Tips on Writing an Impactful Investment Memo

I spent the better part of my professional career working for a boutique investment research firm. In that capacity, I drafted research reports on publicly traded companies involved in the manufacture and distribution of construction materials. During that time, I authored some 2,000 research reports that were blasted to Investment Analysts employed by hedge funds, mutual funds and pensions funds. Along the way, I received tremendous tutelage from a number of well respected and tenured analysts on how to author both short and in-depth investment memos that would grab a readers attention (hint: catchy title) and effectively communicate the investment thesis.

Why is any of this important? If you're an investment analyst, you're likely pitching the investment committee on a deal and will probably write a short thesis on why its a worthwhile investment. If you're in a position like myself (an analyst for an owner-operator), you'll do the same AND create a more lengthy investment memo directed towards potential LP equity partners. Either way, you need to condense a 60+ page brokers OM, an extremely detailed financial model and your own investment thesis into a short and concise investment memo explaining WHY one should invest MILLIONS into you deal.

1) The Investment Summary

This section - the very first section - should include a brief summary on the fundamentals of the transaction. If a purchase is advised, a clear and concise expiation of why the asset is deemed to be a good investment is required. What are the catalysts that your firm has identified that will drive strong cash flow and the creation of value? Why should I invest in this particular asset relative to others. I understand the latter is a macro/micro question, but for the purposes of the memo assume the investor committed to investing in XX market...why that particular property?

2) Like a Model*, it Needs to be Pretty

I occasionally come across investment memos produced by competing firms. In some instances, I'm impressed - but in most, I'm thoroughly disappointed. While I can read between the lines and recognize that the Sponsor did the work and the deal is likely a worthwhile investment, more often than not I find myself nitpicking the poor choice of excel-default color schemes. Here's a tip: you did the work, you crunched the numbers and really thought it through ... take the time, create impactful graphics that ... at the bear minimum ... match your firms color scheme.

*Your financial model (as well as a runway model) needs to be pretty to be taken seriously.

3) Explain the Risks

All investments have risks. An investment in a U.S. Treasury Bond has inherent risk. It's whether the one chooses to communicate those risk that sets Sponsor's apart from one another. Some will simply bury the risks in a PPM, but the best Sponsors (aka investment advisers) will communicate those investment risk upfront AND will further explain why the investment is worthwhile despite those risks AND what is being done to mitigate those risks.

4) The Basics

Without further explanation, one should effectively communicate a number of other factors that are integral in pitching the acquisition of a property, including the overall business plan, rent comps and sales comps.

While the above points are by no means all inclusive (and are not meant to be), they should at the minimum provide a basis from which to structure an investment memo. Given my interest in the topic, expect follow ups in future blog posts.

I'd love to get your thoughts. Feel free to contact me via twitter: Zoran Miling

Thanks for reading,

Zoran Miling

Masters in CRE

#advice #commercialrealestate #apartmentinvesting #realestatesponsor #zoranmiling

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