Capital Raising for Real Estate Development

Hi all

I'm working for a small developer as an analyst in the DFW area and are having some trouble raising the capital needed to secure the land. Thus far we have only raised enough equity to pay for half of the land's asking price.

We are still looking at traditional commercial banks, financial intermediaries, and potentially some private equity and real estate I banking guys to help us raise the capital needed to break ground and get the project rolling.

Most of the investors who declined were hesitant due our lack of bank financing and to a lesser degree noise issues from a nearby DART, so we have begun aggressively meeting bankers throughout this week and next.

I'm pretty new to the industry by most standards, and while I worked at a mortgage bank doing credit for a few years there is very little carryover.

I'm thinking of enticing early investors by offering a preferred return to our first round investors, and aggressively raise our project returns through use of debt financing, potentially pushing past 40% IRR annualized and with a 2.0 EMx.

Its pretty late so I may have been rambling a bit, but does anyone see flaws in my strategy/plan? Or general advice on how we can improve our capital raising at this early stage.

Thanks

Comments (2)

 
Jun 8, 2017 - 7:34am

I'm always really wary of starting the pref clock on land deals, particularly if there is entitlement risk.

How strong are your principal's personal financials? You should be able to get a bank to lend 40-50% with personal guarantees and a decently articulated exit strategy. If you've tried and been unable to secure debt thus far, I don't understand how you're planning to compensate for the pref with leverage.

 
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Jun 8, 2017 - 12:21pm
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