Hi {{first_name | there}},
Each Tuesday, I send a short note on commercial real estate to help you be a better investor. Topics may include deal stories, how I'm thinking about risk, lessons I'm learning, and market observations as we oversee our $500MM+ CRE portfolio and serve our 1,100+ investors.
You have probably heard that in real estate, you make money when you buy.
This is true. You cannot change your going-in basis after you close. But it's only half the story, and a few weeks ago I wrote about a self-storage deal that taught me the other half.
That self-storage investment had a great location, limited supply nearby, and construction that finished early and under budget. But it ultimately returned our capital and nothing more.
The line I keep coming back to: we should have gotten involved sooner.
By the time we did, the storage market had softened, and the best exit opportunity was already behind us (reply to this email if you want that full story).
One of our current investors recently asked me how we provide oversight across our portfolio today. This is my answer.
Who Does What?
There are really three distinct roles after we close on a deal.
Property management handles the ground game: leasing, collections, maintenance, and daily operations.
Asset management sits above that: budgets, growing net operating income, capital projects, financing, and exit decisions.
Our operating partners are accountable for both, whether they perform those functions in-house or through third parties. That is what we are hiring them to do, and it is why operator quality matters so much.
Our role as the capital partner is different. Our asset management team continually tests whether the business plan we underwrote is actually happening, and we retain control over certain decisions that can materially affect the outcome.
Routine oversight is continuous. Direct intervention is selective. We get more involved if the plan is off track, if we see signs it may get off track, or if the evidence suggests the plan itself should change.
That happens in three primary ways.
1. Control Over Major Decisions
This is the part investors rarely see because it lives in the joint venture agreement, not in a marketing deck.
In our typical JV today, we retain certain major decision controls, including a sale or transfer, refinancing or taking on new debt, material changes to the budget or business plan, and removal or replacement of the manager.
We are not approving every invoice at the property level. We want control when an ordinary variance becomes a meaningful change in plan.
For context, that 2019 self-storage investment was an LP investment without the control rights we typically negotiate today. But even strong rights have limits. A right to approve a sale does not necessarily require an operator to disclose an offer they reject.
Contracts matter. So do trust, transparency, and judgment.
2. Capital Released As Work Is Completed
On deals with a renovation or capital-improvement plan, we typically do not wire the full commitment at closing. We hold back some capital for the improvements. Capital is released in draws as the work progresses, and each request must clear review before we fund.
That generally includes invoices that reconcile with the requested amount, proof of payment, and photographs of the work.
Two details matter more than they may sound like they should:
First, we require photos taken during the work, not only before and after. Anything mechanical or behind a wall may be difficult to verify once it is covered up.
Second, draw requests generally include the expected scope and cost of the next phase. Each release of capital gives us visibility into what is coming, not just confirmation of what already happened.
Depending on the draw, we may also require lien waivers, in-person inspections by us or an experienced construction manager, or other supporting diligence.
The principle is simple: additional capital should follow evidence of execution.
3. Reporting and Targeted Site Visits
Our asset management team reviews reporting on every investment each month, comparing actual results with the budget, underwriting, and business plan.
We are looking for changes in occupancy, collections, NOI, cash balances, debt coverage, capital spending, and business-plan milestones, especially where actual performance is separating from the original assumptions.
That is where drift is usually first visible.
We also visit the properties in person. So far this year, we have made seven visits to properties we have invested in. We do not follow a fixed site-visit schedule.
Rather than rely on a rigid calendar, we try to visit when being onsite can actually inform a decision: verifying important work, seeing the quality of a renovation, investigating something in the reporting, or having a meaningful conversation with the operator.
On one multifamily investment, converted units began leasing at rents meaningfully above pro forma projections. The operator proposed expanding the value-add, which required additional capital.
We engaged an outside construction professional to inspect renovated, unrenovated, and in-progress units. Based on the inspection and actual leasing results, we approved a larger scope, accepting more near-term vacancy in exchange for higher projected NOI and property value.
Oversight is not just about catching problems. Sometimes it's about recognizing when the evidence says the plan should change.
What This Means If You Own Anything
Most of you aren’t negotiating JV agreements, but the discipline applies at every level.
If you own a rental, are renovating a property, or are paying someone for work you cannot easily see, tie payments to documented milestones. Verify completed work and understand all details of the next phase before releasing more capital.
The scale changes. The discipline does not.
The bigger point is this:
An investment thesis is not something you write at closing and revisit at exit. It is a hypothesis you keep testing throughout the hold.
Sometimes the evidence tells you to intervene. Sometimes it tells you to invest more. The expensive mistake is sitting back and waiting.
That remains true whether you own a rental house, a business, or an interest in a private fund.
The question is not only whether you bought well. It is whether you kept checking.
If you are an accredited investor and want to learn more about our current investment opportunities, click here to schedule a call with us.
If you have feedback or if there's a topic you'd like me to cover in a future newsletter, reply to this email. I read every response.
All the best,
Ben Kahle
Managing Partner | Wellings Capital