Supporting Private Equity Investing
Private equity firms and other wealth managers who invest (or plan to invest) in real estate deals often need assistance before, during and after closing each deal. While such services span many professions, our Real Projectives® efforts are generally grouped into three categories: purchase advising, project oversight and construction management.
Could your acquisitions or asset management teams benefit from additional expertise or horsepower in one of these critical areas?
Dozens of times each year we work closely with acquisition teams to enhance their pre-closing diligence process. Whether equity is being placed into a direct acquisition of an existing property or used to fund new development, we add technical and organizational expertise and experience to the team asking numerous questions.
For existing and operating properties, we work alongside other expert consultants to identify environmental, code, physical or maintenance problems or concerns. What items can be corrected with money and what ones cannot? Are any significant enough to discontinue the investment? Should we pull in additional experts or perform invasive testing to quantify the extent of potential risk? With answers to questions like these we can create an appropriate action plan that covers what, when and how much to budget, both immediately and over the anticipated hold period.
When there are intentions to improve the property, we take a hard look at the design plans and related contracts, estimates and schedules. Are the upgrades competitive and appropriate? Does the property’s net income potential make sense against the proposed costs? How difficult will it be to get approvals, permits and inspections from the respective authorities? Is the design sufficient and pricing reasonable to be executed or should we factor in additional time and / or money contingencies? While many equity firms are experts at crunching numbers based on what is provided to them, we dig deeper to evaluate the underlying assumptions, test the estimated renovation and construction costs and bookend the respective risks.
A recent project presents a perfect example: One of our private equity clients was considering investing in to-be-built student housing near a university. We reviewed the drawings for the six-story apartment building; met with the architect and developer to understand the work done to date; and then took a close look at the location, contract agreements, availability of utilities, and corresponding schedule and budget. After thorough analysis, we advised our clients against investing: The project costs and approval risks combined were simply too high and the potential return too low for our clients to bear.
When an equity firm moves forward with purchasing or investing in a value-add real estate deal, we frequently shift to an oversight role. Our efforts modulate from very light monitoring to intensive coaching depending on many factors including relationship history and extent of developer experience and their level of sophistication. We pursue these primary goals: make sure the project is being built as expected, that work is being done on time, that monies are being spent wisely and paid to contractors and vendors in a timely fashion and, maybe most importantly, that the right people are playing nicely together as a team to achieve the goals and minimize disputes.
In some ways our equity (investor) representation services are similar to a bank (lender) inspector’s role, however we’re different in that we take great pride in looking forward in order to anticipate and prevent issues that put our clients at risk: The view of an inspector whose client has limited risk (and doesn’t want to take on lender liability) is mostly backward. That inspector focuses more on whether work already completed is satisfactory and generally matches amounts being requested from the loan.
While many private equity clients have an operating or development partner to advance the property’s business plan (limiting our role to that of a watchdog), others look for us to actively lead and manage the capital improvements through completion.
Accordingly, we act as an agency construction manager in the role of owner’s representative. We identify experts needed, qualify them and negotiate contracts. We set priorities, track schedules, and coordinate among many stakeholders. Of course, we set budgets, review invoices and compile requests for all vendors to be paid by the client. We look ahead for risks, advise on decisions and ensure that the project stays on track. We understand that, for our clients, the anticipated return on investment awaits completed improvements and upgrades while their reputation is on the line from day one.
Filling Your Needs
Private equity firms, like many other organizations, stay competitive through a “lean and mean” approach to staffing. They can count on partner firms like us to address specific project demands or help across a program or portfolio of properties.
If you are part of a private equity firm weighing new real estate investments, we’d be happy to discuss ways we can support you. For more information on the services we offer clients, browse some of our other articles — or give us a call at 888.357.7342.