‍Many commercial real estate (CRE) developers and value-add project investors build portfolios and operating businesses with private investors through syndications and other small, private partnerships.  

Benefits:

• Expand equity capital to grow faster
• Leverage equity to greater gains - fees & higher profit participation
• Build track record and capital
• Establish operating business

Challenges:

• Time-consuming
• Higher number of investors 
• Management intensive
• An unpredictable source of capital
• Potentially emotional investors with changing needs

This is a great way to build and business in the middle market size range, with more investment properties in the U.S. being valued in the $2 million to $25 million price range.  There is more development and value-add activity and opportunity in this sector than any other in the CRE category.  

So, how do you capture more deals and market share?  How do you scale your equity sourcing and build your operation more?

Institutional equity joint ventures and structures offer an opportunity to scale and build into larger transactions and portfolios.  This can translate to greater economies of scale and gains.

Benefits:

• One-stop solution to equity
• Simplified investor management
• Scalable source and partnership
• Sophisticated partner
• Deeper resources & expertise

Requirements:

• An established operating partner with a track record
• Clearly defined business plan
• Identified opportunity
• Typical minimum equity is $2 million to $5 million
• Return objectives from 15% IRR or 2x multiple and higher

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‍How do I find this type of capital?

Raising institutional equity requires expertise and contacts.  Credibility with investors is critical.  Preparation and effective presentation coupled with a real-time transaction will enhance the odds of success in procuring this type of capital.

StackSource is pleased to offer a dedicated team and platform to give its clients a broader reach into CRE capital markets.  We leverage technology and decades of experience in helping clients identify, select and structure equity for the growth of investment activities.  This level of market exposure and experience is uniquely important in raising equity compared to finding the debt piece.

Step I – Prepare for the Raise:

Preparing to raise institutional joint venture capital requires preparation and a deeper knowledge of your operation, the property and project, and the surrounding market and competition.  Be more prepared and organized than you might think is necessary.

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Write a business plan including empirical data supporting your strategy, development and construction phase, leasing and/or sale phase, and exit strategy for the equity partner.  This plan will include detail of your team, costs, and contracts for goods and services.  You will need to determine the amount of equity to have ready for your “GP equity” or developer (“sponsor”) position.

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Your plan will include your strategy and key demand drivers that will get the project to stabilization and will be supported by facts.  A clearly defined “exit” from the project for the parties including JV equity will be presented and expected returns to the JV equity and GP equity will be defined.  It can also make sense to present a sensitivity analysis.

Building a relationship with an institutional equity partner can take your business from good to great.  In later articles, we will write more about commercial real estate joint venture equity structures and return objectives.

For additional information, please contact Richard Caldwell, EVP Head of Originations, at richard@stacksource.com.