Worth approaching boutique/MM about this project?

Question for anyone who works at a boutique (or an MM or hell, anything) about this project and if it would even be worth it to approach an IB about it.

In 2006, I tried contacting some boutique investment banks about a potential real estate company that was in the works. Needless to say, I was hung up on numerous times. But in 2008, with a lot of talk about analysts sitting around doing nothing and very low volume, I thought maybe it would be worth it in this situation (completely separate situation):

My brother-in-law is a recently laid off Toll Brothers (luxury homebuilder) Vice President--one of the top guys on the east coast--with a quarter century of experience. He now has his own company with basically all the top talent on the eastern seaboard ready to get to work for him. He has a few incredible potential single-family super luxury projects in the works in the Washington, DC suburbs, and one "slam dunk" super luxury project potential with land already acquired with a partner ($50-$75 million project). While he has all the talent, knowledge, skills and ability of design, market analysis, project management, and sales, the company lacks one major thing--money. It has very little money. VERY little money.

Question is, in 2008/2009, would low-volume boutiques or MMs be somewhat receptive to some of these projects? Or would I get a similar response to 2006 ("show me the equity" and "we only take deals from recommended customers")?

 
TeldarPaper:
especially since you are from virginia tech. Nobody invests with them. UVa is what is "4ever". Vtech is most adept to get funding for agricultural engineering, i.e. farming

Is there a ConstructionWorkerOasis 08? That may be a better spot

haha.

VT4EVer is the 54-14 a reference to a football game score? Cuz if it is, you are such a fucking tool.

 
Best Response

The problem is that you are looking at trying to raise debt in a very adverse environment, for a company that is in the industry that started this whole mess.

Look at it from a debt holder's point of view. No one has any idea when the real estate market will recover, but it probably won't happen for quite a while. The bottom isn't even in sight yet.

This company has little equity (no skin in the game) and no many assets to put up as collateral, unless the land they purchased is debt-free. All this company has is your brother-in-law's (alleged) talent. Would you lend to someone like this?

Your BIL needs to start off by hitting up family members and anyone else he knows for some cash. Tell him to get a good lawyer and to structure these investments to avoid headaches down the road. Once there is some fruit hanging on the equity tree, maybe he can start thinking about getting some bank debt. It would definitely take one hell of a relationship to get anything in this environment. Any kind of IB-related capital raising is out of the question.

Then again, it never hurts to try, does it? They'll probably laugh in your face, but you might gleam some insights here and there.

 

I think you have established the fact that it's a good firm with talent... What you're talking about is seed capital... you have no track record, no historical financials and no real assets... "Middle Market" is not what you should be looking at... I do "upper middle market" leveraged buyout finance and that means EBITDA in excess of $20m... I can tell you that neither us, nor any other firm would touch your project...

Try the venture firms...

 

i also think you'd have a helluva hard time raising capital in this environment from banks. right now, there is no such thing as a "super slam dunk" luxury real estate project, at least from an investors point of view.

i think your best bet would be to go find REITs into real estate dev and sell them a piece of the action. you may have some luck getting some microcap real estate IBs to represent you in a capital raising process to REITs...but yeah, in this environment, it's going to be tough.

 

LOL. Thanks for the real comments, guys.

We've already tried going the traditional bank way (of course they require 50% LTV on construction, 70% is absolute and utter max). As I suspected, the consensus seems to suggest that it would not be of particular benefit to approach even slow investment banks as they would not be able to raise the debt even if they wanted to.

I think this may indicate one of the reasons finance guys make so much money--all the knowledge and ability in the world is useless without the money to back it. Unfortunately, I work as a commercial real estate analyst for a multifamily group, so I've got no pull in SFH among my group. Guess we'll keep thinking.

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