PERE CFO: The difficulty of saying no

For two real estate fund managers, only one type of investor request gets flat-out denied.

These days, real estate fund managers are receiving the full gamut of requests from their investors. In some cases, those requests can veer into odd territory.

“Our investors are only human and always looking for a great deal,” recalled Lara Forsman, chief financial officer and chief operating officer at Rockbridge, speaking at the PERE CFOs and COOs Forum in New York. “‘The surprising questions come around our hotels, such as ‘Can we stay there, what’s the going rate, and how much of a discount can I get?’” 

For another general partner on the panel, one of the more puzzling requests made by the firm’s LPs is to recalculate their management fees. “I’ve seen reconciliations that try and recalculate whatever the metric was, in ways you would’ve never thought anyone would’ve ever dreamed of doing it,” the GP said. “And I get questions, well, how come it doesn’t work? Those are sensitive responses, because you can’t really say, that approach doesn’t make sense to anyone.”

In an audience poll question, about 40 percent of delegates responded that they receive five to 10 ad-hoc or one-off investor requests per quarter. Forsman noted that the basic trend among ad-hoc requests is the greater volume of them. “The quick answer is they want more,” she said. “They want it in their format, consumable, easy for them to consolidate. So we’re just experiencing more across the board.”

The uptick in ad-hoc requests, however, has created some challenges for general partners in their ability to standardize the information they provide their limited partners. “The problem is it’s all over the place and very specific in detail,” said Forsman.

“It’s haphazard in many cases,” the unnamed GP agreed. “The only area that people are consistently asking for more is forward-looking projections.” While the firm may make projections internally to help manage cash flow more effectively and better evaluate its pipeline, “that gives me heartburn when we get investor requests about it.”

However, the GP noted that over the past year and a half, the firm has worked toward incorporating many ad-hoc investor requests into the firm’s standardized reporting for limited partners. In this way, it has substantially reduced not the number of ad-hoc requests, but the time required to respond to them, he said.

And despite the difficulties involved with fulfilling some investor requests, “it’s very difficult to say no,” the GP said. “We rarely take a hardline stance, except in rare instances.” One such instance is when investors ask for tax advice, such as what its tax rate will be if it invests with the firm. He added: “That’s just something our attorneys have told us is a nonstarter. That is the only thing realistically that is a hard no that I’ve encountered. Everything else that we have is a yes, and the real question is, how quickly do you need this?”

Forsman also identified tax advice as the sole exception to granting investor requests. “We never say no,” she said. “It’s their money. If they have a question, we’ll answer it.”