Simple Lessons From Closing on a 138-Unit Apartment Community

[Omar Khan]

Last month, my company (Boardwalk Wealth) closed on a 138-unit apartment community in Jacksonville, FL.

After closing on this deal, I like to reflect and extract lessons that I’ve learnt along the way.

The overarching lesson is: the power of relationships. A simple lesson that we all claim to understand but few have truly mastered.

To close this deal we had to raise $4.1M. Not the largest capital raise in the world but nothing to laugh at.

While capital raising can be somewhat of an arduous task what’s worse is when a major investor pulls out with 6 weeks left till close.

Poof! $2.5M in capital gone, just like that...

I would like to share how we were able to raise $3.5M+ in 6 weeks and go from being undercapitalized to being overcapitalized in a matter of a few weeks.

Relationship Building

The old saying, “Your network is your net worth” is very true.

The real estate business is all about relationships. This deal wouldn’t be possible if it weren’t for the relationships we developed over the past decade.

Most of the time you’ll hear, “Find the deal and the money will come.” That is a bunch of baloney!

Before a deal even takes place, you’ll have to establish solid relationships with investors, capital partners, team members, brokers, vendors and a whole host of other individuals.

After that, maybe… you have a decent shot of closing a deal.

Investor Relations

I’ve raised money on the institutional and non-institutional sides. From experience, I can tell you that there is no clear path or “5 Step Guide To Success”. Just a ton of consistent, focused efforts that lead to exponential long-term results.

Raising capital is a marathon and not a sprint. Investors usually invest in the sponsor first and the deal second. In other words, not many people will hand over $50K-$100K to someone they don’t know or trust.

It pays to nurture your investor pipeline and develop a robust process around investor relations. Starting out, I would not recommend paying for an expensive CRM software as you need to keep your cost structure down.

Nonetheless, developing a tight phone script, ,process for contacting new investors and keeping in touch with existing investors/contacts is critical to long-term success.

Don’t wait for a deal. Start laying the groundwork now!

Case in point - San Jose Apartments.

After the investor pulled out, we were $2.5M short. What did we do? Panic?

Exactly the opposite.

I picked up the phone and started “smiling and dialing”.

We knew we had a great investment and this was just one small hiccup along the way. In a few weeks, we went from being undersubscribed by $2.5M to being oversubscribed as we raised $3.5M+ (this is also a different, but nice type of problem to have).

This wasn’t an overnight thing. I had deep relationships with 2 parties that raised the bulk of the capital. Those relationships were built through constant engagement and offering value without expecting anything in return.

Team Members

Having the right team is critical. When it’s game time, you better know how to execute! Knowing that we had a team that has sponsored over 2,000 units and raised millions of dollar prior to this deal was a big comfort.

However, it’s important to note, our working relationship is similar to our relationships with investors, they’ve both have taken years to develop.

Brokers Relations

Money-Check, Team-Check, Broker-?

In order to acquire San Jose Apartments we knew we needed to develop a strong relationship with brokers.

We achieved this in a couple of different ways:

1. Have a tight investment criteria
2. Nail down the top 3 submarkets
3. Property tours: physically walking properties is critical

Our investment criteria is simple but easy to remember.

Investment Criteria

• Value-add, B/C
• 100-200 units
• $10-25M
• 1975+ vintage
• 10-15% below-market rents

We also provided guidance by listing our top 3 submarkets with specific reasons for investing. This helps guide the conversation with the broker and ensures they have clear framework to operate.

Lastly, no amount of underwriting, due diligence and/or talking on the phone is going to overcome physically touring properties. It allows an sponsor to stand out from the thousands of tire kickers who are “looking for a multifamily property”.

Put all three of these together and you’ll be on your way to establishing credibility and a professional working relationship.

Conclusion

Unforeseen circumstances are part of the game. You must know how to roll with the punches.

Having an established network of relationships separates the wheat from the chaff. Don’t wait until you have a deal in hand.

Start today to cultivate the right relationships with the right people.

P.S. None of this would be possible without our star team of @Lennon Lee, Stony, @Neal Bawa (Anna Myers and the Grocapitus team), our co-GP partners and our wonderful investors.