Last week over a two-day period I raised $4,000,000 in capital to help our sponsor team position itself to acquire a 550 plus unit apartment community in Dallas. This wasn’t one person handing me a large check, far from it. For those older folks, I think of myself as the Pete Rose of capital raising having spent my childhood in Cincinnati. Lots of singles ($50K) and some doubles ($100K) if you like baseball analogy and forgo swinging for home runs, preferring to expand my investor base sideways looking for consistency. Now, I like the home runs when they come but this was not the case on this deal nor has been my focus.
I also don’t hang out at country clubs, not big on fraternities or joining things really, nothing wrong with it, just not my style. However, I am extroverted, bartended my way through college to get over my shyness of growing up the youngest and only boy among three older sisters who talked for me most of the time. I was terrible at sales roles coming out of college and spent my entire 20 years of corporate life avoiding anything to do with these types of roles. Today, I still don’t think that’s what I do except folks stepping back would say you are in sales. I see it as educating and helping people get into some attractive investments, staying with them during the investment life and keeping them updated on their progress. Last week we had a refinance on one of our properties, returning 40% equity to our investors in 15 months, 52% total return with cash flow during that time. That is just fun to be a part of seeing these investments make an impact to them to create ultimately more wealth, income, and choices in their lives.
I probably should golf more sense I know folks who only do that and get some well-heeled investors that way. My wife just purchased some clubs so maybe that’s in my future. When I hear about the capital raiser that just brought in $500K from an investor, I do sometimes think about the effort to get 10 folks in the deal at $50k versus one $500K conversation. If you can find more efficient ways to get a whale, go for it! The conversation should not be any different really, its just an extra zero. For this deal, it took 65 investors averaging $61,538 to raise $4,000,000.
I raise capital for a living now. Two years ago, I had never raised capital in my life. I have outlined my top 10 lessons learned from my first experience raising $1m in two weeks and wrote an eBook about it.
I coach student partners now in this area, I know how hard it is to raise $1m because it’s not common especially when you are starting out. Later after several raises I synthesized the top 10 down to more manageable 5 essentials of raising capital. I’ve been on countless podcasts and its hard not to get a lot of questions in this area although as my knowledge has expanded there is a lot more to share about the syndication business and niches I work in (MF value add, self-storage and Manufactured Home Parks).
Every raise has its learnings and so I thought I’d share a few from this experience. I recall when first working with syndicates I would hear these stories of folks literally raising this much capital and even more over a weekend. I certainly know multifamily investor /coaching clubs where this occurs more regularly, but they have some advantages, namely thousands of students and if the guru puts his stamp of approval on it, the herd follows. Syndicates learn little about developing a network, thought leadership, or raising capital, etc. When they leave the nest they are ill prepared to develop a capital base without the club.
I know a west coast apartment sponsor who I talked with a few months back and he had an offering coming up that required about $28m raise on a $100m acquisition in the Seattle area. I was like, wow, that’s a big raise. Then he told me that in about 48 hours they had raised about 80% of it. So, just when you think you hit some cool milestone, there is someone out there seeing even higher vistas.
So, how do you get to the point of getting this type of cash in such a short time. Here’s 8 observations on what I learned from this one.
Pent up Demand – I had two forces working very favorably for me on this raise. One, the sponsor I work with had not had an offering since last Labor Day. That’s a long dry spell for them and my investors were ready. Second, one of the sponsor’s deals had conveniently refinanced last month putting 40% of my investor’s original investment back in their pocket ready to re-deploy in another good deal. Success, freed up capital and a new deal to roll into is a nice recipe.
Familiarity – Although I raise capital as one of my key roles on the GP team I do work with other sponsors and some of the best operators in their respective niches. But this sponsor is who I started with, I’ve done the most deals and have most of my investors’ money in. The theme, criteria, marketing materials, location (city) are the same so decisions can be made faster.
Track Record / Results – This sponsor also just released its updated track record showing an exit sale pending and several refinances that had resulted in overachieving versus projections. Also, my investors who were also in other deals with me outside this sponsor have been seeing success across the board, so my credibility has also risen with these sponsors’ successes.
Timing – Spring is a great time to raise money. Folks have money from bonuses, they may be expecting some tax refunds, and it’s a great time to sell homes and redeploy cash somewhere else. Times not so good are summer (getting people’s attention is more difficult as they start family vacations) and holidays (especially end of year) are typically times you want to avoid or reset expectations, allow for longer raise periods, etc.
Location – This property is in Dallas. I see DFW / Atlanta, these types of markets are benefiting from what I call the “Amazon effect” of everything. I spent a large part of my corporate life in the supply chain. I think many folks still underestimate these cities, how they are positioned geographically and strategically, to support the just in time warehouses / distribution of product direct to customer’s homes. Cost of living and friendly business environments attracting HQ moves from around the country creating not just the one job, but 3-4 other indirect jobs. Those workers flowing in are the renters (customers) in our business.
Scarcity – I only need so much capital and we only have so much time to raise that capital. Folks know the demand for our deals is strong. It’s the fear of losing out – people don’t want to miss out. That plays into your favor, so they act faster.
Return Investors – Practically all the 65 investors were return investors. Forget new investors, networking, etc. Preferred investors get to see the deal first maybe two days ahead of time and they know to act fast. You cannot do it this fast if I had to rely on new investors which take more time to educate and build that relationship.
Positive Expectancy – I can’t close out without mentioning my frame of mind and energy behind what I do. I have never raised less than $1m on any deal and I’m in double digits in deals done so now closing in on $20m raised in a short two years. I do multiple deals at the same time with no problem and work across niches easily. I vet deals and invest my own money in every deal to align with my investors. I am a GP equity holder in over 2000 apartments, soon to be 2500 apartments, countless self-storage units and manufactured home parks. When I get involved in a deal, I expect I will not only meet the goal but exceed it and have money left over for the rest of the team. Doing it over and over gives you that confidence. Chipper Jones the hall of fame baseball player attributes his mom to a lot of his success. He said, “she always told me from a young boy that when I stepped onto that field, you just have to know you are the best player on the field”. He had that mentality and expected to be the best. It’s not arrogance or cockiness, it’s a positive knowing that attracts investors and money my way. Call it whatever you want, I believe the universe lines up to support what our team needs to do and knowing I’m helping my investors with their goals drives my passion for the business that much more.