Raising a Fund Vs. Individual Offering
Hello people. Need some advice. So after years of working. I plan to try and go out on my own. My goal is to acquire healthcare real estate. I have my GP equity set aside and a sizeable marketing budget (I'll be doing publicly marketed offerings). I have a dilemma here though. I'm having some struggle trying to do an individual RE offering because I would have to go under contract first and hope I can raise the equity in time.
However, another thought I had was to do a fund under 506C. I would set clear criteria in the PPM. This way I at least know I have the funds ready to go, which I can place quickly given my pipeline.
I guess my question is, is it more difficult to raise under a fund than an individual offering? I feel like investors, especially those with limited knowledge, prefer to know the exact asset they will be investing in. Im prepared to spend around $50K in marketing to raise approximately $6m-$7m. I'll be contributing 10% of the equity stack stack.
Essentially this would be a blind fund but with very clear criteria on region, property types, etc.
Put yourself in the shoes of an equity investor.
Why are they giving you money, versus someone else? For how long do you expect to tie up their funds? Sure, you're placing funds "quickly" but are you going to be better than the dozens of competitors out there with more track record? How do I know you aren't just interested in feeing me to death?
With a specific deal you can alleviate a lot of these concerns. You have the equity to put down a deposit, so there isn't an issue there. What you really want is to shift as much risk away from yourself and onto your LPs are you possibly can - which is sensible, but also a really difficult needle to thread when you don't have a track record to point to. The reason RE developers/sponsors get paid is because they take risk; the more you attempt to pass that risk on to others, the less you should expect to be paid.
All good points. For fees, under the fund, there will be no promote. Pretty much only fees will be a 1.5% equity fee and we may choose to internally manage the property and collect the PM fee. You are absolutely correct that since we are limiting our risks, we don't expect to be paid much.
No promote? How are you incentivized to perform than? This makes no sense.
Your fees and promote need to be balanced or else you will appear to lack incentive and some people might perceive there being something wrong with the deal. All else being equal, if I see a one-pager for a deal that’s mid-teens returns with market rate fees vs one without any incentive or fees, then I’m going to automatically assume the no fee deal is too thin. Starting a first-time fund these days is extremely tricky, I would stick to some syndications and bring fees and promote inline with market for the risk profile you are pursuing.
Good to know. What are you all seeing in the market for stabilized net leased assets in terms of promote, 50-50 over 8?
Edit: These are value-add but will be stabilized with net leases.
Dude do you work in real estate? You actually just asked if 50/50 over an 8 was market? I think it would be helpful to understand your background a bit further when discussing whether it would be advisable for you to raise a fund.
50% over an 8? On a net leased asset?!? Lol. Seriously. I don’t think anyone is signing up for that. If you told me in a NNN build to suit - sure. There’s risk. But not a net leased asset already cash flowing…
Dear god no... 25-30 over an 8 on value add.
Thanks! So 25 over 8 for value-add. If we do a stabilized deal, I was thinking 25 over 10 or 12.
Ok no offense but I think you need to reconsider whether you are ready to step out on your own.
Why would your pref hurdle be higher for a lower risk deal? Investors will accept a lower return for lower risk, so don't you think you should get into the promote earlier on stabilized product?
Stabilized deal would have a lower Pref…
bumping this. were you able to raise the capital? also looking to raise RE capital, would be happy to talk through thinking points.
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