Commercial Real Estate is a Team Sport, but You're On Your Own

This post is written with the limited partner perspective in mind.

What I mean by the title is that the people involved in the sale won't be liable for misrepresenting the property unless it's flagrant fraud. The general partners have to do their own research and for the most part, can't fully trust the "facts" about the property that they're presented with.

I often hear limited partners asking questions on social media sites about why cash flow wasn't nearly as much as the projected amount in the proforma. There are a few reasons for this including optimistic assumptions, unexpected capex expenses, etc. Another part is the incentives for the previous seller are to fudge to numbers as much as they can get away with. Even if the buyers proforma has no technical errors, the inputs may not be totally accurate.

Solutions to avoid sellers inflated numbers:

Get someone who genuinely knows what they're doing and can spot these tricks. Unfortunately this can be harder than it seems because unskilled people are sometimes good at climbing the social ladder. They get social proof by associating with established people and then they become assumed as good without actually having the skill necessary. After being around the private equity sector for 7 years, I would say 5% or less of general partners actually are true experts.