But Seriously, access to $200,000,000.00 to invest?

Question

Hello BP,

Lets say you meet someone with $200 Million and they want to put it into real estate.

• How would you add value to this person? 
• Which investment vehicle would you chose? (Single Family, Commercial, Etc.)
• Who would you have on your management team to make these deals possible? 
• How would you pay yourself for your time?

Brian Burke · Answer

@Scott Hollister, most on BP might dismiss your question as preposterous but having been on the receiving end of such an offer I can comment on my observations.

Back in 2010-2011 as the market was bottoming after the GFC I had an offer for a $25 million starter slug with options to $100 million plus leverage which essentially would allow for $200-$300 million in acquisitions.

The investment vehicle you would choose would have a compelling thesis plus alignment with a unique skill set that you bring to the table, backed up with detailed financial projections and data to support it all.  At the time I had this offer I was buying single family homes for a buy/hold strategy in CA that was really designed to capture what I forecasted at the time to be a doubling of prices in five years, rather than as a simple rental cash-flow play.

So only you can answer your own question...what skill set do you have that is unique?  And does that skill set fit with an investment strategy that is in-season?  If it's not, then the timing makes it unlikely that you'd be in the position to assist with the allocation of $200 million.  The first step for the capital source will be to decide if your strategy has a greater potential for being a winner rather than a loser and then they'll do extensive due diligence to prove out the strategy and your ability to execute.

Thus, the ultimate answer to your question is just as different for each person answering it as it is for yourself.

If it were me, today, in that position I'd be (and am) acquiring value-add multifamily, 200-400 unit complexes built in the 1980s-90s in growth markets using conservative leverage and underwriting assumptions. I'd add value with my track record, ability to source deals, ability to secure debt, my connections, systems and team.  I'd be using the team I already have in place and I'd pay myself through an acquisition fee, asset management fee, and a promote.

Russ Draper · Answer

Opinion here - honestly if they have $200M they shouldn't be talking to someone that doesn't know these basic questions!

There are so many ways to answer this, from REIT to all sorts of small investing items.  For that kind of money you would form a separate company to handle it, they could invest in their own hedge fund!

Account Closed · Answer

@Scott Hollister  I can think of several options but I would probably go with what I like.  I would also do it in Texas.

1)  Take $40,000,000.

2)  Do major a assemblage in areas needing development or redevelopment.  To limit risk options are used until the city approves everything in step three.

3)  Get city buy in.  1)  Require all included right of way be returned to the developer.  2)  Get demo permits waived.  3)  Get impact fees waived.  4)  Get the local EDC or CDC to pay for all parks included in the development.  5)  Time the demolitions to reset the taxable values.  6)  Use Tax Incremental Financing and possibly a Public Improvement District to reduce the costs of infrastructure.

4)  Do a mixed use planned development.

5)  Don't build anything other than infrastructure.  Simply flip the lots to builders.

Here is an agreement between a city an a developer you can look at.

https://drive.google.com/file/d/0B7_5ZtjlY9PvYXl5N...

Here is a link to a presentation showing how this kind of investment is presented to investors.

http://monsoonwealth.com/images/Oakhurst_Trails_In...

It also includes a list of key management.  You should also noticed a pack of engineers, financial experts, and lawyers also work on this kind of deal.

Full disclosure...  I am not associated with any of the businesses that put the sample deal together.

Doing five projects like this at a time would be full time jobs for many people.  But the risk is low because the city raises the value of the property while it is still in "paper lot" stage if not before.

Joe Villeneuve · Answer

Divide the money into 4 categories:

1  - Spending Funds to Payoff off ALL Existing Debt.  Payoff all debt.  This is a one time use, but it eliminates your one time debt and recurring monthly bills ( cars, credit cards, etc...) associated with that debt.

This is huge.

2 - Investment Funds for Needs.  Invest in a vehicle(s) that will bring in as steady an income as possible that covers your Monthly Bills.  Me, I would go after NNN commercial buildings for this.

3 - Investment Funds for Wants.  Invest in a vehicle(s) that will bring in income that you can use to spend on "whatever" cause, special interest, "floating iceberg from the North Pole to Africa" (you had to see Brewster's Millions to appreciate this), new business, "wet dre.., etc...

Note:  In this category, you are NEVER spending the seed money you put in from this $200M...ONLY the profits gained from it.

4 - Spending Funds on Wants.  Spend the PROFITS (ONLY) from #3 on...anything you want.  Remember though, never spend the seed money in that Category...ONLY the profits.

Brent Coombs · Answer

Every dollar must be put into assets that are ALREADY worth 25%+ more than they're being bought for! Leveraging, and shuffling around the portfolio will also occur.

The motto will be: "Nobody ever lost money - taking a profit!" (Bernard Baruch).

ie. Don't try to time the very top of the market before selling! My 2c...

Ryan Scott Isacksen · Answer

Hi Scott,

I like Brian's answer, especially since it comes from a position of experience with that situation.  :)

I have to jump in on a question like that myself.

1. I would value add to the person with my experience managing property and with market research that would be placing the investment in an area that is on the cusp of rising rather than already a very hot market.

2. The vehicle would be large multifamily buildings.  Value add situation plus a growing market.

3. Management team would be Attorney, Broker, Local Banker to the area, Management Company, Inspection Company, and Contractors for additional inspections.

4. Pay with acquisition fee and a small percentage of equity in the deal(s).

Alan Kinser · Answer

paper Dog team blue

Scott Hollister · Answer

@Russ Draper trust me, If I wanted someones opinion on telling me it can't be done I would talk to my middle school special ed teacher or my high school counselor who said I didn't have what it takes to go to college. I appreciate opinions but what I'd rather have is a way, just tell me how it can be done or how its been done then I will figure out the rest:)

Notice how @Brian Burke just showed me a way, he has his apprehensions but he said: here is how its done. For me to fully understand how bigger players do this I have to put myself in that scenario. To see how deals are acquired, how people get paid, what team needs to be in place, etc.

We all start at the same place!

But Seriously, access to $200,000,000.00 to invest?

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