Exploring Branded Hotels as an Asset Class with Matt Faircloth

 

Join host, Chad Ackerman, as he sits down with seasoned real estate investor, Matt Faircloth to discuss the importance of transparency, clear communication, and a conservative approach to deal underwriting in today’s challenging market. As the co-founder of the DeRosa Group, Faircloth shares his inspiring journey in real estate, from a modest $30,000 loan to managing thousands of multifamily units and a significant investment fund.

The Importance of Transparency in Real Estate Syndications

Faircloth emphasizes that real estate syndication investments should not be treated like bonds, and investors should not expect guaranteed monthly payments. He explains that during economic changes, his company prioritized the protection of capital by pausing distributions, demonstrating their financial conservatism and focus on responsible management.

“We pay what the property is performing at,” Faircloth states, highlighting the importance of transparency in investor communications. He believes that investors should question operators who consistently pay out exact preferred returns, as it may indicate a lack of transparency or an attempt to avoid difficult conversations.

Navigating Market Challenges with Rigorous Due Diligence

Faircloth reveals that despite evaluating nearly 300 multifamily deals, the DeRosa Group did not close on any acquisitions due to unreasonable asking prices and a disciplined investment approach. He explains that sellers and some buyers still behave as if it were 2018, failing to recognize the significant changes in the market.

To navigate these challenges, Faircloth’s team includes underwriters with conservative and pessimistic outlooks who evaluate deals and develop structures to hedge against worst-case scenarios. This approach has led the DeRosa Group to explore new asset classes, such as branded hotels, which provide immediate cash flow and require different market considerations compared to multifamily properties.

Shifting Focus to Cash Flow and Fixed-Rate Debt

In the current economic climate, Faircloth advises investors to be cautious of deals that rely heavily on appreciation for returns. He believes that the economy will remain unpredictable and soft in the coming years, making cash flow a crucial factor in investment success.

“If I were an LP, I’d be very cautious of deals where a lot of my IRR profit is made off of appreciation,” Faircloth warns. He recommends focusing on deals that cash flow from day one and have fixed-rate debt to protect against interest rate fluctuations.

While floating-rate debt may seem attractive given the potential for rate decreases, Faircloth prefers the certainty of locking in rates for the next five years, even if it means accepting slightly lower returns. He believes that cash flow will be the key to weathering any market downturns and that investors should prioritize stable, consistent returns over aggressive growth projections.

The Return of Buy-and-Hold Strategies

Faircloth predicts that buy-and-hold real estate strategies will become more popular in the coming years, as the market shifts away from the rapid buying and selling that characterized the past decade. He believes that investors will return to the basics of purchasing properties, holding them for cash flow, and selling when market conditions are favorable.

“Having a sales date in the future on the time horizon of three to five years, that’s all crystal ball predictions,” Faircloth explains. “Who knows if the market’s going to be there?” He suggests that if a property is generating mid to high single-digit returns, it may be wise to hold onto it until the market indicates it’s time to sell, which could be several years down the line.

Diversifying with Cash Flow Vehicles and Liquidity

To adapt to the changing market, the DeRosa Group has created a cash flow vehicle in the form of a debt fund that invests in hard money loans. This fund allows investors to earn a portion of the interest rates charged on the loans, providing a hedge against market volatility and a source of consistent returns.

Faircloth also emphasizes the importance of liquidity for investors, particularly in an environment where multifamily syndications often require long lock-up periods. He recommends seeking out funds with liquidity components and the ability to compound returns, offering investors more flexibility and control over their capital.

Key Takeaways for Passive Investors

Throughout the episode, Faircloth shares valuable insights and advice for passive investors navigating the current real estate market:

  1. Prioritize transparency and clear communication with operators, questioning those who consistently pay out exact preferred returns without regard to property performance.
  2. Be cautious of deals that rely heavily on appreciation for returns, and focus on investments that generate cash flow from day one.
  3. Consider the benefits of fixed-rate debt in protecting against interest rate fluctuations and ensuring more predictable returns.
  4. Embrace the potential resurgence of buy-and-hold strategies, recognizing that longer hold periods may be necessary to maximize returns in the current market.
  5. Diversify your portfolio with cash flow vehicles and investments that offer liquidity and the ability to compound returns.

By following these guidelines and maintaining a conservative approach to underwriting and due diligence, passive investors can navigate the challenges of the current market and position themselves for long-term success in real estate investing.

Matt Faircloth’s appearance on the Passive Investing from Left Field podcast offers a wealth of knowledge and practical advice for passive investors seeking to adapt to the evolving real estate landscape. By prioritizing transparency, cash flow, and a disciplined approach to deal evaluation, investors can weather market uncertainties and build lasting wealth through real estate.

As the DeRosa Group continues to explore new asset classes and investment strategies, Faircloth’s insights serve as a valuable reminder of the importance of staying agile, informed, and focused on the fundamentals of successful real estate investing.

Are you ready to take your passive investing to the next level? Join the Left Field Investors (LFI) Infielder Community and unlock a world of exclusive benefits designed to help you succeed in the alternative assets space. 

As an Infielder, you’ll gain access to members-only educational content, live deal webinars, and recordings from top-tier sponsors. Tap into the collective knowledge of the LFI community through forums and interest clubs, and expand your network at Infielder-only meetings, regional clubs, and special events. With exclusive tools and resources at your fingertips, you’ll be well-equipped to make informed investment decisions and build a strong passive income portfolio. 

Sign up for your Infielder membership today and start your journey to passive investing success!

Chris Franckhauser

Vice President of Strategy & Growth, Advisory Partner

Chris Franckhauser, Vice President of Strategy & Growth, Advisory Partner for Left Field Investors, has been involved in real estate since 2008. He started with one single-family fix and flip, and he was hooked. He then scaled, completing five more over a brief period. While he enjoyed the journey and the financial tailwinds that came with each completed project, being an active investor with a W2 at the time, became too much to manage with a young and growing family. Seeing this was not easily scalable or sustainable long term, he searched for alternative ideas on where to invest. He explored other passive income streams but kept coming back to his two passions; real estate and time with his family. He discovered syndications after reconnecting with a former colleague and LFI Founder. He joined Left Field Investors in 2023 and has quickly immersed himself into the community and as a key member of our team.  

Chris earned a B.S. from The Ohio State University. After years in healthcare technology and medical devices, from startups to Fortune 15 companies, Chris shifted his efforts to consulting and owning a small apparel business when he is not working with LFI (Left Field Investors) or on his personal passive investments. A few years ago, Chris and his family left the cold life in Ohio for lake life in the Carolinas. Chris lives in Tega Cay, South Carolina with his wife and two kids. In his free time, he enjoys exploring all the things the Carolinas offer, from the beaches to the mountains and everywhere in between, volunteering at the school, coaching his kids’ sports teams and cheering on the Buckeyes from afar.  

Chris knows investing is a team sport. Being a strategic thinker and analytical by nature, the ability to collaborate with like-minded individuals in the Left Field Community and other communities is invaluable.  

Jim Pfeifer

President, Chief Executive Officer, Founder

Jim Pfeifer is one of the founders of Left Field Investors and the host of the Passive Investing from Left Field podcast. Left Field Investors is a group dedicated to educating and assisting like-minded investors negotiate the nuances of the passive investing landscape and world of syndications. Jim is a former financial advisor who became frustrated with the one-path-fits-all approach of the standard financial services industry. Jim now concentrates on investing in real assets that produce cash flow and is committed to sharing his knowledge with others who are interested in learning a different way to grow wealth.

Jim not only advises and helps people get started in passive real estate syndications, he also invests alongside them in small groups to allow for diversification among multiple investments and syndication sponsors. Jim believes the most important factor in a successful syndication is finding a sponsor that he knows, likes and trusts.

He has invested in over 100 passive syndications including apartments, mobile homes, self-storage, private lending and notes, ATM’s, commercial and industrial triple net leases, assisted living facilities and international coffee farms and cacao producers. Jim is constantly looking for new investment ideas that match his philosophy of real assets producing cash flow as well as looking for new sponsors with whom he can build quality, long-term relationships. Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Chad Ackerman

Chief Operating Officer, Founder

Chad is the Founder & Chief Operating Officer of Left Field Investors and the host of the LFI Spotlight podcast. Chad was in banking most of his career with a focus on data analytics, but in March of 2023 he left his W2 to become LFI’s second full time employee.

Chad always had a passion for real estate, so his analytics skills translated well into the deal analyzer side of the business. Through his training, education and networking Chad was able to align his passive investing to compliment his involvement with LFI while allowing him to grow his wealth and take steps towards financial freedom. He has appreciated the help he’s received from others along his journey which is why he is excited to host the LFI Spotlight podcast and share the experience of other investors and industry experts to assist those that are looking for education for their own journey.

Chad has a Bachelor’s Degree in Business with a Minor in Real Estate from the University of Cincinnati. He is working to educate his two teenagers in the passive investing world. In his spare time he likes to golf, kayak, and check out the local brewery scene.

Ryan Steig

Chief Financial Officer, Founder

Ryan Stieg started down the path of passive investing like many of us did, after he picked up a little purple book called Rich Dad, Poor Dad. The problem was that he did that in college and didn’t take action to start investing passively until many years later when that itch to invest passively crept back up.

Ryan became an accidental landlord after moving from Phoenix back to Montana in 2007, a rental he kept until 2016 when he started investing more intentionally. Since 2016, Ryan has focused (or should we say lack thereof) on all different kinds of investing, always returning to real estate and business as his mainstay. Ryan has a small portfolio of one-to-three-unit rentals across four different markets in the US. He has also invested in over fifty real estate syndication investments individually or with an investment group or tribe. Working to diversify in multiple asset classes, Ryan invests in multi-family, note funds, NNN industrial, retail, office, self-storage, online businesses, start-ups, and several other asset classes that further cement his self-diagnosis of “shiny object syndrome”.

However, with all of those reaches over the years, Ryan still believes in the long-term success and tenets of passive, cash-flow-focused investing with proven syndicators and shared knowledge in investing.

When he’s not working with LFI or on his personal passive investments, he recently opened a new Club Pilates franchise studio after an insurance career. Outside of that, he can be found with his wife watching whatever sport one of their two boys is involved in during that particular season.

Steve Suh

Chief Content Officer, Founder

Steve Suh, one of the founders of Left Field Investors and its Chief Content Officer, has been involved with real estate and alternative assets since 2005. Like many, he saw his net worth plummet during the two major stock market crashes in the early 2000s. Since then, he vowed to find other ways to invest his money. Reading Rich Dad, Poor Dad gave Steve the impetus to learn about real estate investing. He first became a landlord after purchasing his office condo. He then invested passively as a limited partner in oil and gas drilling syndications but quickly learned the importance of scrutinizing sponsors when he stopped getting returns after only a few months. Steve came back to real estate by buying a few small residential rentals. Seeing that this was not easily scalable, he searched for alternative ideas. After listening to hundreds of podcasts and attending numerous real estate investing meetings, he determined that passively investing in real estate syndications was the best avenue to get great, risk-adjusted returns. He has invested in dozens of syndications involving apartment buildings, self-storage facilities, resort properties, ATMs, Bitcoin mining funds, car washes, a coffee farm, and even a Broadway show.

When Steve is not vetting commercial real estate syndications in the evenings, he is stomping out eye diseases and improving vision during the day as an ophthalmologist. He enjoys playing in his tennis and pickleball leagues and rooting for his Buckeyes and Steelers football teams. In the past several years, he took up running and has completed three full marathons, including the New York City Marathon. He is always on a quest to find great pizza, BBQ brisket, and bourbon. He enjoys traveling with his wife and their three adult kids. They usually go on a medical mission trip once a year to southern Mexico to provide eye surgeries and glasses to the residents. Steve has enjoyed being a part of Left Field Investors to help others learn about the merits of passive, real asset investments.

Sean Donnelly

Chief Culture Officer, Founder

Sean holds a W2 job in the finance sector and began his real estate investing journey shortly after earning his MBA. Unfortunately, it could not have begun at a worse time … anyone remember 2007 … but even the recession provided worthy lessons. Sean stayed in the game continuing to find his place, progressing from flipping to owning single and multi-family rentals to now funding opportunities through syndications. While Sean is still heavily invested in the equities market and holds a small portfolio of rentals, he strongly believes passive investing is the best way to offset the cyclical nature of traditional investment vehicles as well as avoid the headaches of direct property ownership. Through consistent cash flow, long term yield and available tax benefits, the diversification offered with passive investing brings a welcomed balance to an otherwise turbulent investing scheme. What Sean likes most about the syndication space is that the investment opportunities are not “one size fits all” and the community of investors genuinely want to help.

He earned a B.S. in Finance from Iowa State University in 1995 and a MBA from Otterbein University in 2007. Sean has lived in eight states but has called Ohio home for the last 20+.  When not attending his children’s various school/sporting events, Sean can be found running, golfing, shooting or fly-fishing.

Patrick Wills

Chief Information Officer, Advisory Partner

An active real estate investor since 2017, Patrick Wills’ investing journey began like many others – after reading the “purple book” by Robert Kiyosaki. Patrick started with single family rentals, and while they performed well, he quickly realized their inability to scale efficiently while remaining passive. He discovered syndications via podcasts and local meetups and never looked back. He joined Left Field Investors in 2022 as a member and has quickly become an integral part of the team as Vice President of Technology.

An I.T. Systems Engineer by trade, he experienced the limitations of traditional Wall Street investing firsthand in his career and knew there had to be a better way to truly have financial freedom.

Unfortunately, that better way is inaccessible to those who need it most. His mission is to make alternative investments accessible to everyone who seeks to take control of their financial future and to pursue their passions in life.

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