It has been a long road back from the lows of 2009 in the Real Estate Equity Markets. We have gone from searching for that needle in the haystack equity partner during the Great Recession to creating competition amongst equity providers in 2014.
What has caused equity capital providers to return to the market? It is the most basic economic principle: Supply versus Demand. We have literally gone from a deluge of value-add and opportunistic buys to a slow trickle. Meanwhile, there is an abundance of capital but a limited number of worthwhile transactions to pursue.
Simply stated, if you have a fundamentally sound deal that can yield above-average rates of returns, equity capital is available, most likely from multiple sources. But, before you start sending us every “above-average” deal in your pipeline, make sure you consider the “Basics” to sound underwriting.
- Been There, Done That – Sponsorship today is as important as it has ever been. If you have not played in a certain geographic area or product type, we suggest you don’t try to reinvent the wheel. At least partner with someone who does have experience.
- Price per Pound – On existing product, replacement cost is still an important consideration for most investors.
- Yield on Cost – If you are developing a new project, make sure you have some room on cap rates on your exit. We may be at historical lows in some asset classes, but it will not always be that way, hence the phrase “historical lows.”
- Skin in the Game – Your equity partners want to know that you believe in the deal, and while signing a note is a nice start, a cash co-investment by the sponsor is always the best validation the Sponsor is “committed.”
- Location – Never has changed, and never will. Don’t be too pioneering.
If you can keep within your disciplines and look for properties in locations that you would personally want to own, that is a good start. We all know finding that project, however, is the challenge, but that is also what creates the demand from equity partners. Find the right deal, and you will have no problem finding an equity partner in 2014.
Last year our firm completed a number of interesting equity placements including:
- $16,000,000 Acquisition for Windhaven Park – an 86,000 s.f. retail /service center in Plano, Texas
- $7,400,000 Equity Placement used to acquire two office buildings in Uptown Dallas
- $3,000,000 Equity Placement to build a 90-unit/96-bed assisted living and memory care project in Allen, Texas
The investor profile of these equity placements ranged from private family officers to institutional funds. One of our equity placements closed with a real estate investment firm that has a very sophisticated (and effective) broker dealer network that raises funds from wealthy private individuals investing $100k to as much as $1mm per investor.
Whatever the equity capital requirement might be (assuming the requirement is above at least $2mm), MCA has the capabilities and long-term relationships to execute equity placement assignments on your behalf with a focus on seeking out the overall best solution at the lowest cost of capital. Contact any one of our Senior Directors in our Dallas or Denver offices, or visit our website at www.metcapital.com