How Best to Present Your Real Estate Investment Opportunity to Investors
If a developer is seeking private equity, they typically set out by putting together a detailed package containing all aspects of the opportunity on offer. This would include, site maps, renderings, finished design samples, current state photo's, hard and soft cost proformas, resumes and most vitally, the "expected cash flow summary".
Unfortunately, as impressive as these documents look, they rarely include the general overview from an investors perspective. Such key points as, minimum investment required, for what time period, the IRR, and how will that investment and return be distributed.
An investors primary concern is whether the deal matches their investment profile and how it compares to other such opportunities currently on offer.
If the opportunity you are offering is wrapped up within a dense document, then it may be turn off to the professional, and casual investor whose time is precious.
This microscopic level of detail only really becomes of interest when a first level decision is made. We would therefore suggest an initial deal summary/overview for the investor to review.
First start with the title of the project and a very brief overview. You will find that this short description is often the point where an investor will decide their level of interest.
The next piece of information to be included is the cost of the deal and so the equity needed. This part of the document will resemble a traditional debt term-sheet.
This will clearly outline the percentage that the sponsor is committing themselves and how much they are seeking externally. It is often common to see a 90:10 split with the sponsor providing 10% of the equity and the rest through the investor.
It is thenimportantto show the investor what they will get in return for participating in your deal – "Expected Returns to Investor". Here you overview what you are going to pay (typically broken out per year) followed by an internal rate of return calculation.
The IRR telling the investor what their compound annual return would be if they invested in your project for x number of years.
Three to four years is probably the most popular timeframe for investors, but they also can be susceptible to longer term deals if the returns are strong and verifiable.
Once you have laid out the equity requirement and the associated returns over the timeframe, you next have to prove your model.
The best way to achieve this is with a simple spreadsheet that presents a breakdown of the cash flows to the investor and the sponsor and the refinance assumptions that feed the model.
On the supporting worksheets it is best practice to build the model in such a way that when an investor sees a number in the summary sheet that isn't clear, they can follow the links and understand its origins.
Constructing an investment summary can be relatively easy, especially if you have the proforma model outlining all the costs and revenues – it is really just highlightingthe right information and presenting it in a clear and concise manner.
Without it however, your deal can die before it is even reviewed by the investor.
We hope this give you an idea of what the investor is looking for, and ultimately aids you in your pursuit of the equity you require.
Nikolas Kron is the CEO of Equity Interface. Launched at the start of 2009, Equity Interface is an online real estate investment platform designed to bring sponsors/developers looking for equity partners together with accredited investors. Learn more about Equity Interface at www.equityinterface.com or call 1-800-899-2877.
