Accredited investors with millions in net worth routinely make investment decisions they would never make in their primary business. They invest in real estate syndications based on trust in a person rather than verification of facts. Then they wonder why deals underperform, according to Mor Milo, co-founder and CEO of Relli, a PropTech platform connecting accredited investors with commercial real estate syndication opportunities.
Milo, who works with both operators and investors across the platform, observes that most limited partners (LPs) are hesitant to do due diligence because it is outside their wheelhouse. That hesitation costs money and reveals a fundamental misunderstanding of what due diligence actually is in real estate investment.
Investors often spend significant time evaluating sponsor relationships—attending dinners, asking questions, and building rapport. They call it due diligence, but Milo argues it is not. “I think that individual investors spend too much time focused on how they feel associated with the brand,” Milo explains. “There are many investors that will blindly go into a deal because they feel comfortable with the relationship.”
This approach works until it does not. Milo cites an example of an operator with years of success and billions under management who made underwriting assumptions that were dramatically wrong on a single property. The deal became underwater despite strong market fundamentals. “They were very capable at leasing up that deal, but because of bad underwriting, that deal is now negative,” Milo notes. “So although this person was a great marketer and raised a boatload of cash, that doesn’t mean that they’re a good operator.”
The distinction matters: a sponsor can be exceptional at raising capital and terrible at operating properties. Trust in the person tells you nothing about the quality of that property analysis.
Professional investors use checklists. They evaluate every opportunity against the same criteria and do not make exceptions because they like the sponsor. Milo recommends having a checklist of specific things to look at for every deal as a barometer for whether you like the deal, similar to having a strategy when investing in the stock market.
Milo identifies three critical checklist categories: the sponsor, the deal, and the market. For the sponsor, investors should ask who is making the decision, how many deals they have completed, what happened with those deals, how many went full cycle, how big their team is, and what their track record is over the last five years. “Can they prove that that thesis is aligned right?” Milo asks, emphasizing understanding the sponsor’s overall investment strategy, not just the single deal.
For the deal, investors should determine if it matches their criteria: asset class, return timeframe, condition, and more. Then dig deeper into replacement costs and assumptions. For example, in San Francisco, if a sponsor assumes $350 per square foot when market rates run $900 to $1,000, that is a red flag. Similarly, rental increase assumptions of 2% versus 5% annually create massive differences in returns.
Regarding the market, investors need to assess whether market conditions will support the deal. Key considerations include whether debt financing is fixed or floating. Milo shares an example of an operator who sourced a property in a strong market, positioned it well, and achieved excellent operational results, but floating rate debt became unmanageable when rates rose, turning the deal into a loss despite perfect execution. “You want to look at the market and say, okay, does this product fit the market, does this product fit the geographic community,” Milo advises.
Most investors overestimate their knowledge of real estate syndications. Financial advisors who excel with stocks and bonds often trust sponsors in ways they would never trust stock issuers. “They know index funds and mutual funds. They expect that the person that’s selling them the deal knows more about that asset class than they do,” Milo observes. “So they rely on those people because they trust them, as opposed to trust but verify.”
Before investing, Milo suggests asking three questions: Do you have a written investment strategy that doesn’t depend on any specific deal? Do you have a checklist of specific items you evaluate for every opportunity? Will you reject deals that don’t meet your criteria, even if you like the sponsor? If the answer is no to any of these, you are not doing due diligence—you are making an emotional decision dressed up as analysis.
Real estate syndications offer genuine opportunities for diversified portfolios, but only if investors apply the same analytical rigor they use elsewhere. Trust the sponsor, but verify everything.
