Advice Needed - Legal Formation of RE Investment Entity

3 Replies

Hello all,

Just joined this forum in search of an answer to some things I've been trying to figure out; hope that I might be able to find some answers here.

Myself and three partners are currently exploring setting up an investment entity to capitalize on depressed real estate in the European market. Between us we have extensive experience in finance, property valuation, property management, and renovation, but for the moment I am doing most of the organizational legwork and I am lacking in knowledge regarding company structure. If I may explain, essentially our goal is this:

-To establish a limited liability company (or corporation) composed of a fund for the acquisition and active management of real estate assets.

-We seek to solicit investment from various international private investors (not an open market), and the total financial state of the company will largely be 85-95% outside investment (i.e. not from myself nor my three operating partners). Ideally we desire to have low buy-in requirements to broaden our accessibility to investors.

-Our idea is to have a management fee for the fund management, but is this realistic?

-Also, as the founding partners - and the ones that will be performing the active responsibilities of the company - how do we retain any equity to benefit from the growth of the organization?

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I have been reading through the organization of a REIT, but the requirements in our country dictate a minimum 5million starting capital - while this is our goal and would be fantastic, I want to be able to operate if we still fall short of that funding.

Lastly, it seems to me that perhaps a corporation selling private common stock shares would be the most appropriate? This option is doable for us, but I want to know whether we realistically have any other options.

I appreciate any feedback received.

Ambitious plan!   I personally think the idea has some pro's and con's.   I will just share what I know based on my experience in the legal world and capital formation markets.

1.   The idea you generally are speaking of is well established.   Talent needs money. Money needs talent.   

2.   Blind pools are VERY tough to establish without a track record.   I would recommend starting with identified assets.    The investor has to asses risk...if you offer a specific property you reduced the under writing.

3.  Out of the gate REIT would be challenging without existing investor base in my estimation.

4.  Fee's and retained equity are a function of co-investment.   Most new syndicators offer a preferred return. 

5.    I would touch base with @Eric Tait  .  He is crushing international syndication and I am certain has some great insight into the additional challenges of global syndication.

In the mean time...check out this interview I did with a world class syndication lawyer Gene Trowbrige to get a better feel of the syndication model. https://www.youtube.com/watch?v=b49qnAWnUHQ

Douglas,

I appreciate the feedback, thank you very much! Our targeted portfolio is based upon multiple documented and analyzed projects that we can share with investors, so it is not quite of a situation of "Give me money and I'll find somewhere to put it". As for our investor pool, our finance partner is the current CFO of a California-based organization overseeing approximately $350mil in RE assets, so there is promising potential there as long as we can put together the cohesive plan. 

I do not, however, want to limit the buy-in in our company to massive amounts of money - we are heavily involved with our communities, and will be marketing towards local investment as well in attempts to improve local economies - so that is why some forms of organization seem ill-fitting (I've been exploring private equity firms this afternoon, for example, but the minimum capital contribution here is 500.000).

Thank you for the recommendation and the link to the interview - I will pick up on that soon.

I see...that sounds like a great team!   Under those facts I would consider looking to a 506 c offering and market to institutional capital.