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In a Nutshell: Disrupt Equity provides opportunities for retail investors to invest in commercial real estate through syndication, which is normally exclusive to larger investment firms. Unlike traditional investments that are typically one unit, syndication investors share the investment of several units with other investors and act as board members on the investment. The company offers accredited and non accredited investments depending on what criteria is met. In many cases, Disrupt Equity acts as the management of the property through its subsidiary, Disrupt Management, or it will hire a third party to provide assistance.
In real estate, investors typically consider single-family houses and apartments as their main viable options. Power brokers, on the other hand, will go big and invest in commercial real estate using massive leverage for even greater gains. But smaller investors can also get in on the commercial real estate market through certain types of syndication.
Syndication refers to a pooling of resources, and with multifamily syndication, that means a group of investors pools together their money to purchase multiunit properties together.
One of the advantages of a pooled investment is that investors don’t have to deal with the responsibility of finding and managing a rental property on their own. The day-to-day operations are managed by a number of different hands involved.
Multifamily syndication can be an attractive option for those who want to increase their net worth while building a diversified portfolio of properties. And while there is always some form of risk, multifamily syndication is considerably less risky than putting all investments in one property type. A slowdown in home sales can easily lower the value of an investor’s portfolio if it consists of only single-family homes or apartments.
There are also investment firms that can help investors come together to pool funding. Disrupt Equity has been servicing investors for over six years and offers several advantages to those who wish to join. Its multifamily syndication is designed to provide leverage for investors and help them achieve strong passive income.
The firm specializes in the acquisition, rehabilitation and management of real estate assets and was founded by Feras Moussa and Ben Suttles in 2017. Moussa, who is currently one of Disrupt Equity’s Managing Partners, said that coming from a tech background at Microsoft inspired him to bring tech know-how to industries that lack it.
That led Moussa to a passion for real estate investing and wanting to find ways of scaling up. After learning about multifamily syndication, Moussa and Suttles teamed up to form Disrupt Equity so people could have more access to these investment opportunities.
Moussa said the company’s motto is “bringing Wall Street to Main Street,” and that a lot of people don’t realize it is possible for something like a 100-unit apartment complex to be owned by retail investors, rather than big institutional companies.
Disrupt Equity has produced excellent returns on investment. Moussa said the firm has already completed 10 exits with 50.6% average annualized returns.
While the numbers are phenomenal, Moussa advised investors not to expect those types of results all the time. The firm is more concentrated on mitigating risk, and proposes business plans that involve a commitment of at least five to seven years.
How Syndication Broadens Investment Opportunities
One of the misconceptions about commercial real estate is that it is only for the wealthy class. The advantage of syndication is that it enables retail investors to buy bigger properties that were traditionally exclusive to the wealthy in the past. It’s a process that democratizes access to commercial real estate in ways that has never been possible before.
Syndication also eliminates the headaches of managing invested properties as an individual. Through firms like Disrupt Equity, investors don’t need to worry about the micromanaging of maintenance or getting calls in the middle of the night about a busted water pipe because the management aspect can be delegated either by the investment firms themselves or other third-party professionals.
The firm is responsible for locating the property, arranging the transaction and funding, and then managing the investment once the transaction is completed. All that investors need to do is provide the majority of the funds.
Another misconception for investors is that they can only invest their IRAs in stocks. With syndication, investors can use that same money to invest in commercial real estate, which will help provide safer returns and diversification away from stock options.
Disrupt Equity offers both accredited and non-accredited investment opportunities. Moussa said potential investors can subscribe to Disrupt Equity’s investor list and then perform some follow-up procedures. After communicating with the firm’s investor relations department, the parties can decide on whether there’s a good fit to do business.
Once potential investors are approved, they just need to fill out a few documents, like an investor questionnaire, a company agreement and a Private Placement Memorandum (PPM). That’s to ensure investors understand the basic risks they choose to take with their investments and to know they are essentially acting as shareholders in an LLC that owns the asset.
In terms of payment distributions, while most investment operators provide quarterly distributions to their investors, Disrupt Equity provides monthly distributions once a property reaches maturity.
Identifying Properties with High Potential
To ensure fast and effective property identification, Disrupt Equity focuses keenly on acquisition and underwriting. The firm currently underwrites thousands of deals a year, and Moussa said that out of every 100 deals the firm underwrites, it may find one deal that gets purchased.
On the third-party side, Moussa said that possible recession fears has driven many distressed operators to reach out to Disrupt Equity and ask the firm to help them with managing their assets and to help get them performing again. As a result, that side of the firm’s business has grown quite a bit.
Moussa said that taking over these deals, setting them up and getting them off on the right foot is very critical. “We’ve learned over the years, and it’s one of the most important things. Making sure you have best-in-class operations on the takeover helps dictate how the rest of that deal’s lifecycle goes,” he said.
To get a sense of what kind of numbers Disrupt Equity is dealing with, Moussa said that for both first and third parties in the next 60 days, the firm has about nine properties coming online with a total of over 2,000 units. He said that the firm typically expects to add one to two properties a month between first and third party, while Disrupt Equity itself will buy six to 10 deals a year.
No Concerns Over Property Management
As mentioned above, with multifamily syndication, management and maintenance of each property falls on the sponsor of the funds, rather than the investors themselves.
With Disrupt Equity, the firm will either perform its own management or arrange a third party to oversee the property. To help facilitate property management, Disrupt Equity created its own management company three years ago called Disrupt Management.
“Management is the hardest part of this business,” said Moussa. “Instead of using a third party, we saw the need to create and bring it in-house. And that really propelled our growth. At the same time, we also do third party management.”
“So we’ll manage for other operators as well. That’s where it starts to really drive operations, drive performance, and allows us to get more economies of scale.”
Disrupt Management is also where the bulk of the business’s head count resides. Most of the company’s approximate 150 employees are on-site staff and include accounting, all of operations, cash collecting, and maintenance.
Disrupt Equity, on the other hand, focuses on identifying the deals, putting the deals together, raising investor funds, and closing the assets. The equity firm then implements the business plan alongside the management company.
By balancing both sides of the business separately, Disrupt Equity can focus all of its efforts on aiding investors on their syndication journey and providing a white-glove service that answers all their questions and holds their hand through this exciting process.