Valeo has experienced significant growth over the past two decades and no area of the firm has grown faster than our real estate investment platform.
With fees based upon client net worth, Valeo has no incentive to recommend any particular investment over another. This is why years ago when clients presented us with real estate investment opportunities from their networks, we were open to exploring what returns these opportunities could generate relative to more liquid assets like stocks and bonds. What we found was real estate, if done right, can offer excellent risk-adjusted returns as compared to other asset classes. So, what began as evaluating real estate reactively when clients asked us to do so has evolved into a proactive process of building relationships with quality real estate sponsors to secure quality real estate investment opportunities.
In the beginning, our real estate team was comprised of Valeo advisors who volunteered time outside of their traditional client service responsibilities. We evaluated a few real estate opportunities per year and invested a few million dollars. This has grown to dozens of opportunities and hundreds of millions of dollars invested over the past few years. As a result of this growth, the part-time volunteer structure became unsustainable as we closely monitored prior investments and evaluated a growing number of new opportunities. We needed a dedicated team for the real estate platform or we would not be able to offer new opportunities. Put simply, it was time to evolve our common-sense real estate strategy into an even more professional operation with dedicated resources to improve communication capabilities and enhance opportunities. A few of the objectives of this restructuring included:
VALEO REAL ESTATE 2.0 = TWOPOINTO; FEES PAID BY SPONSORS
This restructured real estate team is called TwoPointO Investor Relations, LLC (“TwoPointO”) and is a wholly-owned subsidiary of Valeo. In addition to oversight and management of the Valeo private commercial real estate portfolio, TwoPointO provides investor relations services for real estate sponsors located throughout the United States. Services include pre-investment due diligence, cashiering, K-1 and report distribution, on-going sponsor relations, annual due diligence updates, and prospective sponsor due diligence.
Several options to fund the costs associated with TwoPointO were evaluated. The primary objectives were to create a fee structure that: (i) recovers the cost of TwoPointO operations, (ii) is transparent to Valeo clients and real estate sponsors, and (iii) ensures Valeo clients’ fees are not affected whether they choose to participate in these real estate offerings or not. The solution is an “investor relations” fee paid by each real estate sponsor’s operating entity on the platform. The calculation is (i) the number of investors across all the sponsor’s investments on the platform, multiplied by (ii) a maximum $60/quarter rate, depending on services utilized.
CONFLICTS OF INTEREST
The creation of TwoPointO was necessary for our growing and unique real estate investment platform and we believe clients will benefit from a more professionalized operation and dedicated real estate team. That said, it does present two notable conflicts of interest. First, TwoPointO has a contractual obligation to its clients, the real estate sponsors for each private investment. Valeo has both a contractual and fiduciary obligation to our clients. In the event those two duties conflict, the Master Services Agreement between TwoPointO and each sponsor explicitly specifies that we will favor the individual investor over the sponsor. Second, as mentioned, TwoPointO will be charging each sponsor a fixed quarterly fee based upon the number of total investors. Although a Valeo client’s fee is no different whether they do or do not participate, the real estate company’s fee to TwoPointO, a wholly-owned subsidiary of Valeo, is higher if more clients choose to participate, creating an additional conflict.
FAQS
No. Maintaining the purity of the Valeo model for our clients was a priority in the restructuring process. Clients will still just have one transparent fee based on their net worth. Your participation, or non-participation, in a private real estate investment has no impact on your fee.
Concerning the overall real estate investment process, not much. Investment opportunities will continue to be thoroughly vetted and will continue to require majority approval by the voting members of the team before they are presented to clients. A few things that will change relate primarily to communication. For example, investment information materials will now be prepared by TwoPointO, and clients can expect more direct communication from TwoPointO members (and less direct communication from advisor executive assistants) during the investment and funding process. Email domains may be different, but the primary goal remains the same: provide access for clients to invest in quality real estate projects with experienced and reputable sponsors.
Mac Schilling, JD, MBA, is the President of TwoPointO. In his role, Mac is responsible for overseeing the administration of the Valeo real estate portfolio and guiding the analysis and recommendation on investment decisions for new private investment opportunities. Before joining Valeo and TwoPointO, Mac served as general counsel of August Mack Environmental and was an attorney at Dentons Bingham Greenebaum in the firm’s Mergers & Acquisitions and Real Estate practice groups. Mac earned his undergraduate degree from Indiana University and completed a joint degree program in which he earned an MBA from the Indiana University Kelley School of Business and a JD from the Indiana University Robert H. McKinney School of Law.
Valeo’s Private Investment Committee (“PIC”) is strategically comprised of advisors with private commercial real estate experience and unique skill sets to form a well-rounded voting base. The initial core voting members of the PIC are Justin Padgett, CFP® (chairman of TwoPointO and PIC); John Wortman, CFP® (co-founder of Valeo); Charlotte Lippert, CFA® (Valeo Chief Investment Officer); Rob Edwards, CFA®; and Mac Schilling (JD/MBA and President of TwoPointO).
The PIC will continue to be involved in the evaluation of potential real estate investments. TwoPointO will conduct regular update meetings with the PIC which will focus on portfolio management and potential investment opportunities. All investment opportunities will continue to require majority approval by the voting members of the PIC before they are presented to clients.
The name is a nod to what the PIC was internally referred to during its restructuring process. TwoPointO (derived from PIC2.0) signifies our strive to: (i) always improve, (ii) offer superior investor relations services to sponsors and clients, and (iii) reflect the core focus and core values of Valeo.
We appreciate you spending a few minutes reading this update and thank you for the privilege of serving you and the trust you place in Valeo.