Anyone doing / done their own deal?

Has anyone took what they learned from their career and set up their own deal? Whether it's a duplex that you bought yourself or a small, medium, or large apartment building that you pieced together with different partners? How did you do it, what was your role, and how did you structure it?

My current situation is such that I have the knowledge and relevant experience to run a deal, and I have the friends who don't, but have money that they'd potentially like to invest. I'm at the phase now where I just need to do it, but feel slightly stuck. 

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Comments (15)

May 18, 2022 - 12:21pm
Ozymandia, what's your opinion? Comment below:

I have.

Be extremely, extremely careful about how you raise and invest dollars from friends and family.  They won't thank you if it does well to the same extent they'll curse you if it goes south.

  • Associate 1 in PE - Other
May 18, 2022 - 1:49pm

Thanks for the response. I 100% agree / am aware of the delicacy around raising money from friends and family.

Are you able to share any details on your deal(s)? What kind of property? How big was it? What was the equity raise? How did you go about that? Loan guarantors? How did you find the deal? Legal structure?

Anything more you can share would be awesome.

May 18, 2022 - 3:56pm
Ozymandia, what's your opinion? Comment below:

Small new construction condo deal (very small, under 15 units) in NYC.  $4mm of total equity; raised about half of that from friends and family, with $1mm coming from the GC to keep them aligned and then the remaining $1mm went out to someone I'd met in the industry who I thought might be interested.  Ended up being a bit of a pain in the ass because I gave away a lot of the back end upside in order to bring in equity partners and guarantors; essentially I promoted off the F&F and gave the GC partner and the other guy pari passu terms in return for joint and several guarantees.

It was a modest success.  Size notwithstanding, it wasn't the kind of 4-5x project level returns you really hope for in condos in NYC, but we got to a high teens/low twenties IRR, I got a nice fee, and half the promote was better than none!  Probably wouldn't have been able to do it without having the GC involved on the equity side, since it was a side hustle kind of thing and even a small new construction project is a massive time commitment, but I didn't have to devote hours every day to site visits and construction monitoring because I had some certainty that my GC playing games with change orders would have hurt him on the equity side just as much as it would help on the construction side.

May 18, 2022 - 2:05pm
devrc, what's your opinion? Comment below:

I have. Expectation management is key when raising from friends and family. I always underestimate the returns in the investment offering (show very conservative underwriting that I know is achievable). I also set a long time horizon and emphasize the illiquidity of their investment. This provides flexibility to hold long term if maket conditions change (as we are experiencing now).

I have always been able to exceed the initially projected returns. This makes investors feel great and helps build repeat investors. The downside of this is that it can be tough to lure new investors when showing the conservative UW.

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May 19, 2022 - 4:31pm
TheDebtStar, what's your opinion? Comment below:

Yes, and you sound like you're in a similar position that I was in about a year and half ago. I've got a few deals I'm doing currently. 

In the original deal that started this whole thing, I found about ~70 acres (I can't remember the original amount) that was asking $7,000 an acre. I wanted to build some multifamily in the area, but only needed enough land to build a sizeable amount of units. The land was positioned in such a way between two roads. I figured I would need so much length width for set backs, building sizes, and roads, that I took 300 feet of road frontage from each side and made a rectangular parcel that eventually totaled a bit over 15 acres when it was surveyed. I offered $7k/acre for the land, but the seller said that was the most valuable piece of the whole 70 acres and countered at $15k/acre. We eventually settled at $13k/acre.  

We got the land rezoned and approved for nearly 200 units and given the rezoning, a bank appraised it for $2M, which we are using as collateral during the build out. We are building the project in phases with maximum leverage and refinancing each phase, recycling the down payments. 

Since buying the land, we found out that a large nationwide home builder is putting in several hundred homes on the original 70 acres that was up for sale, which is pretty cool and makes me feel pretty good about my intuition on that neighborhood's value.

We raised $1.2M for about 25% of the profits after the capital return. IRR should be mid twenties. It would be higher but this is likely a 4-5 year project.

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May 20, 2022 - 7:37am
TheDebtStar, what's your opinion? Comment below:

I've been in the industry for about 4 years. I do my own deals now with my partners. I networked and found some guys who were building 40-50 unit buildings and had much more experience in construction than I did. We are doing bigger deals now. I bring to the table my experience coming from a large multifamily development company and polish the company up a bit when it comes to financing and equity requests in regards to pitch books and calculating returns. I handle our pre development stuff and let them run with the project once it's teed up. We have over 1,000 units in the pipeline. It happened suddenly, then exponentially.  

First of all, this never would have happened if I had not have quit my job and do not ever think you don't have enough experience to bring value to someone else. I am proof of it.

May 20, 2022 - 8:06am
Ricky Sargulesh, what's your opinion? Comment below:

Probably the best advice I received when raising money for deals is "don't take money from anybody that can't afford to lose it".  I was lucky to connect with a UHNW partner who's equity contribution to my deal amounts to about 1% of his net worth, and it makes the whole process much less stressful since I don't have to worry about him freaking out if anything underperforms.  I turned down friends that wanted to contribute b/c I know they'd be upset anytime results didn't match/exceed pro forma and I just didn't want to deal with that (I told them we'd both be better off if they just put the money in a REIT instead).

  • 2
May 22, 2022 - 5:28am
m_1, what's your opinion? Comment below:

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