The New Reality for Private Capital: Trust, But Monitor

Protecting your equity means staying closer to the ground.

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Welcome to Private Capital Perspectives — a new series from The LineUp that brings you real insights from family offices, LPs, and direct investors navigating today’s real estate markets.

At Pugh Management, we sponsor direct real estate investments with a focus on ground-up development and value-add strategies. We partner with family offices not just to co-invest in projects, but to lead them—from concept to completion—and provide hands-on asset management along the way.

In today’s market, we’re seeing more and more investors seek out support to track and oversee their LP, Co-GP, and preferred equity positions. It’s not about second-guessing sponsors—it’s about safeguarding capital and ensuring outcomes remain aligned with the original investment goals.

That’s why we’ve begun offering deal-by-deal and programmatic oversight services for family offices and private investors with direct real estate exposure. We see this as a natural extension of our role as experienced developers and asset managers—and a way to help investors stay aligned with their capital without getting pulled into the day-to-day.

Protecting your equity means staying closer to the ground.

Why is this so important right now? Because the environment has changed. Sponsors are operating in a tougher market. Deals are more complex. Timelines are under pressure. And many family offices are holding meaningful exposure to direct real estate without the internal capacity to stay close to every investment.

Whether you’re involved as an LP, Co-GP, or preferred equity investor, your capital is tied to execution—and execution today requires more vigilance, structure, and transparency than in years past.

Over the past decade, direct real estate investment has become a core allocation for many family offices and private investors. Capital that once flowed exclusively into funds is now going into joint ventures, preferred equity, and development deals—often structured one project at a time.

That evolution has created real advantages: more control, tailored deal terms, and potentially better alignment with sponsors.

But with those benefits comes something that fund investors don’t always face:
Execution risk—and the need to manage it.

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Direct Real Estate Requires a Different Kind of Engagement

When you invest directly, you’re not just underwriting a pro forma—you’re underwriting people, plans, timelines, and capital stacks. And you’re often managing relationships with multiple sponsors across different markets and stages of execution.

Most family offices we work with have the real estate expertise to evaluate a deal.
What they lack is the time and systems to monitor every deal they’re in on a daily or weekly basis.

That’s not a knock. It’s a natural bandwidth constraint—and one that’s showing up more clearly in today’s environment.

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Today’s Risks Are Subtle, Not Just Structural

Sponsors are stretched. Timelines are slipping. Construction budgets are tight. And in some cases, project-level controls aren’t where they need to be.

We’ve heard stories from seasoned investors:

• Funds being shifted between deals without transparency

• Sponsors going silent once their fees dry up

• Primary investors pulling out mid-cycle, stalling pre-construction

These aren’t rare cases—they’re just what happens when execution risk meets under-resourced oversight.

One family office we know built up a meaningful allocation to direct real estate over time, investing across multiple deals with different sponsors. While some of the investments have generated solid returns and others have been neutral, one particular deal turned into a serious issue. In that case—a small multifamily project—the sponsor was found to have illegally commingled funds between unrelated deals. Despite being someone the family office trusted, the sponsor breached fiduciary responsibility. The authorities are now involved, and the family office is pursuing legal action.

In another case, a family office stepped in with a preferred equity investment on a deal where the sponsors ran out of money during lease-up. The building was about 60% leased, but the sponsor could no longer pay the mortgage. There wasn’t enough left in the interest reserve to carry the debt service, and lease-up proceeds were behind projections. This was a case of poor planning and unrealistic budgeting by the sponsor—but it also created an opportunity for the preferred equity investor to step in and stabilize the situation. With proper oversight and accountability earlier in the process, this shortfall could likely have been avoided entirely.

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Isn’t Asset Management the GP’s Job? Yes—But That’s Not the Whole Story

In a traditional structure, the GP is responsible for managing the asset. But for family offices and private investors with exposure across multiple direct deals, relying solely on sponsor reporting isn’t always enough.

We’re seeing smart capital add a layer of internal or third-party asset monitoring and oversight to:

• Benchmark sponsor performance across deals

• Track execution in real time—not just quarterly roll-ups

• Get early warning signs when a project goes off-track

• Protect capital when sponsors are stretched or underperforming

• Step in during distress or legal transitions (e.g., post Bad Boy Clause trigger)

This isn’t about taking over the project.
It’s about staying informed, protecting downside, and knowing when to intervene.

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Oversight + Asset Management as Strategic Infrastructure

Think of this as infrastructure for your capital.
Oversight and asset management allow you to:

• Stay close to the execution without becoming the operator

• Align sponsor behavior with your expectations

• Build institutional-quality reporting across a portfolio of direct deals

• Free up your internal team to focus on allocation and strategy—not chasing updates

Whether provided by a third-party partner or an internal hire, this capability turns direct investing into a repeatable, controlled process—not a one-off bet on the next sponsor.

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Conclusion: Why This Matters Now

The direct real estate playbook still works. The best deals still come from direct relationships, custom structuring, and off-market execution. But as the capital stack gets more complex and market dynamics shift, the investor’s role must evolve too.

If you're investing directly in real estate today, you’re not just a source of capital—
You’re a steward of it.

That means:

• Building systems for oversight

• Tracking performance across your deals

• Maintaining leverage and clarity when things change

• And never forgetting that capital preservation comes before capital gain

In this market, trusting your sponsors isn’t the issue.
It’s trusting that someone is watching the day-to-day—so you don’t have to.

That’s the new reality for private capital—one that calls for thoughtful engagement, not just capital allocation.

If you're active in direct deals and working through some of these challenges, we’d love to hear how you’re approaching it. The Investor Circle is our private peer community for family office executives and private investors. It’s a space to compare notes, pressure test ideas, and share what’s working—and what’s not.

Apply to join, or reply to this email—I always welcome the dialogue.

Cheers,
John