Many real estate syndicators are concerned about their ability to raise equity for deals during the darkness we are faced today with the ultimate definition of a black swan event. Coronavirus has hit the US and world fast furious and has managed to force us into a recession. With oil prices crashing, the stock market crashing and a national pandemic. I have even heard some say that they feel guilty and even awkward talking to investors during this very strange time in history. I might even be guilty of this one.
After spending the last ten days listening to countless virtual webinars put on by a myriad of experts, I have completely changed my stance on this topic. One expert said, “Be the light in a dark world!” That phrase got me thinking, what if… investors are still hungry for great investments, but longing for a sponsor that is confident enough in the product they are offering that they feel guilty by not sharing it with anyone willing to listen. I’ve been told by countless mentors that whether you believe you can or whether you believe you can’t, your right.
Are you confident in the product/investment opportunity that you are offering?
If you are, then why would you hold back?
FINDING NEW INVESTORS
With so many investors realizing that they can’t rely on wall street for their financial well being, there is no better time to share the undeniable benefits of having a physical asset backing their capital investment and all the benefits that come with such an investment. It’s important to paint the picture for them and make sure that your messaging is on point.
In times of turmoil, especially in the current economic climate, the real estate investor may be nervous about the future, however, the stock market investor can’t sleep, looks at his phone every five minutes in hopes that the Dow Jones doesn’t go to zero, and is begging the government to do more. If you are in the stock market and you lose everything, no one is going to bail you out! However, if you are in real estate, the government is falling over itself to offer a solution and help. There are currently five different types of government assistance for real estate owners. It is impossible for a real estate investment to go to zero. This is comforting!
Passive investors are absolutely looking to place their capital somewhere and the current wall street crash was the last straw for many. They will be looking to place their funds in a different asset class, primarily real estate. So what are you waiting for?
This pandemic has not changed the fact that there is so much money out there that is looking for a safe, above average return. It’s important to be a beacon of hope for them and share the good news of multifamily syndication and the security and preservation that it offers.
Investors are not only looking for a good return, right now more than ever, they are wanting to know that their capital is safe and in good hands. Build rapport with everyone, be honest and trustworthy and you will raise the capital that you need for every project despite the current economic uncertainty.
Be the operator that people want to invest in and build your presentation so that it is clear who you are and what you do. Ask yourself not only if you are a good fit for your investor, but is your investor a good fit for your company.
Make sure to educate when necessary. The CARES ACT allows investors to borrow upto $100K from their retirement accounts with no penalty and a three years pay back. Be a problem solver and you will find the money for your deals.
EXISTING INVESTORS
Passive investors expect the sponsors that they invest with to over communicate with them and update them often on the state of their investment. You don’t want them sitting on the side-lines being fearful and possibly looking for somewhere else to put their money. They care about the way you are handling the crisis and solving the problems that are before you. If you can earn their trust and confidence in times like this, they will be lifelong capital partners and share their experience with everyone they know.
Be honest, however it is important to share the positives with them. Some of the positive things that we are seeing this month include more current tenants are renewing than ever before. They don’t see this as a wise time to move and the government is sending 95% of Class B and C tenants a $2400 check that can be used to help pay their rent, etc.
Let them know what you are doing to protect the capital of the organization and exactly what you are doing to solve the problems you are anticipating. If you have plenty of cash in reserves, you should let them know that. Remind them that their investment is backed by a physical asset and it will never go to zero. Also, remind them that with real estate, you can force appreciation, there are huge tax benefits and that you have multiple exit strategies.
You also want to be honest and tell them what could happen in case things don’t bounce back quickly. The return they were expecting could be reduced to 5-6% during this time but it is backed by real estate and they will still be getting a ROI and we expect it to bounce back very quickly. There is a possibility that distributions could be paused for a time period to ensure that the asset stays in a good cash position. This is not a loss of return, just a deferral until we feel comfortable releasing the funds.
If you are in the middle of a raise for a deal closing in the next 30-90 days, you will need to communicate with your current investors that have committed funds letting them know that you took your option to extend in hopes to get better financing and depending on the economic occupancy in two months, potentially a price reduction. Explain that you are keeping the deal in your control while you wait for the lenders to start behaving themselves again before closing the deal. If you have your earnest money hard, explain that you believe in the deal enough to allow your earnest money to go hard. You want to encourage your investors to get all their documentation completed and when we have the green light, they can wire their funds to get the deal closed.
As a multifamily syndicator, you have a once-in-a-lifetime branding opportunity. Make sure that you over communicate with everyone and take extremely good care of your current investors. Show them that you are capable of protecting their investment during extreme circumstances and you will have an investor for life. Economic uncertainty can create plenty of problems for all; however, incredible opportunities will be waiting for those that are prepared to take action! Are you ready?
