Generations Allocation Reservation
The Generations Allocation Reservation Program is a new approach for equity capitalization designed to offer a superior middle ground between two traditional approaches in our industry. This is consistent with our mission to find opportunities to improve investor experience in the private multifamily investment space rather than just follow the herd.
Let’s start by reviewing the two most-common approaches to raising equity in our industry.
Approach 1: Deal-by-deal fundraising
This is how most multifamily investment sponsors (including Glencrest) start: find a desirable acquisition candidate, put it under contract and then “pass the hat” with friends, family and colleagues to raise equity. This approach works great for smaller and infrequent investments; it gives equity investors the ability to review each opportunity individually and keeps sponsors disciplined because they need to justify each acquisition to their investor base.
The problem with this approach is that, as deals get bigger and more frequent, the capacity of the original investor base is likely to be exceeded. Sponsors often then grow their investor base, generally aiming to have capacity beyond the largest envisioned single deal and to cover a period of significant volume (since the amount of opportunities tends to ebb and flow over time). The result is that there are generally too many investors for an average-sized deal or when volume is slow, which can lead to a mad rush to secure capacity. This can leave little or no time to review individual opportunities because investors have to say yes immediately or lose their spot.
We’ve heard of situations where our competitors email an opportunity and are at capacity ten minutes later. If you aren’t at your computer when the deal launches, you miss out. We’ve started to see this at Glencrest, where we’ve had dramatically too much interest in some of our smaller deals, resulting in us needing to reduce allocations or simply not invite everyone to participate in a deal.
Approach 2: Raise a fund
In this case, investors contractually commit a specified amount of equity capital to a partnership formed to acquire multiple properties in the future, usually with specified guidelines about geography, size, strategy, etc. As properties that meet the criteria are found, investors contribute their pro-rata share via an obligatory capital call.
This approach ensures that investors receive their optimal allocation over time and provides certainty to sponsors (since investors are contractually obligated to participate) but prevents investors from evaluating each opportunity individually and fails to provide flexibility if their circumstances change over time.
Most importantly, we believe a fund structure reduces investment discipline on the part of the sponsor as deals are no longer justified on a stand-alone basis to investors. Human nature being what it is, we believe that, over time, this leads to worse outcomes — the difference between needing to earn one’s allowance vs. having one that’s guaranteed allowance. Fund structures also often impair flexibility when guidelines that made sense when the fund is raised no longer comport with the best opportunity set years later.
Glencrest’s New Approach: Allocation Reservation
Our Allocation Reservation Program aims to incorporate the best of each of the standard approaches and eliminate the weakest parts. This will allow us to increase our network at the proper pace, close more acquisitions and better serve investors over time.
How it works
In the first quarter of each year, network members reserve a total dollar amount allocation in our next three to five Generations investments. Here are specific guidelines:
The reservation has a one year time horizon.
Each individual investment will be less than 50% and greater than 15% of the total reserved allocation.
No more than two of the investments will be in the same state.
Investors retain the ability to pass on any individual investment. Note, however, that passing without reason or too frequently will have implications for future invitations.
Allocation reservations are not legally binding.
When we have a new offering, we will email you details about the investment along with the amount of allocation you have reserved in that offering. As with offerings prior to the implementation of this program, you will have the option to verify the amount, request additional allocation (if available) or pass. Should you request a higher amount, we'll notify you prior to close if we're able to accommodate the incremental allocation.
Here is a hypothetical breakdown assuming a $400,000 allocation reservation over the course of a year:
$90,000 invested into a 180-unit property in the Minneapolis area.
$150,000 invested into a 120-unit property in the Seattle area.
$100,000 invested into a 160-unit property in the Sacramento area.
$60,000 invested into a 240-unit property in the Spokane area.
How to reserve allocation
We will circulate a link to a reservation form on an annual basis. Simply fill out the form to confirm the amount you'd like to reserve for the current reservation period, which we expect will typically begin in March for the following twelve months.
Once received, we will confirm your allocation amount for the year.
The 2023 reservation form is embedded below the FAQs on this page.
Frequently asked questions
Is this now the only way to invest with Glencrest?
No. We still expect to engage in traditional syndication, especially for larger opportunities. However, reserved allocation will be placed first and is the best way to ensure participation in each of our investments.
How will the process change compared to previous Glencrest deals?
It won’t! You will still:
Receive our initial materials
Make a tentative commitment
Receive our final materials
Sign your legal documents and fund
The only difference is that we now expect to give you a minimum allocation amount based on your reservation rather than leaving it up in the air, guessing how much you might want to invest, or excluding you if we are oversubscribed.
What happens if I pass on a particular investment?
There are no legal or economic consequences, but you may then lose the remainder of your reserved allocation and there is some chance you will not be invited to participate in future Glencrest opportunities. We will always be open to discussing your individual circumstances and reasoning, but do want you to consider the reservation a serious commitment.
Can I invest more than I’ve reserved into an individual deal?
Possibly. In addition to providing a minimum allocation we will also ask if you would like to increase your investment into a particular deal and may be able to accommodate from time to time. However, we will still expect you to fulfill your reserved allocation for future deals.
Can I change my reservation along the way?
Yes. You can let us know if your circumstances change and you would like to increase, or need to decrease, your reservation. But we ask that you do so in advance rather than concurrent with consideration of a particular investment. We hope that this will be an unusual occurrence. Because allocation reservation will happen annually there will be a regular opportunity to reevaluate and increase (or decrease) your commitment.
What happens if you don’t find enough opportunities to fulfill my total reservation?
The commitment ends and you can re-evaluate how much, if anything, you'd like to invest in the coming reservation period (typically the next calendar year).
What happens if you don’t have enough investor participation in the Allocation Reservation Program?
We want to be able to act decisively when we find great opportunities. If the Allocation Reservation Program doesn’t provide us with needed certainty about access to capital, we will consider a few options: We will (reluctantly) need to build an investor base that is bigger than we will need for most deals (with the associated risks of excluding some investors from future opportunities or rewarding those who respond quickly to new offerings) or possibly raise a fund. Or move to solely focusing more on larger family office or institutional investors. None of these outcomes is ideal, so we very much hope that our network will “lean in” to our Allocation Reservation Program.
Will this program apply to all Glencrest investments?
The Allocation Reservation system is designed for our Generations program, which encompasses investments intended to be held for more than ten years utilizing a network of individual investors.
Glencrest will still continue to pursue investments through its Opportunity program, which is designed for shorter-term holds and won’t be covered by the Allocation Reservation.
Allocation reservation form (through 1Q24)
Please complete the reservation form below:
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If you have any comments or questions, please feel free to reach out by phone or email. We are always happy to talk. Thank you, as always, for your partnership.