Options for raising equity for a Class A $200M Development Deal?

Can someone break down the different ways of raising equity for a Class A Multifamily development deal and describe the advantages and disadvantages of each? Probably looking to raise around $40-$50 Million for this deal. Strategies that come to mind are Joint Ventures with other developers, using Capital Markets Brokers, bringing in institutional LP's, crowdfunding, preferred equity etc. I'm sure there are options I missed and subcategories of the types I listed.

Our firm has a strong track record- over $2B in multifamily development over the past 20 years exclusively in gateway markets. We have funded most of the equity for previous deals ourselves and haven't gone out to seek equity outside of HNW friends and family, so we are lacking in this expertise and want to understand the options out there.  

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Comments (6)

Most Helpful
May 10, 2022 - 10:59am
decrebepro, what's your opinion? Comment below:

Just my 2 cents, a quick ranking of the options here:

  • Option 1: go to your established relationships with HNW individuals, family offices, country club members, etc. This lets you retain complete control of the deal and the decision making, structure a more favorable JV, charge decent fees, and minimize reporting and looking over your shoulder.
  • Option 2: go to established relationships with institutional LPs, lifecos, PE firms, etc. Hopefully this lets you repeat a deal/legal structure you've executed in the past that you're comfortable with, you can have an honest negotiation on JV terms, fees, mark-ups, etc. without feeling like it's a strain on a new relationship, you already know the ebbs and flows of their business and how it meshes with yours (e.g. reporting and getting checks approved and out the door). Downside is legal & transaction costs (negligible in a deal this size though), and there is some degree of their hands being in the pot - may mean they want to use their lender relationships instead of yours, their attorneys may be a PITA when negotiating with contractors or whatever, maybe some dumbass in a suit wants a voice on the architecture and drives some bad design decisions, that kind of stuff.
  • Option 3: go out to the market and/or hire a broker to take your deal out. Really the only upside is you can find someone to write a big check, because if you're at this stage you don't already know the right person for this deal. There is something to be said about developing a new relationship and adding it to your "roster" of LPs, though. Downside is all of the above, plus paying a broker, plus the work and time involved to go pitch the deal, plus the chance that you'll end up stuck working with people you don't like for the next 5+ years.
  • Option 4: go partner with a co-developer/sponsor. This is going to be the worst option because of all the reasons outlined in option 2 but magnified, plus the fact that you're going to give up meaningful economics - part of your precious promote, your fees, etc. And it never feels like the work is fairly distributed or that they're earning it, trust me. The upside here is that you can offload some of the risk - get them to participate in completion/repayment/cost overrun guarantees. Like the option above, if you've found yourself here, it's probably because you had no other choice.
  • Developer in RE - Res
May 10, 2022 - 12:40pm

Very helpful thanks. Our handful of HNW puts up $1-3M per deal, just going to them is not enough this time. CEO (aka the family) usually puts up 60-70% of equity, and can't front a majority of the equity, it's tied up in other deals. 

What are the typical fees involved with going with a PE firm/LP for a deal this size? How about the typical fee for a capital markets broker?

May 14, 2022 - 3:51pm
FunnyUsername, what's your opinion? Comment below:

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