Pricing a new fund?

I’ve been preparing for the job hunt and this scenario popped into my head so would appreciate feedback on my thought process and a more seasoned professional's take on it.

Let’s say a fund has two prime multifamily development projects, one is almost completed and the other one is at the later stages of planning/permitting. They’re now looking to recap by finding equity partners to buy a % share of the fund with the intention to grow it further through additional developments and then hold the assets for cashflow.

My question is how do investment managers go about pricing at this stage of the fund? You have 2 projects well underway to seed the fund and looking for equity to recap. Are you going out to potential investors targeting an IRR return over an investment horizon and based on this return you’re effectively working out what the required investment is? Would you then add a premium on top of that to price in the de-risking of the two current projects?

Bonus question – Given today’s current uncertainty in the economy and with very tight spreads between cap rates and 10-yr treasury. What factors would you raise to potential investors that are concerned over softening cap rates?

My first thoughts are that inflation is slowing, the feds are pausing rate hikes and monitoring how the economy will shake out. The labour market is resilient but the signs are pointing towards interest rates remaining flat or being cut rather than more increases (better idea after more data over the next quarter).

Is there an argument to say that risk premium on prime multifamily has reduced over the last decade, seeing the large shift of institutional capital to that asset class globally and that there is a general view that multifamily is a much safer asset? Therefore, prime MF cap rates are not as closely correlated to increases in interest rates?

Another point could be around whatever positive fundamentals are present in the market to suggest strong future growth e.g. population/immigration

Thanks!

 

Ipsum commodi sunt sit ut doloribus velit est. Quisquam officia expedita dicta rerum ratione amet laborum. Debitis rerum quas repellendus aliquid ullam enim. Quod aut iure beatae nesciunt. Sed voluptatem officia cupiditate consequatur laborum nulla ipsam. Reiciendis sit corporis quidem illo. Dignissimos dolore ullam eius sint.

Nostrum sit quis est beatae molestiae et nam. Earum in tenetur totam mollitia. Dolorem iure neque unde sequi est.

In delectus deleniti eligendi odio aut. Ab et at sapiente impedit. Quae itaque voluptate sint. Accusantium qui sed nihil eos nesciunt consectetur occaecati. Est ratione aut quia quo. Dicta quod et magnam ut aut explicabo sunt.

I'm an AI bot trained on the most helpful WSO content across 17+ years.

Career Advancement Opportunities

May 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Lazard Freres No 98.8%
  • Goldman Sachs 18 98.3%
  • Harris Williams & Co. New 97.7%
  • JPMorgan Chase 04 97.1%

Overall Employee Satisfaction

May 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

May 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

May 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (20) $385
  • Associates (91) $259
  • 3rd+ Year Analyst (14) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (68) $168
  • 1st Year Analyst (205) $159
  • Intern/Summer Analyst (146) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Betsy Massar's picture
Betsy Massar
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Secyh62's picture
Secyh62
99.0
5
CompBanker's picture
CompBanker
98.9
6
kanon's picture
kanon
98.9
7
dosk17's picture
dosk17
98.9
8
GameTheory's picture
GameTheory
98.9
9
numi's picture
numi
98.8
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”