Investor · San Diego, CA · Member since 2015 · 25 posts · 17 votes
Diary entry One- I just spent a month doing the due diligence, aligning the management team, developing relationship with key players (particularly the lender), and I am almost there. Well, .. . . was almost there.
I have sign-off from the equity partner providing the $150MM (a big name). The total project will have an exit value of $220MM++ I have an agreement to purchase the land at $10MM which is at least $10MM under current value. I have all entitlements, permits, plans and proformas all complete, but then the seed money evaporated at the last minute. This is a high profile project with some 5 million feet passing in front of the property each year. There are many that want to see this complete.
I now scurry to see who doesn't have $10MM tied up.. . . so far they are all committed to other projects. I have three maybe five days to pull this all back together.
Roc, I haven't even begun to disclose the REAL interesting stuff. I even learned some new things about this high-level dealing. Hey, what part of Philly are you locate? I grew-up in Plymouth Meeting near Valley Forge.
This is amazing. I've only read about deals like this in the textbooks at school, and they certainly lacked the 1st person view we are all getting. I can't wait for the updates (or book).
Diary entry 11: what is interesting is that when you have a large and desirable project, a bunch if big boys all have interest and take their time to slowly digest the opportunity. They don't show any concern that some else will swoop it up before they do. I guess it is because they have many opportunities to leverage their large capital and they don't want to tie up in anything that has not not fully reviewed from every angle and they confirm 100% the out come. The size of the return does not matter (they always get bug returns) it is more important that they don't have lost opportunity with their money. I can't wait things finalize on Tues or Wednesday and I can get into more details (though the big names shall be withheld ).
Diary Entry 12: Ah, Ha ! You all thought I was gone and dead in the water.... nope, just busy. Well, the capital is all set for the development and now the acquisition. We had several sources but are moving forward with our most anxious partner. The deal is about to clean up and we need to take action before others jump in.
It all proved very interesting with much to learn about landing that big deal. I am now sure that I will be writing a book about the deal to give others a strong understanding as to what it takes to put together a distressed deal. Our offer should be in today and accepted by Monday- we already had all terms per-approved by the seller.
We are 99.9% there- baring any wild occurrences. I will update soon with property details and structure.
I'll tag on a couple of question as my friends in the private equity are all telling me the same thing right now: there's a lot of capital floating around and a shortage of deal flow.
How did you find this particular opportunity and what kind of deal with the land owner did you put in place to make the deal work? Did you do an option? If so, what did it cost to lock that option up and what kind of terms did you get?
I'll have plenty more questions based on your response as I'm actively working to put together my first development deal with outside equity.
Congratulations on your entry into outside equity, I wish you luck with it.
Yes, the deals are more scarce and it is more difficult to identify opportunities as the obvious and easier deals are quickly identified and funded. This requires one to be more imaginative and preemptive in your approach. I am always looking for subtle signs of distress, thinking of new and better uses or property, learning regional growth trends and trying to anticipate markets.
For this property, I easily noticed that it was out of place- not being developed in a highly desirable and economically vibrant area. It was an easy find but a difficult deal to put together- thus the reason it remained undeveloped. Because of the trying legal issues, complexities of title and the age of the problems; no one even wanted to deal with the property. It is like the ugly girl in kindergarden that makes it to high school where everyone just views as good ole plain Jane, the good friend and student. Then when she goes off to college, all the new students notice that she is a most beautiful and vibrant woman that all the guys want to date. Humans are just creatures of habit that get used to their paradigm and don't tend to change our views and interests unless forced.
Thus looking for old and tired properties and figuring out new ways to use it, new approaches to development, or how to overcome long standing problems can open new doors of opportunity. The most important part is always to be looking. You need to observe what works in other areas, where others came up with great ideas and then follow suit in your area.
There is also the tries and true methods of networking, letting lawyers, real estate agents, contractors, pool service companies, landscapers that you are looking for people with properties that are facing difficulties. Most importantly, you need to convince them that you have the abilities, the resources, and the drive to make it happen.
On this deal, I coordinated all the solutions needed to overcome the issues. I pushed forward over and over again as others began to fade on interest or belief it could come through. It is an emotional roller coaster that you need to be determined to stay on till the end.
What made this deal more difficult is that an option was not even being considered by the owner. Having spent years and years being approached by all types of visionaries without the money nor experience to purchase and develop the properties, he was not going to entertain another dreamer. He needed to see full money along with a zero contingency offer. It required me to put together a professional offering package that answered all questions, showed and proved probable outcomes, and also bring together an experienced team to develop.
Often what many newbies to project syndication believe is that if the can point to a potential opportunity, they are tied into the equity through the end. One needs to understand that you need to bring ongoing value to the project to obtain a piece. You need strong relationships with developers, attorneys, capital sources and more.
When you do have a good project, you need to have multiple capital sources which you have identified and built relationship with over the years. Not every project fits every investor, you need multiple capital sources with different appetites and goals. In this case, the ideal capital partner was one who does development so they understood the deal but who had too many projects going to work on such a big one. A capital source that was inexperienced was scared by the hair on the deal while a super experienced and under worked developer wanted to take the whole deal. It just took shopping.
So I recommend that you develop as many relationships as you can with those who will add value to your team as well as with a wide range of investors. Get to know and understand your relationships with regards to their goals, their talents, and the integrity.
I hope the above gives some understanding to help those trying to syndicate there next heal.
As the demands of putting this deal have subsided, I am more open to looking at my next venture. Sure I would be interested in looking at your deal. Our group's strongest focus is California with Los Angeles our area of strength. But we also have done deals across the USA and even internationally. It all depends on the project and more importantly what comes to our attention. Please feel free to contact me.
@Bob Faulis What an incredible deal, I cannot imagine the work it took to get all those pieces together. How long do you think you've been working on it from initially identifying it to now?
Exactly what type of space does this project consist of, and what will you be doing with it, demolition and building, remodeling, adding space, changing use, or ? Did I miss that someplace?
This was a very unique project. One of our more experienced members of our group called it a "once in a life time deal." It was very unique and thus presented some special problems (as if any deal with hair doesn't have special problems).
It was basically 4 acres of old foundations- with one remaining dilapidated warehouse. So it is a ground up project for mixed use. Some 60 luxury condos and perhaps 90,000 sqft of retail. It is a larger scale development project.
Thanks a ton for sharing this valuable information.
I already have your mindset; that is, I'm always looking objectively at property, no matter were I am, for signs of opportunity and demand. And while there are plenty of dilapidated and run-down buildings, that isn't always an indication of demand for a new development.
For your project, I'm assuming you had to put together a full Market Study and Financial Feasibility study? Did you put it together or did you rely on a firm to help aggregate that information? I would certainly love get a copy of it once the deal is far enough along that you felt comfortable doing so.
Can you share what your piece of the deal looked like? It sounds like you put in sweat equity? If so, that's great - this is what I'm looking to do for my first couple of deals.
One of the things I struggle with here in LA is a bit of a chicken and an egg problem. The lack of available land or sites that haven't been overpriced for development is a challenging hurdle for a new developer such as myself. Our backlogged, expensive and challenging entitlements process is also makes getting a deal done in a timely manner difficult.
So while I have a handful of guys with capital or access to capital ready to look at any deal I put together, I'm having a hard time finding a deal with the returns that make sense.
I'm looking for a deal in the $5-10M range to get started. I'll no doubt need to partner with an experienced developer to give the deal more merit, but aside from that - I'll be packaging the whole thing.
I'm just wondering what pointers or tricks-of-the-trade you have for a small-time guy such as myself that is looking to package my first solid deal?