Private Equity Questions And Answers
With Ken Gee, Founder of the KRI Group of Companies
Ken Gee provides insight and responds to popular private equity multifamily real estate questions and answers that you might have.
How do I invest in private equity real estate with KRI?
We get people asking us "How do I invest in private equity real estate?" KRI makes it easy. All you need to do is:
- Talk with KRI about your situation so you get to know us and we get to know you.
- Review all the official Offering Documents, including the Private Placement Memorandum, Subscription Agreement and other relevant documents that we will provide to you.
- Consult your legal, accounting and tax advisors.
- Provide verification that you are an Accredited Investor (it’s an SEC requirement). You can do that in a number of ways – don’t worry, it’s not difficult!)
- Be prepared to send funds when we are ready.
- Sit back and let us make money for you!
- That’s it!
Who is KRI?
KRI is a full-service multifamily real estate investment and management firm. The firm was founded by me, Kenneth A. Gee, in 1997 and currently has offices in Tampa, Orlando, Daytona, Jacksonville, Florida and Cleveland, Ohio.
Our senior management team has managed more than 15,000 apartment units and previously owned fifteen properties worth approximately $60 million.
Who is Kenneth A. Gee, Founder & Managing Member of KRI?
I am the founder and President of the KRI Group of Companies. I have more than 23 years of significant real estate, banking, private equity transaction and principal investing experience. Throughout my career, I have been involved in transactions valued in excess of $1.5 billion, much of which has included the acquisition, management and financing of various multifamily real estate projects as well as playing a significant role as a member of due diligence and transaction structure planning teams for several private equity firms specializing in the small and middle markets.
Prior to forming KRI, I was a Tax Manager with Deloitte & Touche LLP where I focused my practice on state and local tax planning, merger and acquisition, due diligence and transaction structure planning for private equity, and middle market companies. Some of my major clients included The Riverside Company, Key Equity Capital Partners, Blue Point Capital, Linsalata Capital Partners, The Zaremba Group, Charter One Bank and Applied Industrial Technologies, Inc.
Prior to my career at Deloitte & Touche, I spent several years at National City Bank (now part of PNC) where I served as commercial loan officer, credit analyst, branch manager, and mortgage loan originator during my career with the bank.
Unrelated to my real estate experience, I also owned and operated several certified Cessna Pilot Centers in the Northern Ohio area. These Cessna Pilot Centers operated an FAA approved professional pilot school and specialized in the sale of new and pre-owned aircraft.
I am a licensed Ohio Certified Public Accountant (inactive) as well as a licensed Real Estate Broker in the states of Florida and Ohio. I received my master’s degree from Case Western Reserve University’s Weatherhead School of Management and my B.B.A. from the University of Toledo. I am a member of the National Apartment Association, Florida Apartment Association, Bay Area Apartment Association (Tampa, FL), First Coast Apartment Association (Jacksonville, FL), Apartment Association of Greater Orlando, Northeast Ohio Apartment Association, Shaker Square Area Development Corporation, Ohio Society of Certified Public Accountants and American Institute of Certified Public Accountants.
Why invest in real estate?
Real estate investors make money through rental income, appreciation, and profits generated by the underlying property. The benefits of investing in real estate include passive income, relatively stable cash flow, potential tax advantages, diversification, and leverage.
That’s the standard answer to "Why invest in real estate". I like real estate for all those reasons, but I think there is at least one more important reason.
I believe that when done correctly, real estate investments (multifamily real estate investments, in particular) offer the possibility of extraordinary risk adjusted returns, especially when compared to other investments available. And now, these investments and extraordinary returns are available to more than just an elite few.
Why invest in multifamily real estate?
It’s simple - it all comes back to the ability to earn extraordinary risk adjusted returns.
Here’s what I mean - investors in various KRI deals have historically earned, 20%. 25% and even 30% annual returns on their money. I think that’s pretty good! Now, can you earn those kind of returns with other investments? Yes you can, BUT, you usually need to take on a lot more risk in order to do get those returns. A good example is private equity firms (non-real estate private equity firms) that buy companies in the hopes that they can grow the company and sell it later for a large profit. They often make similar returns to what I describe above, except the risk is much higher.
To understand what I mean, look at the risk of a worst-case scenario. You see, the chance that a regular operating business fails and becomes near worthless is a lot higher than a large multi-tenant apartment complex. Even when large apartment complexes don’t do well, their value doesn’t usually go to zero.
In my opinion, it’s all about the risk. If multifamily real estate can deliver extraordinary returns without the extraordinary risk, then I’m in! It’s the reason we will always stick to this asset class!
Does KRI have a track record of investing in Multifamily Real Estate?
Absolutely! KRI has been investing in multifamily real estate since 1997. In fact, we are very proud of our track record and think it’s very important that we share that track record with you.
Now, as an investor, you know you should always review a company’s track record. After all, you’re going to give them a lot of money, right? The challenge for investors is, how do you know that track record is accurate? Do you have time to verify everything an investment company tells you? Of course not.
We understand the problem investors face. So much so that we hired a third-party vetting company called Verivest to review our firm, our track record and verify that our track record is as we say it is! They looked at every settlement statement, tax return, ran background checks, you name it, they did it, and we came through it with a clean bill of health!
You can see our verified track record here:
If you have any questions about our track record, please be sure to reach out to me directly.
I feel like I can do this myself – why should I invest with KRI?
You might be able to do this yourself. The problem is, a lot of things have to happen in order for you to be able to do that.
- You have to have the time.
- You have to learn the business. There is much more to this business than meets the eye. To be successful, you have to understand economics, accounting, people, negotiating, organizational behavior, customer service, internal controls, evaluating credit reports, roofing, landscaping, plumbing, electrical, contract law, eviction law, etc. I think you get the picture. There is a lot to learn.
- It takes a lot of capital to really grow and that means you have to either have a lot of capital yourself or you have to risk other people’s capital in a business venture that you have never done before. Most people, including me, don’t exactly cherish the idea of losing a friend’s money because you didn’t really know what you were doing!
Those are reasons you should consider before attempting to do this yourself. Why should you do this with KRI? Lots of reasons and those reasons are laid out throughout this website, however, I think the most important reasons include:
- Experience – and I can’t emphasize this enough! Experience is critical for success!
- Our goals are aligned with your goals. In other words, if you don’t do well on an investment, we don’t do well. If we do well, so do you! Remember, the devil is in the details here. We carefully scrutinize all the terms of our investment funds to make sure our goals are aligned!
How do we choose our markets?
We choose our markets based on many factors. The first is the macro-economic picture. We look at things such as employment growth, population growth, employment diversity, demand for similar apartments, level of competition in the immediate market, new supply, new construction deliveries, median income, to name just a few. If these macro-economic factors are not favorable, then it makes making money in that market much more difficult. Think about it this way - Trying to go long on a stock in a bad bear market – pretty tough to do. Not impossible, but definitely tougher. I prefer easier, not tougher!
In addition to macro-economic factors, we also look at similar data for the submarket we are considering. I believe real estate is very much a submarket game and understanding what’s going on, even on a block by block basis, is critical to improving your chances of success.
Why do we generally prefer B/C Class assets?
This is a demand and supply issue. The markets we operate in are usually growth markets. That means demand is increasing or outpacing supply. In growth markets, some of the growth comes from high wage earners, but usually, most of the growth comes from normal people making decent, but not extraordinarily high incomes. Those people need good, affordable housing. That means they need nice B/C class housing.
On the supply side, developers usually develop higher-end product. Most of the development that goes on in any major market targets higher income renters and is filled with amazing amenities. Developers don’t normally build B/C class assets. They usually can’t afford to.
So, putting this together means we have increasing demand and stable supply. Think back to your economics classes, and that means there will be upward pressure on prices and that helps support our efforts!
Why do we currently only allow Accredited Investors?
- We only allow accredited investors at the moment because the Securities and Exchange rules do not allow us to market our funds and investments to anyone other than Accredited Investors.
- It is important to me and everyone at KRI, that anyone invested in one of our investments or funds does not invest a significant portion of their net worth with us. I prefer that investors be diversified. It is always the right thing to do.
- Finally, there are times when, because of the real estate cycle, we may have to delay a planned exit or sale of a property. If that’s the case, I don’t want a situation where an investor can’t wait it out with us until the market conditions are more favorable for a profitable sale. Remember, it is our objective, among other things, to maximize your returns. Sometimes that may require staying in an asset longer than initially planned and we don’t want that to create a hardship for any investor.
What is an accredited investor?
Generally, as of the date of this writing, the definition of an accredited investor, as defined by the SEC is, in part:
- Any natural person who had individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
- Any natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds $1 million (excluding the value of primary residence); and
- Directors, executive officers, and general partners of the issuer or of the general partner of the issuer.
The SEC is proposing some modifications to those rules and as of this writing, those rules have not been finalized. Therefore, please consult the SEC website for the current definition.
What kind of due diligence do we do before we buy a property?
The due diligence we perform on a property before we buy it is fairly extensive. Of course, situations vary, but generally, we would do the following as part of our due diligence efforts:
- Physically inspect all parts of the property and units.
- Have trade experts inspect all mechanicals and physical components of the property (roofs, plumbing, electrical, etc.).
- Complete zoning, lien and title searches.
- Conduct a lease file audit.
- Verify all financial statements provided by the seller through invoice verification and other efforts.
- Assess environmental risks by obtaining a third party environmental assessment.
- And whatever other risk mitigation we believe is necessary to assess and mitigate perceived risks.
How often do we do distributions?
Quarterly, approximately 30 days after the end of the quarter.
How will I know what’s going on with the property? Will you update us?
You will receive a partner reporting package quarterly along with a narrative from me explaining what’s going on at each property. Depending on the project, I usually discuss progress on renovations, occupancy, cash flow and anything else that I believe you would want to know so you know how well the asset is performing.
It is also not uncommon during certain times to receive ad hoc updates from me if I think it makes sense to do so. Examples of these types of updates might be the result of the sale of a property or other meaningful onsite event.
Finally, if you still have a question, you are always welcome to reach out to us and we will respond right away!
How do I know the deal will make money?
There is no way to “know” the deal will make money. We invest in real live assets that are affected by numerous internal and external factors. Some we can control and some we cannot. Because of this, we can’t “guarantee” any investment will be profitable.
IMPORTANT - Please refer to the “Risk Factors” section of our Private Placement Memorandum to understand more about the risks involved in investing in real estate.
Now, having said that, of course we go to great lengths to try to mitigate the possibility of not making money. Remember, we invest our own money in every deal we invest in. So, we are in it right next to you and I assure you, we don’t want to lose money!
We have been doing this for 23 years and we have learned a lot over those 23 years. We try very hard to make sure we understand and do all we can to mitigate the downside risk. I call it “protecting the downside.” Although we can’t predict every possible risk and plan for it, I will tell you that our many years of experience certainly helps us identify and protect against these risks. Our deep experience is one of the reasons we have been so successful.
Finally, remember, we have seen a lot in this business, especially having operated through the Great Recession of 2008 – 2009 and the Pandemic of 2020. Those periods are very important because that’s when you learn the most about your business!