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Summary: Realberry’s Taylor Hazlett walks through how the firm screens investments, from a funnel that passes on most opportunities to five filters, stress tests, and the discipline to walk away.

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Most passive investors only ever see the investments a sponsor brings to market. The investments it turned down stay out of sight. According to Taylor Hazlett, that hidden pile may say the most about a sponsor’s discipline.

Taylor, Senior Director of Private Capital at Realberry, walked through how the firm evaluates opportunities in a recent webinar.

Why the Process Matters

Passive investors hand the judgment of an investment to someone else entirely, Taylor notes. For accredited investors in that position, the sponsor’s strategy matters. A sponsor is the firm that develops or acquires a property and manages it. His first suggestion is to ask what you are trying to accomplish with the capital you allocate to real estate, then keep that answer in mind while evaluating investments and sponsors.

A Process, Not Luck

Realberry began as a strawberry stand in Southern California in the late 1980s and grew into a real estate firm. Taylor says it has operated through the savings and loan crisis, the dot-com bust, the global financial crisis, and COVID, and he attributes that longevity to discipline and a long-term focus. The track record, he says, comes from process, not luck, timing, or relationships alone.

The firm describes itself as an integrated platform: development, acquisitions, hands-on asset management, and investment management. That flexibility matters, Taylor says, because some points in a cycle make building more sensible than buying, or the reverse. He is candid that 35 years does not mean batting a thousand. It shows a process applied consistently.

The Graveyard of Investments

Every sponsor shows investors the investments it closes. Taylor focuses on the ones it does not. A quick screen of demographics, supply, demand, regulatory risk, and in-place revenue can eliminate many opportunities. If a multifamily project of more than six stories needs four-dollar rents to work, he says, he knows right away which markets to cross off.

Investments that pass that first test get a closer look, which can remove another 75 percent. A pre-screening with the investment committee can remove more. In Taylor’s illustration, ten offers might go out on a hundred investments, and a competitive process narrows those to the two or three the team aims to close.

What does not show up in an offering, he says, is the graveyard of investments the firm passed on to get there. That selectivity is also his answer to why only one or two Realberry offerings may be open at a time.

Five Filters, No Exceptions

Every investment goes through all five filters, and a investment that passes four of the five is still a pass. The filters are the company business plan, sub-market conviction and location, financial modeling, due diligence, and investor appetite.

Business Plan, Location, and Investment Size

The first filter is the business plan. Realberry does not go looking for investments and then find a market, Taylor says. It knows where it has an edge, in the Mountain West and the Texas Triangle, and a new market can take months or sometimes years of study. Asset class discipline means not chasing trends, since sponsors can get into trouble when they stretch into unfamiliar territory in mid-to-late-cycle conditions. Investment size matters too. A investment that needs an equity check too large to fill is a problem, and so is one too small to move the needle.

The second filter is sub-market conviction. A market that looks good today is not the same as one with durable structural demand, Taylor says. The team looks at job growth, household formation, land constraints, permitting difficulty, construction costs for the specific product type, occupancy, and competitors’ rents. The aim is to focus on what the market is telling the team, not on what a pro forma says. Micro-location matters as well: two projects 500 feet apart can differ vastly depending on the corner they sit on.

Stress Testing the Numbers

The third filter is financial modeling. Underwriting is the process of evaluating a project’s costs, revenues, and risks before committing capital. Realberry stress tests its models against downside conditions, Taylor says, such as higher vacancy, flat rent growth, and exit cap expansion. On the multifamily side, he notes, many markets have seen flat rents because of the supply delivered over the past three to five years. An exit cap rate is the rate used to estimate a property’s sale value, so when it expands, value falls. A investment has to work in every scenario, not only the optimistic one.

The team also substantiates each line item: land, hard costs, soft costs, financing, fees, construction costs, real estate taxes, insurance, and cap rate assumptions. Any one of them can be a place where a investment falls apart. If a investment only works when the stars align, Taylor says, the firm does not move forward. Asked what signals an offering has no margin for error, he pointed to the same test: if a investment breaks when occupancy is a little soft or rents do not grow, that is a reason to say no.

He also described one cushion buyers may look for. Using hypothetical numbers, he said buying at $300,000 per home when building would cost $400,000 may make more sense than building, because buying below replacement cost may offer a margin of cushion. That is an illustration, not a real investment.

Site, City, and Partner Diligence

The fourth filter is due diligence. On the site itself, the team asks about slope and retaining walls, whether utilities are stubbed to the property, and environmental risks such as an abandoned well or mine. It reviews plats and existing easements. Zoning matters too. By-right zoning means the site is already zoned for the intended use, so no city approval is needed to change it, which Taylor calls a feather in the firm’s cap.

Timing with the city is a risk of its own. An unexpected round of review can mean resubmitting and waiting six weeks for comments, and time kills investments, he says. Familiarity with the jurisdiction goes a long way. When a partner is involved, such as a landowner whose site the firm can reach only through a joint venture, that partner gets the same scrutiny as the financial underwriting, including track record and product types delivered.

Matching Capital to the Investment

The fifth filter, which Taylor calls probably the most important, is investor appetite. Is the return profile right for the capital? Have liquidity and expectations been discussed? Shorter-term investors may focus more on IRR, or internal rate of return, an annualized measure sensitive to timing, while longer-term investors may care more about cash yield and multiple, the total cash returned relative to cash invested. The thesis needs to be clear, he says, and the right capital married to the right investment.

Hold periods follow the same logic. Nobody can time a market, Taylor says, so Realberry sets a framework when it builds a thesis but stays flexible on timing. Realberry invests investment by investment and does not currently offer portfolio funds, so an investor who wants diversification would need to invest across separate investments, such as multifamily and hospitality.

Communication is part of fit. Taylor describes quarterly investment reporting and, when a investment does not go as planned, a commitment to be direct, since bad news does not age well.

Knowing When to Walk Away

The yes list is the easy part, Taylor says. When a team has spent a lot of time on a investment, it becomes personal, and sometimes it takes a look in the mirror. A defined process takes emotion out of the equation and lets data drive the decision. Anybody can do a investment for the sake of doing a investment, he says. The discipline is knowing when to walk away.

Alignment is the other half. Taylor says Realberry co-invests in every investment, which he calls structural alignment: consequences are shared along with gains.

Questions Worth Asking

Asked what advice he would give an investor without a commercial real estate background, Taylor pointed back to the five filters. Thinking through an opportunity with that filtered process is a place to start, and an investor who knows an area well may understand a sub-market as well as he does.

Taken together, his framework suggests questions for any sponsor. How does it decide what to reject, and why? What downside scenarios does it test? What depends on city approvals and timing? Does its capital sit alongside investor capital? How flexible is the hold period, and how do investors hear about progress?