Success as an enterprising real estate entrepreneur is both a gift and a curse. A successful acquisition of a property or repositioning of one, for example, leads to the reward of an appreciated asset. Inevitably, however, a successfully executed transaction leaves many entrepreneurs wanting more. A taste of success builds confidence and excitement, often unlocking a desire to build on one’s experience and take on a greater challenge. Whether it’s ground up construction, a significant capital expenditure, or a substantial redevelopment of an existing property for adaptive reuse – this can be a daunting challenge especially if the project is larger in scope or scale than previous endeavors.
But for even an accomplished real estate entrepreneur, launching into their next level can feel confusing and overwhelming. Questions arise, such as “How and where do I find new capital sources?” Or “How can I leverage the value of my illiquid net worth into liquid assets?” Or perhaps, “What do I need to know that I don’t know about this next-level transaction?”
Working with a specialist who understands your situation, the common pitfalls, and is connected to the capital sources you need, can alleviate the confusion, and clear the way for you to advance your portfolio of real estate assets.
3 Gifts The Right Financing Partner Can Give You:
1. A key to unlocking your trapped equity. Many sponsors have a substantial net worth of illiquid partnership interests and equity trapped in property. However, they are often falsely led to believe they must sell their property to convert this equity to liquidity. A seasoned capital advisory partner will help sponsors navigate the nuances of properly structuring capital agreements, allowing sponsors to borrow against their trapped equity, and refrain from selling their property, paying first mortgage prepayment penalties, or raising dilutive and expensive equity. Executed properly, this often means obtaining close to 100% financing on new deals, while growing their portfolio and keeping their ownership intact.
2. Experience in making a market. Structuring and underwriting an offering to present to the capital market requires thoughtful analysis and proper positioning. Often, the financing you need is like finding a needle in a haystack which is a tiring and often futile experience. The longer you search, the further away your transaction drifts. Innovation, creativity and a disciplined process can move you closer to your goal more quickly than following traditional routes. Where an individual lender might be hesitant, a creative and knowledgeable advisor can “make a market” to meet the borrower’s need.
3. Confidence in making sound agreements. Expertise in the field of institutional and private capital will allow the right match between what investors are looking for and what sponsors need. A smart advisor understands the risks on both sides of the investment transaction and ably connects partners whose interests match. Additionally, a trustworthy advisor can screen out untruthful or irrelevant lenders, giving you confidence in the agreements you eventually make.
The partners at Valencia Realty Capital were recently able to provide such expertise and assistance to a client who wanted to launch off their previous success with smaller multi-family rental properties valued under $5 million. In the middle of the 2020 pandemic, the client endeavored to venture into a larger $10 million project consisting of the adaptive reuse of a hotel into a 165-unit multi-family complex in Meriden, CT. The client was impressed with Valencia’s ability to quote debt and equity terms quickly and in the end, received a competitively priced senior construction loan for seventy percent of the total cost. The client came to Valencia early enough in the process when they were assembling their finances and were met with the right plan for their situation. They were given the ability to move forward with their substantial project of converting an existing hotel into the housing complex they envisioned.
An advisor who will listen carefully to the needs of a forward-looking real estate entrepreneur like the client just mentioned will be an asset in understanding the exact criteria the first time, matching the borrower with the right capital source, and facilitating a timely closure to keep the project moving ahead.
A capable and excellent real estate entrepreneur needs to do more of what they are good at—deal sourcing, project management, marketing, operations, to name a few—and to have the right partners in place to move onto larger projects without unnecessarily giving away ownership and spending all their time financing their deals.
There is no need to stop short of your goals and dreams for your next project. Build on your success, leverage your assets for future growth, and avoid the curse of being trapped behind equity you can’t access.