Private Equity Solutions
Shaping the Future Of Alternative Real Estate Investments

Economic cycles involve periods of expansion, peak, contraction and trough. These fluctuations are propelled by varying factors, including shifts in consumer behavior, the implementation of government policies, and changes in interest rates.

Adopting a flexible investment strategy is crucial to mitigating risk during these phases. For real estate investments, this means being able to foresee and react to market downturns with strategies to preserve capital and to identify and capitalize on opportunities during upturns.

This is where Private Equity Solutions (PES) steps in with resilient investment strategies that adapt to any economic cycle and address the shortcomings of traditional methods during financial distress.

A financial engineering company, PES specializes in alternative investments, including real estate, land development and financial planning, supported by its diversified portfolio across multiple industries. A non-traditional view of the markets allows it to create inventive strategies for traditional investment challenges, which guarantees better investment returns and enhances client experiences.

“We have successfully navigated the various investment and economic cycles by adopting a dynamic strategy, consistently delivering returns in a market often marked by volatility,” says Ferdinand Ruaño, president and CEO of PES.

This is evident in the company’s accomplishments, including completing over $100 million in transactions with an 85 percent success rate, and achieving an average, post-tax return rate of 13.4 percent.

PES manages two investment funds, including the eponymous Private Equity Solutions Fund and The Panoramic Fund, based in Puerto Rico.

It also actively contributes to the growth of residential real estate in Southwest Florida through its subsidiary, PENTAS HOMES.

A key aspect of the company’s strategy is the adoption of the endowment approach, a model popularized by large institutional investors, notably university endowments like Yale and Harvard. By adopting this model for retail and smaller investors, PES opens the door to opportunities in real estate, multifamily housing and the stock market that were previously out of reach for this segment of investors.

Turning Market Downturns into Opportunities

PES made the best out of the distressed market cycle of 2008. By investing in tax liens and tax deeds, offering lease-to-own options, and advocating for owner financing, it introduced a refreshing approach to real estate investment. These methods weren’t just about making profits; they were about rejuvenating and repurposing properties that had been overlooked and undervalued. This not only stabilized the assets but offered investors a safe haven with lower-risk opportunities during the challenging economic storm.

The company worked in tandem with firms and advisors, with a focus on enhancing investors’ living standards and generating consistent, passive income through innovative real estate strategies.

Demonstrating adaptability, PES embraced ‘buy, rehab, rent, refinance and repeat’ (BRRR) from 2013 to 2016, focusing on property acquisition and holding, as well as rehabilitation as the real estate market transitioned into a growth phase.

Merging Passive and Active Investment

The opportunity to engage in substantial investment ventures without the necessity of large capital contributions is what PES offers through its preferred lender agreement (PLA) joint venture.

The goal is to preserve capital while maintaining low volatility and fostering capital growth. It seeks to introduce greater diversification into traditional portfolios of stocks, bonds and cash. The investment strategy under this program is primarily focused on real estate development, categorized into build-to-sell and build-to-rent projects. A notable feature of these ventures is the provision of a substantial collateral margin, often exceeding 30 percent over the investor’s contribution.

The biggest advantage of PLA is it combines the advantages of both passive and active investment strategies.

Typically, passive investors seek only returns without active involvement, having limited liability. Active investors prefer direct real estate investment, which adds more control but incurs significant risk and requires management. Combining the best of both worlds, PLA offers passive investors returns, with the potential upside of a general partnership, minus the administrative liabilities. This innovative approach has proven successful, yielding returns ranging from 6 to 33 percent.

The investor holds a promissory or mortgage note or a first-position lien on the property, which ensures the investor’s interest is prioritized in case of foreclosure. This provides a level of security and control over the investment. The control remains with the investor until the property is fully developed.

Investors also have an opportunity to be involved in the property development process. This involvement can vary, but it allows for a more active role in the investment compared to traditional passive real estate investments.

“Through a combination of security and participation in the property development process, PLA allows investors to have a greater influence over their investment outcomes,” says Ruaño.

PLA is adopted for several key reasons. It offers steady cash flow and the potential for significant investment growth, addressing the high demand in the market. This strategy is a hedge against inflation, comes with attractive tax benefits, and yields higher-than-average returns. It is also recession-resistant and flexible, providing investment stability.

Maximizing Real Estate Returns

To reduce debt service costs, PES has developed systems that form part of a comprehensive wealth management plan. It extends beyond real estate development and creates bonds for investors. For instance, it has established agreements with prominent firms like Blackstone and the Apollo Group. These partnerships usually require a substantial investment, often upwards of $1 million dollars. Through economies of scale, PES enables clients to access substantial investment opportunities usually reserved for highly affluent investors.

The firm brings a network of legal professionals and connections with title companies, tax attorneys, and wealth managers to provide clients with a complete service package supporting their financial health and investment goals.

Reimagining Risk Management in Real Estate Investments

To address interest rate risks, PES has implemented a risk management strategy by incorporating treasury techniques and management. Its distinct model, “Real Estate Reimagining,” involves a combination of equity and debt participation.

It is a system where an investor, instead of being a limited partner in a mutual fund, ETF, real estate investment, or syndicate with no control or clarity on returns, can invest in a way that offers more direct involvement. The company provides investors with a preferred lender first position note at a competitive six percent rate. When a new home is built and sold, the investor gets a share in the equity appreciation, leading to potential returns.

While PES has cases with returns as high as 33 percent, those are not guaranteed and are typically a result of substantial market growth, particularly in the single-family home market in Southwest Florida. The company emphasizes a base return of six percent, aligning with the potential cap rate if a property needs to be rented. The contract can then evolve into a joint venture, allowing further participation in investment growth and equity.

This is a hands-on, transparent approach with regular updates through construction pictures, conference calls, and quarterly reports. The level of access and control is distinct from what is usually available in syndications or real estate income funds, offering investors growth and income opportunities.

Navigating the Real Estate Market in Florida with Blue Ocean Strategy

A key player in Florida’s real estate investment market, PES identifies the strategic investment potential in Florida, which has diverse demographics and substantial population growth, with two of its counties ranking in the nation’s top 10.

In mature markets like Miami, Fort Lauderdale and West Palm Beach, land costs are significantly higher and the permit process is more tightly regulated, leading to longer timeframes for approval. PES began exploring other areas across Florida, searching for locations primed for growth. This approach, called the ‘Blue Ocean Strategy,’ focused on identifying less saturated regions to capitalize on opportunities. PES became one of the first to develop in emerging areas like Lehigh Acres, Fort Myers, Port Charlotte, Punta Gorda, Northport, and Sarasota. The Blue Ocean Strategy allowed it to adapt and evolve geographically and regionally, aligning with changes in the market cycles, real estate environment and interest rates, from 2018 to the present.

Building Success through Teamwork and Alliances

In today’s digital age, where personal interaction can be overlooked, PES places a high premium on transparency and direct engagement with clients, contrasting with the impersonal nature of social media interactions.

Its experienced team shares the vision of transparency, consistency and adaptability in operations. The staff includes experienced brokers and management executives like Esther Ortiz, investment advisors like José M. Crespí Iglesias and accountants like Adlin Melendez, along with several project managers and general contractors.

There is a relationship of wealth management advise and financial consulting with Trust MD/Radiografia Financiera. This collaboration extends their offerings beyond real estate, assisting clients with estate and tax planning, and general investment advice in a fiduciary capacity.

Recently, it engaged with a foreign national bank to facilitate real estate purchases for foreign investors, offering up to 75 percent loan-to-value ratios and structuring purchases through trusts and limited liability companies. The company’s legal team is skilled in creating these structures, ensuring clients receive a full-service package.

From Limited Budget to Lucrative Returns

PES has significantly benefitted many of its clients with innovative investment strategies. A doctor from Puerto Rico approached PES with a desire to invest in U.S. real estate. With a budget of $300,000, the doctor was initially interested in buying a property in Miami or South Florida. Due to the high median prices in these areas, where a home meeting their criteria could cost at least a million dollars, this was not feasible.

PES proposed an alternative solution. It suggested building a new property on a suitable piece of real estate it had access to. The plan included offering the doctor a six percent return on a preferred lender note in the form of a mortgage. It gave him an option to either purchase the property upon completion and finance the purchase through PES’ assistance, or sell the property and share in the profit growth from the investment.

This strategy paid off when the property sold for $1.2 million, yielding a profit of around $500,000. After paying the doctor approximately $24,000 in interest, the company split the profit, netting the investor an additional $250,000. This outcome was a 33 percent return on the doctor's initial $300,000 investment, showcasing PES’ ability to create lucrative investment opportunities.

Broadening the Horizon

The company’s future plans include the development of 80 single-family homes, an investment of nearly $40 million. These homes are currently under construction in Port Charlotte, Punta Gorda and Cape Coral, three prime locations in Southwest Florida with promising demographic growth projections. It is also focusing on a multifamily project in Orlando, planning to build 73 apartment units strategically located between downtown and the Orlando International Airport.

Another project underway is a new fund in Puerto Rico, focusing on Act 60, a savings initiative for residents that involves creating high-efficiency, complex tax strategies.

Moving ahead, PES has a new strategy in store, Plan 360, which will offer a revolutionary system to reduce mortgage payments without refinancing or additional costs. This approach is part of PES’ ongoing efforts to provide novel financial solutions in the region.