Hi Reader,

Do you know what Warren Buffett did when the financial world was gripped with fear and uncertainty in 2008?

And what can you and I learn from it?

Before I go on, I want to be clear: I'm not saying we're in a financial free-fall. This is not 2008.

But recent real estate and financial market news points to a downturn like we haven't seen since that era. A significant amount of carnage is already unfolding, and many commercial real estate deals are going south.

For example, I saw this article yesterday...

This is not a rosy moment in real estate paradise. We've all seen some of the worst of deals done in the best of times the past few years. Now we're watching for some of the best of deals to surface in some of the worst of times.

So, what types of deals are being done right now?

Honestly...they're not that great. Unless you know where to look.

The types of deals formerly penciling at mid-to-high teens IRRs are now coming in at about 11-13% or less.

So what did Buffett do in 2008?

He changed his position in the capital stack.

Berkshire Hathaway invested $5 billion in Goldman Sachs in September 2008 when blood was in the streets. Berkshire profited handsomely from this investment.

But Buffett didn't take the same risk other investors took. Instead, Warren dramatically lowered his risk by investing in preferred equity shares.

And we believe there's a limited window to do something similar in the private real estate space right now. If you can get access to it.

Why do we like preferred equity in private real estate right now?

No lien...but more upside and tax benefits compared to senior or mezzanine debt. Preferred equity sits between debt (1st lien position) and common equity (no lien, but most of the upside profit.

It has some of the advantages of both equity and debt. Like debt, preferred ongoing payments are established in advance, and all, or a portion of, are paid before common equity distributions. At the time of sale or refinance, preferred equity holders are paid before common equity holders receive anything.

Buffett invested in preferred equity when times were rocky. Likewise, we believe that right now is a unique and limited window to hedge a portion of our portfolio by adding some preferred equity.

For $1-5 million check sizes, we are seeing preferred equity investment opportunities with quality operators that provide annual cash flow of 7-10% and total annual returns of 15-20%. Not only are these projected returns higher than most common equity deals are penciling now, but the risk is also lower, and the payments are far more reliable. As mentioned above, returns to preferred equity are prioritized ahead of common equity investors.

So what’s the catch? What does this cost us?

The downside is limited upside. In exchange for higher certainty of payments and return, the maximum total return is typically capped.

Preferred equity, like every other investment structure, carries a risk-reward tradeoff. No one knows the outcome of any investment.

• In an underperforming deal, common equity investors and general partners take the hit (hopefully it is limited to them, but no guarantees).
• In a deal that outperforms, common equity investors, who bear the highest risk, are entitled to the highest return.

We made our first preferred equity investment last month, and we discussed this investment in our webinar last week. Ben Kahle, one of the Wellings Capital partners, is traveling to conduct due diligence tomorrow on another late-stage preferred equity deal. Our preferred equity deal pipeline is quite robust right now. Would you like to learn more about our Wellings Real Estate Income Fund?

​Click here to view our most recent webinar recording.​

Or, if you've already seen the webinar and have your questions answered, you can just join us in our current fund, which includes common equity, preferred equity, and a small allocation of debt as a hedge.

​Click here to start the simple online investment process.​

To Your Investing Success,

Paul Moore

Managing Partner | Wellings Capital | www.wellingscapital.com​

Review Fund Documents and Details

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P.S. As a reminder, we need documents and funds by 5:00 PM ET on May 1st, and we expect to deploy all capital raised this month for pending deals in short order.

P.P.S. We wanted to share two videos from Troy Zsofka, our Director of Investments. We send these videos to current WREIF investors to give them an idea of what our deal flow and pipeline process looks like. The first video is an overview of the pipeline slide and how we plan to use it going forward.

The second video is an overview of our due diligence pipeline in January and February 2023.​

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