December 03, 2023

145. How Midloch Finds Value Through Partnerships with Andy Sinclair

50 minutes

Want to take a look into an alternative model for investing in commercial real estate? In this episode, we’re joined by Andy Sinclair, CEO and Principal of Midloch Investment Partners, to talk about their unique approach to investing in the Midwest market. Andy explains Midloch's strategy of partnering with local operators through joint ventures, co-GP positions, and preferred equity investments. Learn how they evaluate investment opportunities and vet potential operator partners, and how they find value-add opportunities.

About Andy Sinclair

Andy Sinclair, CEO of Midloch Investment Partners, brings over 16 years of experience in commercial real estate. He focuses on Midwest investments, particularly in multifamily and industrial/warehouses through JV partnerships and preferred equity.

Here are some power takeaways from today’s conversation:

[04:31] Andy’s journey to becoming an operator

[08:11] The difference between joint ventures, co-GP positions, and preferred equity investments

[11:24] What is an anchor investor?

[17:26] How LPs can benefit from Midloch

[23:19] Midloch's contrarian approach in the smile states

[39:44] Reacting to adversity: the true measure of an investor

Episode Highlights:

[08:11] The Difference Between Joint Ventures, Co-Gp Positions, and Preferred Equity Investments

Joint venture (JV) equity: Midloch brings capital to the deal and acts as the anchor investor/majority shareholder. As a real estate operator, they also provide resources to help the property perform better.

Co-GP investments: Similar to a JV where Midloch owns the majority stake, but they maintain sole voting rights and control over major decisions like an operator would.

Preferred equity: A hybrid investment that is not fully equity or debt. Investors get a preferential dividend like interest payments and a capped annual return, usually around 15%. They are senior to common equity in terms of risk. This fills the "gap financing" need between senior debt and common equity.

[11:24] What is an Anchor Investor?

An anchor investor is the majority shareholder in a real estate deal, usually owning anywhere from 51% to 95% of the total equity investment. As the anchor investor, they provide the bulk of the capital for the project/property and take on more risk than smaller investors. They have significant control and voting rights over major decisions since they have the largest financial stake in the outcome of the investment.

[17:26] How LPs can Benefit from Midloch

Diversification - As LPs in Midloch's funds, they get a small pro rata slice of each deal, providing a diversified portfolio across property types, markets, and investment structures.

Better deal terms - As the anchor investor on deals, Midloch is able to negotiate better terms like lower management fees, preferred returns, and promote splits than operators could get on their own. These benefits pass to LPs.

Resources and governance - Midloch brings additional resources to deals beyond just capital, like relationships, expertise, and oversight/governance. This helps reduce risk for LPs.

Stable returns - Midloch aims to produce stable, lower-risk returns through value-add strategies rather than relying solely on appreciation or high-risk moves.

This show is for entertainment purposes only. Nothing said on the show should be considered financial advice. Before making any decisions, consult a professional. This show is copyrighted by Passive Investing from Left Field and Left Field Investors. Written permissions must be granted before syndication or rebroadcasting.

Resources Mentioned:

Midloch Investment Partners

Email: [email protected]

Avoiding Rookie Errors as a Left Field Investor: 20 Lessons Learned From 14 Years of Passive Investing in Private Syndications by Steve Suh

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