claims

Selling a bankruptcy claim may seem like an ordinary affair, but it can have many pitfalls for the first-time seller. If you have done adequate research and have decided to sell of your bankruptcy claim then the tips in this article may help you a great deal. Keep in mind that when trying to sell bankruptcy claims, it is a typical situation of “seller beware” and always, always go into the fine print of any assignment agreement sent to you by an investor.

Before selling off your claim, be certain whether your claim is listed in Schedule F properly, whether you have filed your proof of claim, whether statutes of limitations can affect your actions, and whether you have any preferential exposure. If everything is okay, then you need to analyze the situation and decide whether it is right to sell off your claim or not.

If you do decide to sell off your bankruptcy claim, keep in mind that the investor like Jonathan Feldman of patriot exploration is bearing your risk in order to profit and try to do things reasonably. That said, here are five tips for you to follow to increase your safety in trading bankruptcy claims:

1.    If you are not an expert investor do not attempt to become one overnight: Unless you are knowledgeable, experienced, and equipped to analyze accurately the potentials of a claim, do not try to beat investors at their own game. In volatile markets, it can be a risky strategy to hold on to claims based on intuitions that they are worth much more than offers received. Bankruptcy is one of those few catastrophic moments when people lose control and logic – do not allow yourself to be overwhelmed either by panic, or by greed. Do not speculate.

2.    Don’t take price as the only factor while selling off a bankruptcy claim:  As I discussed in the opening paragraphs, there are many terms and conditions hidden in any assignment form provided by an investor. More than the price, it is those terms and conditions that matter when trading in bankruptcy claims. Purchasers are usually unwilling to negotiate changes and try to compel a set of terms that reduces their own risks. So, it is important to research the purchaser, find out their reputation in purchasing distressed debts, and their record of paying in time.

3.    Determine prices for disputed amounts: If your claims are properly listed in the bankruptcy by the debtor, then most purchasers would be willing to pay upfront for that portion of your claim which is undisputed. Usually payment on disputed amounts is deferred until the dispute is resolved at court. If you are selling off your bankruptcy claim, make sure that the purchaser agrees to purchase any disputed amounts later approved by the court at the same rate the purchaser paid for the original amount. In a great many cases, first-time sellers do not realize this point, though later their claims increase in size.

4.    Ask for higher price if you have any preferential exposure: Under bankruptcy law claims are prioritized and claims having a higher priority need to be paid first and in full before claims of a lesser priority can be considered. Since all claims within the same priority share pro rata, you can and should ask prices that are proportionate to the priority of your claim. So if your bankruptcy claims have a higher priority, you can ask for a higher price. If you hold secure claims or administrative claims – they will have a higher priority than general unsecured claims and you can sell them at a much higher price than going rates for unsecured claims.

5.    Analyze the offer with surgical precision: And if you are not competent to analyze the assignment form or purchase offer properly, do seek expert advice. Investors would always try to minimize their risks and put in terms and conditions like claim refund provisions. In case of a claim refund provision being accepted, if the claim is disallowed by the court, the purchaser of your bankruptcy claim can compel you to buy it back and return the original purchase price along with interest.

In general, while analyzing a purchase offer check the interest rate, the conditions that compel refund (for instance there can be clauses where the purchaser can claim a refund upon the simple filing of an objection), and the time-period you are allowed between defending an objection and being compelled to return the consideration. Another thing you need to find out is who has the ability to defend your claim. Does the onus of defending your claim fall solely upon you? Can the purchaser compromise any disputes without your consent?

Be very sure of all representations, warranties and indemnities written into the purchase offer for your bankruptcy claims. Sometimes purchase offers hide clauses that make you liable for amounts over and above the consideration or simple refund of the purchase price – a host of costs like attorney’s fees, lost profits and other things can be saddled on to you, if you are not careful, and just go after whoever is paying the highest for buying your bankruptcy claims.

What Is Private Placement Life Insurance

Private placement life insurance or PPLI is a preferred investment option for high net worth individuals. In essence, a PPLI acts like a hedge fund investment wrapped within an insurance policy and the people who buy such policies are more interested about the tax-free environment, and about passing on the capital to their heirs tax-free, than about returns on death.

Traditionally, in the U.S. market, since the adoption of Rule 144A by the Securities and Exchange Commission, providing exemption from registration for secondary market transactions in private placements, life insurance companies have come to dominate the market. The market has many similarities to the public corporate bond market, but with entry barriers that allow only high net worth individuals to purchase PPLI.

Private placement debt offerings have lower issuance costs due to many reasons. Typically, private placements have lower distribution expenses and do not incur the expenses of registering with the SEC. Though the private placement market is a major source of long-term funds for businesses, information about private placements is limited and keeps orbiting only within networks of high net worth individuals.

Life insurers play a major role in the private debt market as they have armies of actuaries and have the ability to accurately estimate the credit quality of borrowers. Life insurance companies also have the ability to maintain risk monitoring programs. Because things are opaque to a large extent in the market of private debts, PPLI companies tend to lend their funds only to large companies with stellar track-records. This habit, in its turn, allows policy holders to benefit at higher rates of return than traditional alternatives. However, the return is not immediate.

The advantages of buying PPLI are many to high net worth individuals. For example, PPLI can be adjusted and negotiated to a great extent and customized to fit the wishes of the policy holder, but such flexibility is next to impossible in the case of purchasing ordinary life insurance policies.

Rich people regularly use private placement life insurance for their estate planning strategy that allows the value of the investment to grow without being whittled down by taxes.

However, According to Jonathan Feldman of millennium drilling, the costs associated with offering a tailor-made policy for an individual customer can be quite high, and this is why PPLI is rarely available below investments of $ 1 million or more. Though private placement life insurance originated in the U.S. as an economic or business concept, today it has become popular across the world.