Tips when Working with Institutional Capital: 10-25 Million

On February 1-2nd, 2018 I went to the IMN (Information Management Network) forum for small and mid-sized apartment owners.

It was great to hear a presentation on working with institutional capital. The presenter started off explaining how they “wrote smaller checks” than the big institutional lenders. They lend in the 10-25 million dollar range. (When did that become “small?”)

After the introduction, the lender opened up the crowd for questions and this great question was asked: “What do you look for in a borrower?” Here are the best tips from that conversation. Going forward I will bullet point the lenders information and tips.

• We like to date before getting married. So we would like to be involved in the deals you are currently writing LOI’s for. That way we “get more reps in” and “get to know each others likes and dislikes.” His advice was you shouldn’t get married on the first date, even though you will be contractually. It takes time to build a relationship.
• Real Estate is a Relationship business: “People do Business” was thrown around a lot and that you should “lean on relationships for a warm introductions.”
• The lender looks for you to be an expert in the area you're investing in. If they see that you’re out of state or have no deals there, odds are they won’t feel comfortable investing with you.
• They look at “risk over reward.”
• Have a “compelling deal story”. When they review the deal, people buy into stories. Same thing with your business plan. “Can they buy into it?”
• “Demonstrate the Maps” For instance, if we close on these 200 units that will put us at 600 total units in our investing radius.
• “Your deal has to be realistic, do not start with a crazy unrealistic plan, otherwise it will go in the trash pile.”
• “Execute on time and on budget.” This is where you show your investing history and actual rehab/construction deals you’ve completed.
• “We look at cash flow over cap rate as an operator.”
• “Talking about your weaknesses is very important!” Questions will come up and it is in your favor if you can answer them intelligently. This is where you “talk about lessons you’ve learned. It shows that you’ve been around the block.”
• “We are all in sales, whether if that is selling yourself or your product.”
• The leaving message was "ALWAYS keep in touch and ALWAYS follow up." Even if the deal isn’t going to work. Checking in from time to time keeps the relationship going, so when you have a deal and need financing you will have a relationship to build on.

To sum up my experience, I would conclude that in order to be a successful investor seeking institutional capital, one should become proficient in the small things. These include, acquiring expertise in your area, having a compelling business plan and deal story, being accountable for what you say and do, being realistic and honest, and developing your key relationships. Often times we think success comes from taking large steps each day, however success comes from small daily disciplines that ultimately help you accomplish your main goal.

“The better the story, the more people buy in.”