CRE Syndications/Joint Ventures

[Josh Haney]

Hey everyone,

I have been in the process of learning the commercial real estate game specifically with syndication and joint ventures in mind for the future. I have no deal experience and all of my knowledge comes from self-study and networking. Me and a partner have begun creating a rolodex of capital that we believe can be raised, but we are hesitant to even try without a being more comfortable in the space. We also realize we have a lack of credibility due to lack of deals that have been done. I am looking for any advice on where are next steps should be, and would specifically ask if there is anyone out there with experience in the space that would be willing to share their experiences and any tips/advice. I would love to hear both success and failures and hope to meet some people along the way. I have already met some very knwoledgeable and experienced investors and operators through BP, and was hoping to grow that list.

Thanks ahead of time.

[Francis Faucher]

Quote from @Josh Haney:

Quote from @Francis Faucher:

Hey Josh!

It's not impossible to raise capital with little to no experience, but it's harder. Think about it and put yourself in the shoes of the investor. The first 2 things you want to build is your REPUTATION and RELATIONSHIPS. If you don't have these, I would avoid raising capital, but here's some tips on top of my mind:

- Sometimes, it's better to start with debt instead of equity. Or offer a mix, like x% interest + 30% equity ownership. Or x% Interest + 50% ownership. At first, you will need to offer something really interesting to your investors. 

- You need to be the best in terms of knowledge in your specific asset class. Make sure you know the in's and out's of the asset type you're looking to invest in. Because investors love to ask questions. You want to be the reference (in terms of knowledge)

- Understand how to do the financial modeling of this type of asset or if you outsource, make sure that person is available when you pitch. There's specificities for SFH, multi res, industrial, commercial, self-storage, hotels, etc. Make sure your financial modeling is SUPER conservative with a lot of stress tests. If you raise money, try to present the pessimist scenario.

- Try to put all the steps of a deal in a project management software like Asana, Monday, etc. When I say all the steps, I mean all the steps. From the ad you create for your deal flow to the cash flow distribution after you exit the project. 

- Make sure you are surrounded with pros who's taking care of your financial compliance, SEC compliance, IRS compliance, legal compliance, etc.

- Understand syndication structure that you want to offer. Example: Pref of 8%, catch up 2%, then split 20/80 till 15%, then 30/70 after. Think about the management fee, acquisition fee, etc.

- Understand the rules of the syndication or the fund world (Reg D 506B vs Reg D 506C). Who do you plan to target (accredited investors or not), do you plan to advertise to the public, Do you need an RIA, etc

- Make sure you know what to look for in a PPM, LPA, subs docs, etc if you don't do them by your legal team. Some investors loves to add some clauses that could hurt you. Sometime saw investors add clauses that were like put options, but in the real estate market. The GP got screwed and were force to buy the LPs shares at X$/share. Crazy.

To be quite honest, if you don't have any experience at all, I would avoid AT ALL COST raising money. You might burn your reputation and relations. ESPECIALLY in this economic era.

I think your best bet would be to go through your rolodex and ask them what they are looking for (asset type, specific returns, timeline, etc) and become a bird dog/wholesaler where you would sell the deals you find. You can ask for a small share of the project if you want. Focus on finding good deals, build a 1 pager/OM that shows the key criteria's of the projects (that will of course fit the investors criteria's). Show that the deals you find are really good, your presentation/OM are good with good underwriting/financial modeling. 

After a couple deals you do like that with a key player, tell them that from now on, you would like to manage the project yourself. You offer them minimum return of 8% on their cash, and then split the rest 20/80. The more you do projects with them, the more you can ask for more in the partnership.

I started real estate more than a decade ago, trust me, I did all type of deals and saw all type of stuff. Even created and launched a real estate fund. Raising capital sounds easy, but it's not. You deal with other people savings, and if some problems occur, you might have huge problems with the SEC.

Please don't take my comment as negative, it's quite the opposite. I encourage you to become the best in the asset class you are aiming. 

Good luck!

Francis

Thanks so much Francis for such a thorough and detailed response. I will look at all of these and take some deep dives. I know that I am certainly not in the place to raise money, thats why I was looking to this forum to find a way to begin building that knowledge and experience to eventually point me in the right direction. The last thing I want to do is jump the gun and have a deal go south before I have even gotten in the door. I really appreciate your response and I look forward to learning more on the topics you mentioned.

 My pleasure, don't hesitate to contact me!