All Forum Posts by: Bryan Hancock

1.  Neither is more important, but finding the money is generally harder; especially without a long track record.  I'd recommend you think about your marketing system for finding and developing relationships with investors FIRST and then shopping for projects second.  You'll always do both in parallel if you're doing it correctly.  Keeping deals and investors in balance is the whole name of the game for sponsors and having too much or too little of either creates problems

2.  It depends.  In general make sure that you think about the returns of your LPs first and yours second and you'll have a long and prosperous career.  You should be far more concerned with losing the investor's money or under-performing than you are about losing your money or time

3.  "Finding the fund" I presume means organizing the investors.  Finding the deal generally can be positioned to entitle one to a fee.  I dislike fees in general because they create misalignment, but a lot depends on you're feeding your family.  Investors should want for you to be compensated reasonably in fees so you're secure and can focus on making the deal perform well instead of scrambling around on other hustles and not focusing on the project or company.  What you can take for your services depends on supply and demand and will also depend on how well you can negotiate along with how time-intensive the deal/project/business is

4.  I'd encourage you to think about a preferred equity structure and distributions instead of cash on cash returns.  6-8% preferred returns are pretty common for most project types that use private equity structures to capitalize

A very fair structure if you learn to message it well and have quality marketing systems is:

• Preferred return to A/B (cash, property) shareholders where they're pari passu
• Match to C/D (compensatory, promoter) shareholders
• Some split that will probably range from 50/50 to 70/30 (investor/sponsor)

Dial to fetch what the market says you need to attract private capital for your investment type and perceived risk that spans horse risk and jockey risk.  

The word "platform" implies marketplace in my opinion.  The marketplace model is a tough two-sided problem to solve for any endeavor.  Heaps of venture capital have been raised to try to make it profitable and the broker-dealers have shunned the smaller projects for a long time because the real costs of soliciting and serving investors is quite high.  When these costs exceed the investor's willingness to pay them it doesn't bode well for the overall business model.  Capital formation for real estate is quite different than what the SEC contemplated when they did the Angelist and Funder's Club NALs that most platforms use as the basis for their securities apparatus.  The lawyers and other shovel-sellers have done well, but it really hasn't helped the sponsors as much as it could have.  

There are other white label companies as well, but they generally don't come with a marketing component so that also doesn't really help sponsors much.

In general the industry has matured a lot in the last 5 years and with Reg. D's limits being raised I see this change accelerating over the next many years. $5M for CRE will move the needle quite a bit in many locales.

The best sponsors are using their own branding and operating their own sites to engage with investors.  Renting a list of investors doesn't help them engage with investors on the terms they want and own their capital formation process.  The more senior sponsors that I know still largely aren't doing much online, but this will change as time passes.  Some of the folks I know and respect locally are starting to modernize a bit, but the industry is still evolving.  

Hi Jordan....My email is in my signature, but I sent you an email from my Real Advisers email address as well.  That's the best address for this discussion to keep everything organized.  Thanks for expressing interest.

Any benefit can be framed as a drawback in many cases.  A lot depends on your goals and what story you're trying to tell.  

One of the main benefits I see of people investing passively is it FORCES them to think about the value of their time and how that should be imputed into "return on equity" calculations.  The money generally doesn't work as hard as people claim when it gets above about 15% because a lot of that is generally labor that is poorly accounted for.

I tied up a couple of east Austin projects this week and can do one of the two, but need some LP capital to do both.  The project level ROE is about 25 percent for LPs.  A few accredited investors is what I am seeking for capital or I will probably pass on the 2nd project. 

If you're interested please email me at the address in my signature. We will do a simple Reg. D, 506(c) raise to organize the capital. I have done about 60 of these projects since 2010 and am happy to supply a track record sheet, resume, or whatever you need to feel comfortable investing. We'll organize the project with a simple LLC and will use a Reg. D, 506(c) exemption.

Risk is often in the eye of the beholder, but from what you wrote above items 2 and 3 are highly more likely to be why a sponsor is offering higher proposed returns.  Those types of returns are a signal that the sponsor has to offer them to attract capital, which wouldn't be the case if they were more seasoned.  

There are ground-up development projects that offer really high returns commensurate with risk, but I find that sponsors often fail to account for their time in these projects or if they do so they don't do a great job of doing it.  The returns are often far less impressive when you account for your time.  If the capital is working that hard it's one thing, but it is generally the sponsor working really hard and conflating their labor with a "return on investment."  

There ain't no such thing as a free lunch.  

It's still incredible to me to drive by that new Apple campus on Parmer and see 6 (!!!) cranes working on that site in what used to be the outskirts of town near where I grew up.  

So the fee you could normally take is substituting for you putting actual capital in the project?  AND (lucky me) I get to sign a NDA and incur the liability if you decide that for whatever reason I am taking something that you consider proprietary that pretty much every developer already does as a matter of course?  

Lucky me!  Sign me up please.  

The main challenges for syndicators when they start generally are:

1.  They have no track record, which is what investors want to see to invest.  It's like trying to find your first job and having the chicken and egg problem

2.  They don't know what they're doing or how to talk to investors

I am sitting for the Series 65 right now and opened a new company with my securities attorney for some of the reasons you're citing.  Note that you don't have to be just one box-checker either.  You can do deals as a principal even if you use the B/D or RIA regime.  What really matters for the B/D regime is you're taking "transaction-based income," which means that you're taking a commission for marketing and selling securities.  

You also need to consider whether you'll be selling investors straight in to the cap table of the issuer or, instead, if you're intending to serve as an intermediary and use something like a SPE to take their money in and invest on behalf of the entity as one item on the issuer's cap table.  There are, of course, plusses and minuses with either approach.  For larger deals having a single source of funding is often desirable and it would serve to allow you to negotiate a better deal on behalf of the investors with better control provisions in the OA.  

It's hard to do many things well so focusing your effort on capital raising is probably a smart idea.  For larger and more complicated deals I hire fee developers to do a lot of the work they're good at and focus my time and attention on raising and organizing capital, which I think is the highest and best use of most syndicator's time if they're organized properly and have a track record.  Everything else can be hired out save a few key things that should be assigned partner-level value in deal flow from how I view the world.  

If you need someone to sponsor your license please reach out.  We're happy to see if we can help and how our firm that I am starting can be of service.  We have the DNA of sponsors and real estate operators and have started this firm mainly to deal with some of the compliance issues you're dealing with.  My partner is a securities attorney and can keep you compliant without needing to rely on anecdotal information from message boards; albeit very well-meaning advice.