May 20, 2019

JF1721: Investing In A Recession Resistant Fund To Protect From Future Downturns with Ryan Andrews & Mark Khuri


Most of us know by now that our national real estate market is cyclical. With that in mind, Ryan and Mark have created a fund for investors as well as themselves to get conservative returns, while also growing the fund. We’ll hear about what assets they invest in and what they look for with potential deal. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


Best Ever Tweet:

“A lot of investors today read the PPM but don’t really think about what is the senior debt? Debt in a recession is what gets everyone in trouble” – Ryan Andrews & Mark Khuri


Ryan Andrews & Mark Khuri Real Estate Backgrounds:

  • Founders and managers of Aerial Investment Management.
  • In 2018, they launched the Recession Resistant Fund. A diversified real estate fund for passive investors targeting asset classes that are designed to perform through a recession or a volatile market cycle.
  • Fund has invested in 7-10 deals as an equity partner
  • Based in Bend, OR
  • Say hi to them at
  • Best Ever Book: When Genius Failed


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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

With us today, Ryan Andrews and Mark Khuri. How are you two doing?

Ryan Andrews: Doing great.

Mark Khuri: Good, Joe. Thanks.

Joe Fairless: I’m glad to hear that, and you are welcome. A little bit about Ryan and Mark – they’re founders and managers of Aerial Investment Management. In 2018 they launched the Recession Resistant Fund, and that fund is focused on targeting asset classes that are designed to perform through a recession or a volatile market cycle. So far the fund has invested in 7-10 deals as an equity partner. Based in Bend, Oregon. With that being said, do you two wanna give the Best Ever listeners a little bit more about your background and your current focus?

Mark Khuri: Sure, yeah. This is Mark, I’ll start. My real estate career really began doing fix and flips, fix and rentals on my own. I was always focusing on value-add strategies, and I pretty much spent my nights and weekends at Home Depot, managing rehabs, contractors, tenants… But by 2009 my family and I had been investing together and we saw some really amazing rental properties on discount… So we decided to form an investment company.

My father and I partnered up. He is a retired orthopedic surgeon now, but had been investing in real estate since the ’70s. Together we really started raising money from friends and family out of our basement in Albany, New York. That’s really when we started syndicating real estate deals, and I just found that by pooling capital from investors we could access much larger commercial deals like apartment buildings, for example. That was about 2009.

In the last ten years or so we’ve created and managed more than 40 real estate partnerships, bought, sold, invested in over 100 properties really across a lot of different asset classes, including single-family apartments, short-term rentals, retail, vacant land, self-storage, student housing, mobile home parks, and even oil wells.

But in the last few years we really started feeling like the economy was showing us that we’re pretty long in the cycle, and at the time I couldn’t have imagined, I guess, really thinking about it now, that this run would have lasted this long, early 2019. And when you manage money for friends and family, you watch it really closely, so we began positioning investors into assets that we believed would really continue to perform and cashflow if and when the economy turned. That idea and strategy has turned into the Recession Resistant Fund, which combines the assets that we were investing in really to provide investors with significant diversification by being able to invest their capital across geography, asset classes and operating partners.

Joe Fairless: So you’re all-in on retail then.

Mark Khuri: [laughs] 130%. No, I’m kidding.

Joe Fairless: I find that interesting, that you’ve invested in so many different things. I wanna make sure I captured it all – single-family, apartments, vacant land, student housing, retail short-term rentals and oil wells. Did I miss anything?

Mark Khuri: Mobile home parks and self-storage I think were the two main that we’re still focusing on today.

Joe Fairless: There’s the transition I was looking for… By the way, after reading it, I was like “Wait, what does that mean, 7 to 10 deals…?” I’ve read in your bio “The fund has invested in 7 to 10 deals as an equity partner”, but wouldn’t you know exactly how many you’ve invested in?

Ryan Andrews: Yeah, good question. The fund has five deals in it right now. The goal is to invest in 7 to 10 deals or so.

Joe Fairless: Oh, alright. I’m with you. What are those five deals that you’ve invested in?

Mark Khuri: Sure. We’ve got three specific apartment communities, we’ve got a portfolio of mobile home parks and self-storage facilities, and another portfolio of mobile home parks. Those are the three asset classes that we’re focusing on at this point in the cycle.

Joe Fairless: Okay. And how many units the apartment communities comprise of?

Mark Khuri: One deal is 740 units, another one is 410, and the third is 280 or so.

Joe Fairless: Alright, so 1,500 or so.

Mark Khuri: Yeah.

Joe Fairless: And then what about the mobile home and self-storage, the first portfolio?

Mark Khuri: Yeah, that portfolio is over 7,000 lots and units across seven states.

Joe Fairless: Okay. And then the third one, the mobile home park?

Mark Khuri: That is a young portfolio. It’s about 285 lots, and projected to grow pretty quickly here.

Joe Fairless: So educate me on when you say it’s a young portfolio. I get that you mean it’s projected to grow… When I heard a fund and you’re buying stuff, my initial thought – which clearly was incorrect – was you manage it and then you exit out of it… But it sounds like you’re looking to buy it and then just grow more within that fund…?

Ryan Andrews: Yeah, good question. Our fund is structured where we pool capital from investors, and then we go and partner with local operating partners. Really what we consider best-in-class operating partners. All of our projects are value-add, for instance… And Mark and Ryan over here aren’t making decisions on what cabinets to put in on an apartment redevelopment or an apartment rehab project… So we raise capital and then we’ll go and place that capital in larger deals. Sometimes we talk about it being like a mutual fund for real estate projects. We’re not the sole equity player in the underlying deals; we’re part of the equity on these underlying deals… So some of our investments are single assets, like these apartment buildings, and then some of them are portfolios of properties. So when we invest in a portfolio of property, there might be 4, 5 or 6 different real estate properties in that one portfolio, but we consider that one asset in our fund… But it allows us to get some diversity, even as a young fund ourselves, because we launched our fund just this fall, kind of toward the end of 2018.

Joe Fairless: So when you say “285 lots, but we’re looking to grow that”, are you not looking to grow the 7,000 lots and units in the first that you mentioned earlier?

Mark Khuri: Yeah, both of those portfolios are still growing, Joe. The current equity position that we have in those portfolios will continue to be diversified as the portfolios grow.

Joe Fairless: So you categorize them in apartments, and then you’ve got the second portfolio of 7,000 units and lots, and then 285 lots – are those three different funds that investors invest in, or are they investing in one fund where all of these things are performing?

Ryan Andrews: Our fund is one fund, and then those are three investments that we have made. So our investors get diversity across that, at a lower investment amount.

Joe Fairless: Cool. And you said you think of yourselves almost as like a mutual fund… I know there are certain security regulations for if you bring in (I believe) more than 100 investors, you are considered a mutual fund… Have you come across that at all? Or I guess the question is how are you registered.

Ryan Andrews: It is, yeah. Good question. We’re not close to 100 investors yet, so we haven’t come under that rule. Our fund is in a Delaware LLC. It’s currently just a 506(c) offering, so that allows us to go out and offer publicly and market our fund publicly, but every investor has to prove that they’re an accredited investor at the time they invest. That’s a similar structure to everything that’s going on  on all these crowdfunding sites/platforms etc. where the investment can be advertised publicly, but then the investors have to prove that they’re accredited. And that’s compared to the old days, where investors just check the box, and said “Yeah, I’m accredited”  and everybody moved on. Today they have to prove it, and that’s how our fund works.

Joe Fairless: Sure. And what third-party do you use to do that verification process?

Mark Khuri: We typically use Verify Investor. We’ve had pretty good success with them.

Joe Fairless: Okay.

Mark Khuri: And then one more thing to add, Joe – we are (I guess we’d say) a shorter-term investment fund, where we’re not evergreen and we’re not gonna be open for two years. Our plan is to continue to grow the fund, the assets under management for the next few months, maybe into the summer or so, and then probably close it. That way it’s a fixed fund, with a very fixed percent of equity and investors in it.

Joe Fairless: Okay. And how much equity have you raised so far?

Ryan Andrews: We’ve got about a million and a half in the fund so far.

Joe Fairless: Okay. So these deals that you reference, and you have a minor stake in them – you’re not bringing all the equity for these deals…

Ryan Andrews: That’s right. The type of fund that we’ve formed — sometimes it’s called an LP fund. So we come into these deals as an LP. We’re a limited partner in a much larger offering as well. And that’s one of the ways that even a small [unintelligible [00:09:34].22] fund size like we are now, we’re able to get some diversity. As the fund grows, we’ll probably make larger dollar-amount investments in individual deals, although we don’t expect to ever be the sole equity partner across a larger deal like that. We wanna spread our funds out a little bit more.

Joe Fairless: Sure. You’ve raised 1.5 million to date, and what’s your goal for when you close it out?

Ryan Andrews: Yeah, we’d like to see this fund grow to about 10 million over the next 8-9 months. We just launched at the beginning of November in this, so a couple months into this, and part of that was the holidays… But yeah, we’d like to see this fund grow to about 10 million, and then like Mark said, we’ll close it, so it’s gonna be a closed-end fund… And then we’ll just hold the assets. Each has their own business plan, and exit model. Most of those are in kind of the 5-10 year range, so our investors will be in our fund 5-10 years, but as individual assets liquidate, we’ll pass that capital back to investors, so their entire principal amount isn’t invested through that whole ten-year period.

Joe Fairless: And what’s your fee structure?

Ryan Andrews: Yeah, good question. We’ve got a management fee on our side that just kind of covers our overhead, and then we’ve got an 80/20 profit split or  a 70/30 profit split with investors above a pref… And that depends on investment size. There’s different terms for different investors.

Joe Fairless: Oh, okay.

Ryan Andrews: And the pref is between 8% and 10%, again, depending on a couple different things – investment size, and when investors came in the fund.

Joe Fairless: Interesting. As you can tell, I’ve never done a fund before; all my deals are 506(b) and they’re individual investments. That’s why I’m so interested in what you all are doing. So it’s a different split depending on the investment size, and it’s a different preferred return depending on the investment size and when they entered the fund.

Ryan Andrews: Exactly. The fund model is really interesting, and like Mark had shared in his bio, he’d been doing syndications for the last 10 years or so. My background is mostly on the investment management side, and I’ve put a number of different funds together. This one is actually the fifth fund I’ve managed. We were really looking at the state of the economy and everything about 6-8 months ago, and we’d been talking around this idea of “Gosh, we’re deep into a cycle. It would be great to put together a fund or some kind of structure that could grow and scale a little bit larger, and also give investors diversification, instead of having to plunk larger investment amounts in the individual deals.” So we kind of sharpened our pencils and sat down and said “Okay, what would a fund look like if we created this?” and basically went out and looked for investors that were seeking diversification, that agreed with our view that a recession is likely coming, that we’re long into the cycle… As a matter of fact, this is the second-longest expansion in U.S. history; we’re over nine years into it; and if it’s still growing, in June it will be the longest expansion in U.S. history.

So really we sat down and said “Okay, let’s create a fund for passive investors where they can get diversity, where we can put them into our asset classes that are our favorite…” And they’re really asset classes that we studied and there’s some core reasons why they’ll continue to perform in a recession, or at least we believe they will; that’s kind of our best business model. So we started working on that really through the fall, and then launched this in October/November 2018.

Joe Fairless: More high-level, what are the steps from, okay, you have the idea, now you need to actually be able to take the first $50,000 or $25,000 or whatever it is, from the investor – what are the steps you took from the first point of [unintelligible [00:13:02].28] idea, to then being able to take the first investors in?

Ryan Andrews: Yeah, so we started first by defining our strategy. We had to figure out what we were investing in, what are the assets, or at least the asset classes that we wanted to invest in. We’d invested in a lot of different ones, and thought and talked about and modeled several different asset classes, and really came down to this mobile home park/self-storage and what we call workforce apartments as our key assets… And then we spent a lot of time modeling that out, of how would the portfolio actually act and respond, giving actual deals that we’d seen, but kind of modeling out a proforma for the fund [unintelligible [00:13:41].06]

So we started there, and then once we had determined what our investment strategy was gonna be, and our philosophy, which is just like how we’re gonna pick assets, what we’re gonna say yes to and what we’re gonna say no to – then from there we sat down and wrote our private placement memorandum on the fund. At the end of the day, that’s the product that we’re selling, so that’s our 100-page document that describes our strategy, and who we are, and what we wanna do, and why we’re starting this business, and what’s the legal structure and the profit splits and everything. That includes, of course, the operating agreement, subscription agreements.

Then we sat down and spent a lot of time writing that up, and getting everything dialed on that, exactly how we wanted it, and then we took that out to the market.

Joe Fairless: So it’s very similar to 506(b) in terms of the legal process, but just it’s a 506(c) and you’re off and running?

Mark Khuri: Yeah, Joe. That’s about right. PPM, subscription docs, a ton of risk disclosures, as I’m sure you know…

Joe Fairless: Sure.

Mark Khuri: Always letting investors know that there’s risk, and being very clear and transparent about that… But allowing yourself to be able to also solicit online and publicly is the big key advantages to the 506(c).

Joe Fairless: Yeah. I guess I didn’t realize that you could do multiple offerings within one 506(c). I guess I just never put that together. But clearly, you all are pooling money for multiple deals under one 506(c) offering, right?

Ryan Andrews: Yeah. Our 506(c) offering – that’s our funded self, that’s how we capitalize it, and then we turnaround and invest that into any number of deals. We’re not limited on the number we can do.

Joe Fairless: Sure.

Ryan Andrews: And the last comment on the 506(c) versus 506(b), the only difference there — it’s the same safe harbor under the SEC; the only real difference there is investors can self-certify that they’re accredited under the b model, but you’re not allowed to advertise publicly. It has to be from somebody that you’ve had some kind of prior relationship with. But under a c offering, you can advertise publicly and get new investors, but they have to prove that they’re accredited at the time they invest.

Joe Fairless: So when you’re presenting to your investors your 506(c) offering and what the fund is planning on doing, and you’re modeling your proforma, do you have in there that it’s gonna be a ten-year hold, and these are the ten-year projections?

Mark Khuri: Yeah, that’s it, Joe. We model it out with a 5 to 10-year expected term of the fund, and the projections of annual cashflow per year, the overall ROI, the IRR etc. So it’s similar marketing, I guess you’d say, or summarization of the investment offering as if it’s just one apartment community, for example, versus taking capital and spreading it across several.

Joe Fairless: And you said 5 to 10-year, so you have the option to close it out earlier, if you want to?

Mark Khuri: Yeah, we do, but it’s based on the underlying assets; each asset has its own business plan. The ones that we are choosing are typically 5 to 10-year holds, with some refinance options in the earlier years, but… We wanna be conservative and just make sure investors are going into it with the long game in mind. That’s important, too.

Joe Fairless: One challenge I could see with this structure is that you all are a minor limited partner in these deals, so you’re not the only limited partner and you’re not a major limited partner… So that leads me to believe that your voting rights are basically non-existent within each of the deals, more or less; that might change, depending on the operator, but more or less you’re not gonna have a lot of weight to throw around, since you’re a minor ownership interest. So what I’m trying to think through is if one project – say 9 out of 10 projects are all within that 10-year timeframe, but this tenth one, they just can’t sell for some reason, and these operators have the property, they put a 20-year loan on it without you saying “Hey, wait, this is only supposed to be 5 years…” So how do you close out the fund if you have one project that doesn’t stay within that timeframe?

Mark Khuri: Yeah, it’s a good question. It’s a similar concept to investing in one deal – you have to take the terms of that deal and make sure you’re comfortable with them. And then essentially you do a lot of due diligence and make sure that the risk vs. reward is within your buying criteria and makes sense for you.

But these deals specifically are set up to essentially not have very high voting rights in the first place. Going into it with a passive mindset is what we do, and what other investors do, and we’re not looking for voting rights. We’re relying on our operating partners who are experts in their asset class, experts in their niche, to really execute positively on the business plan. That’s something that allows us to diversify capital across operating partners.

If we were simply making those decisions and did have a lot of voting rights, we probably wouldn’t have as many hours in the day or resources available to be able to create the portfolio that we’re really trying to create.

Joe Fairless: I get that.

Mark Khuri: So it’s by design to have limited voting rights, and I’ll mention one more point regarding that… We’ve been doing this for many years, Joe, and a lot of our operating partners have pretty significant investment experience outside of the fund… So a lot of them are tested and tried; I think we just last calculated that 80% of our operators in our fund right now – we have active capital invested outside of the fund, prior to us even creating the fund. That’s personal capital, it’s my family’s capital, it’s a lot of our investor’s capital as well… So we try and perform with operators that are tried and tested and that we’ve had personal experience with as well, to help mitigate against any potential long-term risk like you’re discussing here, with your question about the 10-year horizon.

Joe Fairless: Got it. And I imagine you have something in your fund structure so that if some whacky scenario does play out, where one operator goes off the reservation and has a 15-year hold when it was supposed to be five, then you can extend the life of your fund to accommodate for that… Or maybe you just figured out some buyout clause to buy out the equity there and then you all can close out your fund…

Mark Khuri: Yeah, that’s right. And each underlying asset has those terms specifically, as well – if the manager doesn’t perform or does some sort of bad actor move, then we can as LPs vote them off the island per se. Sometimes it’s a majority vote, or super-majority vote needed, and we make sure that there’s clauses that do allow us to do that should the need every become there. It’s never happened before, thankfully, and I don’t know that it will, but we wanna make sure that it’s written in there that we do have some say as to change course if need be.

Joe Fairless: And you mentioned the management  fee… What’s your management fee for this?

Mark Khuri: Our recurrent management fee is 2% annually. That’s just based on AUM, not on asset value. And then we have a one-time acquisition and disposition fee of 1%.

Joe Fairless: Cool. The purchase price, or something else?

Mark Khuri: No, just asset under management. Capital. Capital raise, Joe, that we deploy into deals; sometimes we spend months underwriting deals before we decide to invest in them.

Ryan Andrews: Yeah, so all our fees are based on our own funds, capital size.

Joe Fairless: Okay, so your acquisition fee is 1% of whatever the capital that you raised for that investment?

Mark Khuri: Exactly.

Joe Fairless: Huh. Okay, cool. Well, what is the best real estate investing advice ever that you two have?

Mark Khuri: Ryan, do you wanna do that?

Ryan Andrews: Yeah, so I think one of the things we really focus on when we talk about — sometimes you’ll ask, “Okay, recession-resistant fund – what does that really mean? Or when you’re looking at assets, how do you use that lens?” And kind of the top thing we talk about and that we look at is debt – what is the debt on the property that’s above us? Because we almost always come in as the equity investor… And a lot of investors today might read through a PPM on an apartment building  and they don’t really spend a lot of time thinking about what’s the senior debt, but debt in a recession is what gets everybody in trouble.

I think we bring a unique lens to that. We stay away from – especially right now, as rates are going up – floating rate debt; we wanna see at least 10 years, so that we can get through a recession if something corrects… And when we think about debt – I’ve been a lender prior to launching this fund; I managed a construction debt fund, so I’ve personally gone through five foreclosures on the lender side.

I’ve been the lender that foreclosed on people… So we bring an interesting lense when we talk about understanding how lenders think; and lenders never wanna foreclose, but they end up bringing out bigger and bigger economic hammers through default fees and foreclosures to protect their principal, and then they eventually will take a property away. That’s just one of the big things we look at. We wanna make sure our assets — we believe they’ll continue to cash-flow through recessions; they can keep making that debt service payment and keep generating returns for our investors. And then what’s the structure of that debt, so that if things go wrong or sideways or don’t perform as expected, how is that debt gonna act?

Mark Khuri: Joe, just to add one more point on that – we’re in a very risky time in the market cycle, and we just don’t wanna become a distressed seller. We don’t want our assets or operating partners to become distressed sellers. Typically, the number one thing that causes that is leverage – over-leverage or risky leverage is what we try and avoid. I think that’s the takeaway there for the best advice right now, to your Best Ever listeners  – be careful as to what the leverage is, the structure, the fees, the terms, and how’s it being projected into the proforma. If there are extension fees, are those built-in? If it’s interest-only with a short-term balloon payment coming due, you just wanna be careful that the whole business plan or the majority of the success isn’t relying on the exit at a fixed period of time when the debt might come due.

Joe Fairless: We’re gonna do a lightning round. Are you two ready for the Best Ever Lightning Round?

Mark Khuri: Yeah.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:24:00].26] to [00:25:08].15]

Joe Fairless: Best ever book you’ve recently read?

Ryan Andrews: Best book ever for me it’s Roger Lowenstein, “When Genius Failed.” I don’t know if anybody is familiar with it – it’s about the hedge fund Long Term Capital Management failing in the late ’90s.

Joe Fairless: Best ever deal you’ve done?

Ryan Andrews: The best ever deal I did – about two years ago I was part of a group that bought a large lot in Seattle, and the owner we were buying from was convinced it could not be split… But we’d done some research and we were pretty confident there was an old plat map that would allow us to split the lot and sell it as two buildable lots. It was located in a great neighborhood in Seattle; we bought it, it took less than four months to do the paperwork and split it, and we more than doubled our money.

The project ended up with just a super high IRR, like 170% [unintelligible [00:25:47].20] in a few months. So our investors loved us, and we wanted to do more, but it was one of those homerun deals for us.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Mark Khuri: In my earlier years, Joe, getting emotionally tied to an investment property, and maybe not treating it 100% as a business, was something that I learned as a young investor. That [unintelligible [00:26:07].05] the way to analyze and look at things.

Joe Fairless: Best ever way you like to give back?

Mark Khuri: Personally, I teach a  real estate investing principles and best practices course at our local college. It’s something I’m passionate about and enjoy doing, and I love giving back to the local community, especially some earlier-seasoned investors who are trying to get into the marketplace where we are today with the cycle.

Joe Fairless: And how can the Best Ever listeners learn more about your fund and what you two have going on?

Ryan Andrews: Our website is We’ve got little videos of us touring some of our properties and everything online. Our contact information is there also. It’s just ryan or

Joe Fairless: Well, Ryan and Mark, thank you so much for being on the show. I certainly was educated a ton, and I hope the Best Ever listeners were as well… I was not aware of using a 506(c) and making it more like a fund, versus doing single, one-off deals. Perhaps I should have been, but I just hadn’t put that together yet. I thought a fund was something completely separate from that.

I really enjoyed learning more about your business model, your approach and how you’re structuring the fund, and how you went about creating it. It’s super-helpful information for passive investors, as well as active investors looking to put larger deals and structures together.

Thank you so much for being on the show. I really enjoyed our conversation. I hope you two have a best ever day, and we’ll talk to you soon.

Ryan Andrews: Sounds great, thank you.

Mark Khuri: Thanks, Joe.

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