Best Resources For Raising Capital For Emerging RE Developers?

Venturepapi's picture
Rank: Gorilla | 672

What are some of the best resources for starting to raise capital as an emerging RE developer?

Often times people start with friends and family in country club deals but I was wondering what institutions back smaller deals for small RE developers (if any at all).

Comments (14)

Most Helpful
May 11, 2019

General rule of thumb is that your first money has to come from professional contacts that know you and have done deals with you for some time.
That forms your initial capital base.
That can be your old boss, people who did syndicate deals with you in the past, former co-workers who have money, PE funds that you worked with on deals, etc.
Later, you will need to cultivate your own non-close capital sources.
That's harder.
For that you need to have a track record and portfolio of previous projects, and then go in over time and build those relationships.
Generally getting a warm intro to those LPs is best.

So step by step:
1) find and underwrite some good potential deals
2) circulate the deals with related parties that can finance you
3) exit those deals successfully and have a portable track record
4) let others know you're looking for capital sources. Attend conferences. Network.
5) over time show your deals to capital sources and build comfort and relationships

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May 13, 2019

Really helpful advice, thanks for that @earthwalker7 - A lot of parallels in sourcing deals in RE and VC.

What if you're missing those professional contacts right now, how would you recommend going about gaining them? I don't work in PE, so not sure what the right approach is to starting to build up that network.

May 14, 2019
Venturepapi:

Really helpful advice, thanks for that @earthwalker7 - A lot of parallels in sourcing deals in RE and VC.

What if you're missing those professional contacts right now, how would you recommend going about gaining them? I don't work in PE, so not sure what the right approach is to starting to build up that network.

Well, I'd say it's much easier to raise for RE than VC.
Mind you, I said "easier" - not "easy".
No capital raising is easy.
The good thing about RE is it's an asset class that everyone can understand - including mom and pop investors and your own close circle of friends.
So, if you're working in RE now, the goal is to find a good project and to be able to get some of the business partners that you know and work with to back you.
If you're NOT in RE, the key will be to find a good project and get your family and friends to stake you.
Ultimately it's not easy - but it is straightforward.
1. find a good project
2. underwrite it effectively
3. present the opportunity clearly to others, and get them to buy in
4. deliver good results

Where to find?
Industry events would be my first choice. Go to ULI meetups, and to the big annual conferences.
You can look at Preqin - which is an investor database.
There's family office databases floating around - but hard to crack in to those unless you are referred in.
You can check your alumni.
Word of mouth.

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May 11, 2019

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May 12, 2019

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May 26, 2019

Not to thread hijack - but what is generally the cusp at which point you've gained enough clout/value of completed projects to employ a full time debt/equity placement broker to help you finance your deals? Like for example if you apply for a private banking account with JPM and only have a net worth of $100,000, they're not responding to your emails. What is sort of the inflection point as which brokers start taking your deals seriously.

May 29, 2019

... when the deal size and the fee load begin to be attractive for them. If you have a reasonably good background and have a deal that underwrites reasonably well and those guys can get a good fee (may have to sweeten it a little for them initially) they'll do your deal.

May 29, 2019

The REIT level. Most pay a broker fee deal by deal.

Jun 4, 2019
LReed:

Not to thread hijack - but what is generally the cusp at which point you've gained enough clout/value of completed projects to employ a full time debt/equity placement broker to help you finance your deals? Like for example if you apply for a private banking account with JPM and only have a net worth of $100,000, they're not responding to your emails. What is sort of the inflection point as which brokers start taking your deals seriously.

Not sure I understand? You generally hire brokers on a case by case basis. If you mean, when do you bring one in-house... well, why bother with that? Or if you mean a dedicated person at a brokerage shop, then maybe once you get to REIT size/status.

Jun 4, 2019

I feel like you don't call a broker to find you equity if you're buying a sub $500K single-family home or small MF unit. I'm just curious at what value threshold you can call a broker to help you find mezz/pref financing without him putting your number on the do not answer list. Like if I find an $800,000 property and put down $200K, get a 600K mortgage from Wells Fargo and then want to find mezz/pref/jv financing for $200K of additional renovation work - is $200K just too small of an investment to find someone that's not a personal connection to make the investment?

Jun 4, 2019

If you're worth your salt/have enough deal history, though, you'll probably form a relationship with a lender (or lenders). Once you do this, you can negotiate some type of revolving credit line where you don't have to bring in a debt broker. This is a major way to cut down on transaction costs. In a perfect world, you'd be able to close all cash and then tack on debt after you close it to free up capital for new projects.

Jun 3, 2019
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