How Do You Source Deals?

Pokemon Master's picture
Rank: King Kong | 1,489

I've heard heard countless times that knowing the right people and sourcing deals is way more important than your ability to build a model in CRE acquisitions. How does one typically go about sourcing deals in this space and do you have to be a social butterfly to be good at sourcing deals? I'd assume that since the acquisitions guy has the checkbook and the CRE brokers are trying to sell property, that this should be a relatively simple process for the acquisitions guy. So, what is it exactly that makes someone good at sourcing deals? I'm guessing:

1) Brokers don't always go with the highest bidder, so if you're known for keeping your word and moving quick with the deal process, then you have the ability buy properties without being the highest bidder.

2) Brokers like you and let you know about things before someone else.

3) Maybe I'm thinking about some cheesy house flipping book I read when I was 12, but maybe the ability to source a deal without using brokers? E.g. knocking on doors at beat up looking houses and making low ball cash offers to someone that bought their house 60 years ago for $15,000.

So basically, what I'm getting at is how much of the deal sourcing process is sales vs. track record of successful execution vs. just being a likable guy?

Comments (15)

Sep 16, 2015

I'll preface this with the fact that I'm a Broker that deals with Commercial Retail assets. I speak with acquisition people on a daily basis and probable provide a different point of view then someone who actually did acquisitions, though in my own way that's all I do.
Yes, it is true that we don't always go with the highest bidder. There are a number of reasons for that, the biggest being that some joker will lock up the deal with some egregious offer then flake out basically fucking the broker and wasting time. I personally go with who will provide the best outcome for the client, though I know a ton of brokers who give the contract to their buddies or the highest bid even though it may fall through.
People in the CRE world have a tendency to shit on brokers. A dime a dozen they say. This is stupid to do, the best thing you can do is make every broker in the world your best friend. This makes things tricky when it comes to dispositions, but the good guys just give the assignment to whoever brought them the original deal. I work closely with a developer who I feed stuff to constantly without having the property exclusively listed or locked up to gauge interest. I know this developer won't fuck me, so I give him more access then the average acquisitions guy would get.
That same developer also goes after deals directly, so I would say he is very effective sourcing deals. If he happens to come across an opportunity we didn't find, he doesn't have to pay a fee. If we find it, he pays the fee. This works out for the developer because he essentially has a full staff looking for deals for him without having to pay the overhead.
I would definitely say in the beginning if you're going after all the class A low cap rate deals then you need to build the relationships with the brokerage world overtime and show you're a capable and motivated buyer. That may mean you need to be a little more aggressive in the beginning to show you're committed. Frankly, yea being likable helps. I don't want to do business with someone who is very difficult or hard to reach. But at the end of the day I don't get paid if I don't sell the asset, so if I know you're going to buy it and you're a pain in the ass, I will still reach out to you.

You eat what you kill.

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Sep 17, 2015

People in the CRE world have a tendency to shit on brokers. A dime a dozen they say. This is stupid to do, the best thing you can do is make every broker in the world your best friend.

That's what I was thinking. Every time I hear people shit on brokers on this forum, the wise words of How to Win Friends and Influence People keep popping up in my head.

Oct 7, 2015

Ok, so I did a little more research and I think I answered part of my own question.

Acquisitions guys at the senior level are supposed to source a decent percentage of their deals WITHOUT using a broker. I'm still a little confused how that works, but the logic of it makes sense. No broker = no commission, no bidding wars, and the opportunity to get an amazing deal from an unsophisticated investor. Now it makes sense why my friend's family always gets unsolicited offers for their 100 year old building in Brooklyn.

So I would assume deal sourcing consists of:

  • Writing lot's of letters to people who own old and beat up buildings. Maybe one of them bought it 40 years ago and has no idea what it's currently worth. Your low ball offer for 25% below market sounds enticing. I imagine this is more effective for development focused funds. The owner sees an old building that is falling apart. The acquisitions/development team sees a completely new building with twice as many luxury apartments in a high income neighborhood.
  • Have a solid rolodex of other acquisitions/dispositions guys who may want to sell without a broker.
  • Probably a bunch of other venues that I'm overlooking.
Oct 7, 2015

Many brokers take different approaches. It depends on the types of asset you are selling, too. It would be very difficult to cold call Blackstone, for instance, and get a meeting. They have developed relationships and won't sell their buildings with any 'joe.' But many brokers will normally cold call and slowly begin to have relationships built over the years. You begin to meet owners as you network at different events and also do deals. And slowly, you develop a reputation that hopefully brings you deals. Additionally, it makes it easier when you know a building may be sold, or has potential to be sold, and you make a 'warm call' to make to someone you have met before. But there are always new owners to meet and cold calls to make.

You can filter buildings depending on many things such as debt, equity levels, geography, etc. There are some shops, such as Massey Knakal (recently purchased by Cushman and Wakefield), which broker based upon geographic focus. The thought process being less internal competition, and you can get to know all the owners in a small subset to develop relationships with them. If looking at equity levels, you may want to filter for people who have more equity in their property, have owned for long, and may be willing to sell. There are many different ways of going about it, the trick being getting the meeting and developing the relationship.

Oct 7, 2015

Pick up the phone and call. Call every single building owner in your area. And follow up. And follow up some more. And with any luck you will find someone who is interested in selling.

The true self made broker will be hustling all the time. Calls and calls and more calls and industry events and knocking on the door and more calls and industry events. Eventually you will have a large enough roladex of your own that you will have to call less and less and listing will come in the way of referrals.


Other ways I have seen some people do it is ask mom and dad for their roladex and call their rich friends, maybe even sell some of your parents buildings. and then brag about how much of a BSD you are.

Oct 7, 2015

Other ways I have seen some people do it is ask mom and dad for their roladex and call their rich friends, maybe even sell some of your parents buildings. and then brag about how much of a BSD you are.

Classic. Second only to inheriting the family portfolio outright.

Oct 7, 2015

Good stuff, thanks. What about properties struggling with taxes? Or forming relationships with Family Offices?

I totally respect drive/hustle, but (like anything) looking for ways to be more effective. I'm curious to see what has worked for fellow monkeys

Oct 7, 2015

1) Choose a specific product type in a specific geographic area.
2) Build a database of the properties and owners.
3) Follow the market (rents, development, zoning changes, deals closing, etc.)
4) Call owners in the area and offer something of value (ex: valuable market info/update or maybe an off market deal)
5) Set meetings and assess needs
6) Value proposition/proposal
7) Follow up and stay in touch and be the go to guy in the neighborhood

It's crazy how you call these private owners and even investment groups always say they're not selling then when you call them then out of the blue you get a voicemail and they say they're thinking of selling when you least expect it.

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Oct 7, 2015


Best Response
Oct 7, 2015

I don't know that we're talking about the same kind of deals here but I'm an LNG originator for a commodity trader covering AMERICAS region. Requires me to travel down to South America and meet with potential customers that are developing or planning to develop regasification projects paired with a power plant or other gas demand center (termed gas-to-power or lng-to-power opportunities).

Opportunities typically come from these customers themselves, they reach out looking for term sheets for LNG supply shipped DES or FOB. However, these are typically the lower (ish) hanging fruit since if they reached out to you, you know they have or will be chatting with everyone (tender process for cargo(s)). The better opps. are the ones you have to go out and find. Personally I've been developing (forever work in progress) a database of power plants and industrial type players in a few select countries in SA. I collect everything from simple aspects such as their demand profile (in MWs), feed gas type, and lat/long all the way to where they currently get their fuel source from and how much longer that contract is in place for (if I can find this) and much in between. I tend to overlay lat/longs into my Terminal's new MAPS function (if you haven't seen this check it out) just as a visual aid. What this enables me to do is come up with an opportunity funnel. That power plant that is burning fuel oil right off a coast in Brazil but getting pushed by the local state to expire its supply contract and refit for gas burn? That's interesting to me. That's an example of what I'm looking for.

To come up with a term sheet with indicative pricing that makes sense, you need to understand who they are and how they work. Where does this player need flexibility in his cargoes? Does he need seasonal volumes or flat fixed amount of cargoes across the year? Where can I add margin (shipping? fixed component? variable?). It's all one big puzzle, there are no corners, and the pieces change every day. You have to keep up with who needs what, for how much, and for when. I find that maintaining that "momentum" for lack of a better word, is key to performing well. I think of it as riding a wave, as long as you're on it you know where and what to do.

As an originator we do not do as much diligence as we probably should, granted a lot of that has to do with the fact that other groups do much of the work. When a developer sends us their model for their project for example, that model goes to our commercial strategy / analytics group, a group I was once a part of as well. They do the nitty gritty, doing deep dive analyses and due diligence and additionally, spend extensive time briefing / educating us on their findings to give us a leg up when we're in the meetings. Without a doubt though, as originators we know the countries we cover like our back pockets. It's critical that we know how their energy market operates, power auctions process, regulatory and environmental process to develop power plants or LNG import terminals, etc. This circles back to my first point a few paragraphs above, knowing your market enables you to quickly eliminate and not spend time on what is quite obviously an unfeasible, or unrealistic, or simply not "serious" project.

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Oct 7, 2015
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