The Big Picture: A wealthy young couple was approached by a family friend about a potential real estate investment opportunity. While interested in diversifying their portfolio, they lacked the sector knowledge and experience needed to evaluate the deal on their own. TwinFocus supported the couple through an extensive due diligence process and secured advantageous deal terms, helping them to participate in the opportunity with confidence.

The Backdrop: Real estate investments are an important part of any diversification and generational wealth-building strategy. They bring unique advantages, including passive income streams, use of leverage, and favorable tax strategies to expand and diversify current holdings.

Our Approach: TwinFocus works with our clients proactively and reactively to pursue real estate investments, particularly in the commercial sector. We help them understand the ins and outs of each investment, and they rely on us to build a strategic roadmap that can include a combination of existing real estate holdings, new opportunities that we source, and any deals they may generate themselves.

Here’s how we leveraged our real estate advisory expertise to help one family client navigate an opportunity that had been presented to them.

The Situation: Our client, a couple in their late 30s with two young children, had recently experienced a significant liquidity event following the sale of their family business. They were most concerned with diversifying their new wealth as well as how to preserve it for future generations.

The couple wanted to invest in real estate as a means to accomplish their goals but lacked know-how and experience in this sector. So when they were approached by a family friend about a potential opportunity and introduced to a real estate investment firm, they immediately called us. The outside firm, as part of its investor offering, structured a private holding company/fund exposing its investors to a stream of tax-advantaged income in line with the client’s longer-term balance sheet objectives.

The Solution: Our client introduced us to the real estate investment firm and asked us to perform due diligence on this opportunity within the context of their specific objectives and desired parameters.

We started by conducting a series of meetings with the general partners, the legal and tax team, and management to negotiate the overall fund structure and specific term sheet for our client. We were able to introduce provisions and amendments to the existing legal structure that availed our client of enhanced liquidity and downside protection, without violating any provisions or rights of existing investors.

Moreover, we were able to advance these changes by making specific recommendations on the overall fund legal structure, leading to a more tax-optimal outcome, aided by our deep-rooted understanding of the intricacies and complexities of alternative investment structures, limited partnerships, and the overall tax challenges facing ultra-high-net-worth investors and partners.

Our team also conducted an on-site due diligence meeting with senior management and visited several of the fund’s properties, allowing us to interview company employees, leasing teams, suppliers, and tenants. This gave us a differentiated perspective on the company and opportunity—one not available simply by reviewing market materials and financial pro formas. We also conducted operational due diligence by reviewing and interviewing service providers and auditing the books and records of the company and fund.

Simultaneously, our team built a comprehensive financial pro forma, allowing us to conduct sensitivity and scenario analyses on several variables that we thought would further impact investor net returns. This in turn helped us tremendously with negotiating the points we believed to be most impactful and giving ground to those provisions that were more “red herrings.”

The Bottom Line: After completing our efforts and presenting our findings, the client became increasingly comfortable with a larger allocation in this fund, but on much more advantageous terms.

Our ability to provide our clients with not only a holistic view of the opportunity but to secure more advantageous terms than initially envisioned is a clear example of how TwinFocus’ multi-disciplined approach to investing—including a deep dive into an alternative investment’s legal, tax, operational, and fundamental profile—often allows us to influence changes to fund structures that make them more appropriate for ultra-high-net-worth investors and family offices.

Disclosure: Case studies may not be representative of the experiences of all TwinFocus clients. There is no guarantee that negotiations with fund sponsors will be successful for all investors.