Maximizing Returns and Minimizing Risk as a Limited Partner with Aleksey Chernobelskiy
May 21, 2024
In this insightful episode of the Small Business Mentor podcast, Alan Pentz is joined by Aleksey Chernobelskiy, an expert in advising limited partners on private market investments, primarily in real estate syndications. Aleksey draws from his extensive experience underwriting deals at Store Capital and his own entrepreneurial journey to provide valuable tips for evaluating investment opportunities, understanding common risks, and navigating challenges like capital calls.
Aleksey Chernobelskiy brings a wealth of expertise to this episode, having worked as an SVP at Store Capital overseeing underwriting for their massive real estate portfolio, before starting his own business advising limited partner investors. He provides a enlightening behind-the-scenes look at how to properly evaluate private real estate deals as an LP.
Aleksey emphasizes the importance of not blindly transferring one's risk tolerance from entrepreneurship to investing. As an LP, you have less control, so assumptions around things like future valuations, rent growth, interest rates and refinancing must be rigorously stress-tested. He highlights common downsides that LPs often overlook, like depreciation recapture and tax inefficiencies for non-real estate professionals.
The conversation dives deep into impacts of the current market environment, with deals from 2020-2022 facing major challenges like plunging valuations, rising rates, and financing difficulties. Aleksey explains the harsh realities of capital calls and preventative equity cramdowns that LPs are now navigating. He provides a pragmatic perspective on which asset classes may be more resilient.
Throughout the dialogue, Aleksey stresses the need for LPs to truly understand the risks rather than being lured by rosy tax benefit projections or inflated returns. He offers tips on analyzing sensitivity to variables like exit cap rates and renovation costs. The discussion also covers Aleksey's transition into entrepreneurship with his newsletter, podcast, courses and consulting services tailored to LPs.
Quotes:
Aleksey emphasizes the importance of not blindly transferring one's risk tolerance from entrepreneurship to investing. As an LP, you have less control, so assumptions around things like future valuations, rent growth, interest rates and refinancing must be rigorously stress-tested. He highlights common downsides that LPs often overlook, like depreciation recapture and tax inefficiencies for non-real estate professionals.
The conversation dives deep into impacts of the current market environment, with deals from 2020-2022 facing major challenges like plunging valuations, rising rates, and financing difficulties. Aleksey explains the harsh realities of capital calls and preventative equity cramdowns that LPs are now navigating. He provides a pragmatic perspective on which asset classes may be more resilient.
Throughout the dialogue, Aleksey stresses the need for LPs to truly understand the risks rather than being lured by rosy tax benefit projections or inflated returns. He offers tips on analyzing sensitivity to variables like exit cap rates and renovation costs. The discussion also covers Aleksey's transition into entrepreneurship with his newsletter, podcast, courses and consulting services tailored to LPs.
Quotes:
- "I think feeling bored is actually the signal from the body that there is something deeper that hasn't been tapped into yet. The exercises that we use bypass the frontal lobe and tap into the nervous system to uncover that path."
- "The broad strokes is digital ops is AI tools plus global talent plus automation. The underlying idea is that you're designing processes and workflows and digital infrastructure in order to support the use of AI and automation and a global remote team to lower your cost structure and increase your task volume."
- "I think 90% of those LPs don't understand. Then you have to keep in mind like when you see a few hundred million, it might be in the billions, by the way, I don't know. But when you see those numbers, it's like, Oh, like you know, that's one check from, like, a pension fund. Like, what's the big deal? Right? But the reality is we're talking about people that have invested 50K."
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