Form of Taking on Investors

[Michael Farraher]

Hello. I was recently hired by a RE developer as a Business Development Manager. Part of my role here is to raise capital for projects in the pipeline. To date, my boss has been self-financed or through traditional financing. He's got about 25 years under his belt and has done some pretty big projects (22 unit MF, 100k SF self storage, $10M TI project for public utility). 

He is looking for capital to move projects that he might otherwise be stalled on due to liquidity. He's not really looking for a JV/partner, but looking for capital exclusively. He's a typical developer (control freak), but very successful and smart as a whip.

My question is this: is it the norm to raise capital by way of a fund and a private placement memo (to fund various projects generally), or should I be looking for individual investors for project-based investments? 

It's a convoluted question, but I am curious to know what success others may have had with either approach. (N.B., I'm and attorney and am aware of the challenge of wading into securities regulations--I just don't know if it makes more sense to put together a fund vs. negotiating each investor's stake and position in each project)

[Brian Burke]

@Michael Farraher if I understand your question correctly you are struggling with the two options of raising capital on a per-project basis or setting up a fund such as a blind pool or semi-blind pool?

If were me, I'd start with one-off raises.  Until the firm has built a track record (while the principal does have experience it doesn't sound there is a track record of using investor funds) raising funds for a blind or semi-blind pool will be challenging.  It's hard enough to raise on a per-project basis when the investor gets to actually see what they are investing in and underwrite the deal themselves.  It's even harder when you are asking the investor to just trust you to make the right decisions and invest in a fund.

Part of this decision hinges on the relationships you are working with.  If y'all already have strong relationships with investors you might have better luck with a fund than you would if you don't have deep relationships with the investors you are courting.