Accredited investors with millions in net worth routinely make investment decisions they would never make in their primary business, according to Mor Milo, co-founder and CEO of Relli, a PropTech platform connecting investors with commercial real estate syndications. They invest based on trust in a person rather than verification of facts, then wonder why deals underperform.
Milo observes that most limited partners (LPs) are hesitant to do due diligence because it falls outside their wheelhouse. That hesitation costs money and reveals a fundamental misunderstanding of what due diligence actually entails in real estate investment.
Investors spend significant time evaluating sponsor relationships—attending dinners, asking questions, and building rapport—and call it due diligence. But Milo argues that this approach is flawed: “I think that individual investors spend too much time focused on how they feel associated with the brand. There are many investors that will blindly go into a deal because they feel comfortable with the relationship.”
This trust-based approach works until it doesn’t. 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. Despite strong market fundamentals, the deal became underwater. “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 but terrible at operating properties. Trust in the person tells you nothing about the quality of property analysis.
Professional investors use checklists to evaluate every opportunity against the same criteria, without making exceptions because they like the sponsor. Milo recommends having a checklist of specific items to look at for every deal as a barometer. “Just like how, when we invest in the stock market, you need to have a strategy,” he says.
The checklist approach removes emotion from evaluation, ensures consistent application of standards, and catches bad assumptions before capital deploys. Milo identifies three critical checklist categories: the sponsor, the deal, and the market.
For the sponsor, investors should ask: Who is making this decision? How many deals have they completed? What happened with those deals? How many went full cycle? How big is their team? What’s their track record over the last five years? “Can they prove that that thesis is aligned right?” Milo asks.
For the deal, investors should check whether it matches their criteria—asset class, return timeframe, condition, and more. Then dig deeper into replacement cost and rental increase assumptions. If the sponsor’s numbers are off, Milo suggests asking directly: “Hey, Mr. Sponsor, I see that your numbers are off completely in this assumption.” Either the sponsor stumbles, indicating you shouldn’t invest, or they provide a reasonable explanation.
For the market, investors should consider whether market conditions will support the deal. Is debt financing fixed or floating? If floating, what happens when rates change? Milo gives an example of a property in a strong market that achieved excellent operational results but became a loss due to rising rates on floating-rate debt.
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, ask 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 you answer no to any, you’re not doing due diligence—you’re 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.
