REAL ESTATE FUNDING - STRAW INTO GOLD
Karl Dakin
Capital Coach | Stakeholder Investor Campaigns | Design, Stage, and Manage or Support | Reduce Time, Money, and Risk of Raising Funding | Increase Probability of Success! | Opportunity Management
QUICK CALENDAR
NEXT MONDAY, August 12, Don Cohen show, 9 am MDT, LinkedIn Live
NEXT TUESDAY, Tuesday, August 13, Successful Funding, 8 am MDT, LinkedIn Live - TBD
NEXT THURSDAY, Thursday, August 15, Community Revitalization, 8 am MDT, LinkedIn Live – Jeff Dangremond – Impact Investing in Communities
FUNDING POINT – REAL ESTATE FUNDING
?I was in several conversations this week on raising funding for real estate projects. Real estate is often viewed as a safer investment when the capital market and Wall Street demonstrate uncertainty. However, real estate investment cannot guarantee an outcome any more than any other type of investment.
?My conversations had people pointing out that they hold market data, land, and even completed buildings that may serve to attract investment dollars. However, what all of these situations have in common is that they are still pre-revenue.
?Pre-revenue is a label given to any business that has yet to make a sale and receive payment. From an investor’s perspective – pre-revenue and post-revenue are like night and day. This reflects that achieving revenue not only demonstrates that the business has something ready to sell but also that customers in the marketplace acknowledge the value of what they are offering and are willing to pay the asking price. This is checking many of the boxes that are on an investor candidate’s list.
?The reluctance of investors to place their money in pre-revenue businesses – not just limited to real estate – is it raises the question if there is a real product or service, can the management team perform operations, and whether the product or service is a hit or a miss with prospective customers. An investor can put on their due diligence hat and try to answer all of these questions. However, why should they? If there are all these other businesses that are more advanced and generating revenue, it is simpler to pick amongst these candidates than to guess the outcome of a project still in formation. In addition, most investors lack the training or experience to answer all of these questions. They have never developed property, never fought with a local government to get a permit, promoted to tenants to fill the building or other common actions in developing real estate. As a result, what they do not know is viewed as a risk that they are unlikely to accept.
?Although real estate is commonly viewed not only as a safer investment but also as collateral when seeking debt financing because of the perception that the land will always have value, any investor in commercial office space today is questioning this perception. Yes, real estate may ultimately go up in value, but if a business is responsible for building maintenance and a debt load on their mortgage, many real estate businesses are currently upside down with properties they cannot lease and which they cannot refinance. There are many assessments of the commercial real estate market that show that assets worth as much as $1.5 trillion are in trouble.
?Presently, multi-family and industrial properties remain in short supply and in demand. Nonetheless, if investors have a choice between a pre-revenue property and a revenue-generating property, the demand is significantly different. Investors ask if the business can convert straw into gold.
?During my conversations with real estate developers this week, I pointed out this major distinction. In raising money for real estate in that the developer must try to pre-sell occupancy of the buildings they would like to construct.
?This suggests engaging possible tenants – both residental and commercial – in the capital campaign strategy. Future tenants may be offered special deals for investing now and paying rent later.
?Other possible investor candidates are business and organizations that need housing in their backyards. A business may invest to assure availability of housing for their employees. Economic development organizations, civic organizations and community foundations may invest to fill housing gaps in the local market that are hurting the local community.
?Finally, and not last in investor candidates, are any businesses that are vendors, suppliers, or other contractors to the development project. These businesses all stand to make a profit if selected to build sewers, pour a foundation, stand up a wall, or paint the building. These profits will not occur if the developer does not raise money and if they are not selected to be part of the building team. A strategically placed investment will make these businesses the exclusive pick.
?All of these possible investor candidates only need to provide enough cash to enable the developer to leverage the cash with debt financing for construction and mortgages. It is possible to obtain conditional loan commitments before raising equity investment so that investor candidates don’t have to worry about the remainder of the capital stack.
SUCCESSFUL FUNDING
NEXT TUESDAY, August 13, Eric Hanson will be my guest again on my Successful Funding show. Our topic of conversation will be “Getting to Yes”. We will discuss how to tip over an investor to provide funding.
You may register now to be in the audience at:
YESTERDAY, AUGUST 6, Tom Fanning with Boomzaa was my guest on the Successful Funding show. LinkedIn Live at 8 am MDT. We discuss funding for workforce housing and collaboration within the housing, capital, and economic development markets. We focused on investment crowdfunding as a better tool for raising money that is difficult to find in pre-development.
You may see a recording of the show at:
领英推荐
You may view recordings of all past Successful Funding shows at my LinkedIn profile under Events:
RCI COMMUNITY FUNDS
As a member of this new company, I am working with a team of professionals to craft a new funding mechanism for revitalizing underserved communities.
NEXT THURSDAY, Jeff Dangremond will be our guest on the Community Revitalization show. We will discuss impact investing in communities: how, when, and why.
If you would like to register to be in the audience at:
YESTERDAY, Bill Huston was our guest on the Community Revitalization show. We discussed investment crowdfunding as the best approach to community funding. The ability of ‘everyone’ to invest in a local business is viewed as a game-changer that has yet to earn the reputation it deserves. @Stephen Shaff and Karl Dakin hosted the show.
You may see a recording of this show at:
DON COHEN SHOW
I will be a guest next week on Monday, August 12 at 9 am MDT on the Don Cohen Show.
You may register to be in the audience at:
Don is my mentor and guru on using LinkedIn as a social media platform to build my brand and build my community of individuals and organizations who work like me to help small businesses and communities raise funding.
SUBSCRIBE
You may subscribe to this Weekly edition of my Instant Funding Newsletter, or you may subscribe to my Daily edition.
Karl Dakin, the Capital Coach
Dakin Capital LLC
Founder & Chief Executive Officer at Prime Properties Investment Solutions
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Capital Coach | Stakeholder Investor Campaigns | Design, Stage, and Manage or Support | Reduce Time, Money, and Risk of Raising Funding | Increase Probability of Success! | Opportunity Management
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