Question Regarding Raising 2 million for first development with 8 already pledged - Ontario, Canada

FibonacciMan's picture
Rank: Monkey | banana points 32

Hello Everyone,

Me and a friend are looking at acquiring our first development project. We have 8 million pledged by one investor, and are still in need of 2. The land we are looking to acquire is in SW Ontario off the market and is owned by a family friend. We plan on building 50/50 condos and homes.

My main question is what is the best way to go about raising the remaining capital? (hitting up all the investment firms in Toronto?)

In addition, would it be wise to have an NDA before sending out the teaser to potential investors?

I thank in advance anyone with any relative advice.

Comments (5)

Best Response
Sep 24, 2017

Is the $2M you're trying to raise equivalent to the land value or is total development cost less: land $10M? If the $2M is all in the land, you should JV with the land owner and give them project level (non-promoted) returns on exit (pari-passu distributions based on their land value contribution as a % of the total equity required to do the deal). You could promote yourself off the LP equity assuming the $8M man is passive...

I think your first task would be to set up a one page summary clarifying the key economics to do the deal without revealing exact location etc..interested parties following this point should sign an NDA to further the discussion.

Jul 20, 2018

Being a first year analyst in the PNW, I am relatively new to the development world. Can you clarify your first paragraph? For example, if the project sells for $12M, what would those returns look like for the the land owner, LP, and the original poster? I am a little confused on the "pari-passu distributions based on their land value contribution as a % of the total equity required to do the deal."

Jul 20, 2018

Pari Passu = at the same rate or on an equal footing

In other words, let's say that for whatever reason, the OP is contributing $0, the Land Owner is contributing Land worth $2M (20% of Total Equity Capital), and the LP is investing $8M (80% of Equity Capital). Pari Passu returns would mean that, the land owner would receive 20% of the cash flow distrubtions, which is pari passu to their investment. The OP, if I'm understanding @cpgame would "promote" off of the 80% of cash flow distributions remaining. For example, the OP could tell the LP that, after the LP has received a 1.5x Multiple, they will split all additional cash flows 50% / 50%. Obviously, the promotes can be sliced a million different ways.

    • 1
Jul 20, 2018

I see, this makes sense. Thank you for the clarification!

Jul 21, 2018