The Definitive Guide to Commercial Real Estate Capital Raising

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Let’s talk about goals.

Your goal as an investor is to raise money thoughtfully, and consistently build a portfolio around many different types of deals and opportunities that exist.

You’ll use this article and this one to guide you.

Before we start, Click here to watch a quick video and then we’ll establish some ground rules.

The Rules

1. You don’t need to have experience in real estate to use these strategies.

If you have no experience in commercial real estate as an owner-operator, that’s fine. Later we’re going to discuss how you can invest alongside qualified owner-operators who are experience rich.

2. Each deal is unique and no one idea or strategy fits all.

Again, we’re not going to talk about specific structures as that has already been discussed here, and I would strongly suggest you visit that after you finish this blog.

This is the single point of failure among beginners and pro’s alike.

3. Let the legal professionals do what they do best.

This post is designed to make sure you think through your strategies so you can…

  1. Explain specifically what it is that you’re trying to accomplish and,
  2. Save a ton of money in legal fees by doing the heavy lifting first, rather than just doing what most clueless people do- merely calling a securities attorney and stating “I want to start a real estate fund.”

That’s the equivalent of walking off of the plane at JFK and asking the cab driver how much it costs to go to “the Times Square”…

You will be subsidizing a new Porsche before you know it.

This is not meant to be a substitute for competent legal advice, so seek your own counsel. Competent means that you’re going to be engaging with a securities attorney, not your sister-in-law who is a divorce attorney. Or your close family friend who is a personal injury attorney. They are not competent nor are they qualified to help you with real estate-related transactional needs.

So let’s get started:

What Is Your Idea Or The Opportunity?

Explain it to your spouse or friend.

Do they understand it?

Is it buying an apartment complex?

Is it stabilized or value-added?

Or is it more of an opportunistic transaction such as a brownfield development?

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And it also saves you on legal fees, as the lawyer doesn’t have to suffer in wondering what to put into the docs, or whether you need all of those docs or just a few.

If you’re looking to do something with a single family residential product, keep it narrowed to one market. The more general you sound, the greater the chances are your prospective investors will get spooked.

You don’t want them to say to themselves…

 “He wants to make loans all over the country? How is he going to manage all of those properties?! How much does it cost to foreclose in New Jersey? What about Hawaii?”

Just in case you’re wondering, the blind trusts or funds cost the most to paper, and are the hardest to raise money around. In a post-Madoff world, you need to be specific.

Have You Qualified Your Opportunity As Much As You Can?

You’ve already pre-qualified this opportunity with the 5 Data Points.

It passes your gut test, meaning you’ve asked yourself or your spouse…

“Would I put my entire life’s savings into this deal?”

If your gut says no, stop here.

Don’t expect others to place their entire life’s savings into your deal if you’re not coming across to them with a gut-level conviction in your deal. They will smell it and likely won’t trust you going forward.

This isn’t to be confused with nervousness or lack of confidence.

If you’re passionate about something-anything-people will see through the nervousness and see your side. Your passion sells the deal. Have you ever met a young, newbie missionary? They’re nervous, but they have an air-tight conviction tighter than the Hoover Dam.

That’s humility, and most people are fine with that.

Anything other than that is disingenuous.

Lastly, you should have your purchase agreement executed and earnest money committed if it’s a single asset deal. If you’re buying from a lender, they will demand this to prove you are real.

Depending on the basis you’re getting in at (and sometimes smaller banks and hard money lenders can be the most motivated sellers), you may need to borrow this money from a family member or by using some peer-to-peer lending sites such as Prosper and LendingClub.

Just make sure that your earnest deposit doesn’t go hard immediately; otherwise, you’ll have an awkward Thanksgiving. You should ask for 60 days feasibility.

What Transactional Structure Will You Use?

Yes, we know it will probably be an LLC. Don’t think I’m letting you off that easy.

Meaning will this be a fund structure or a joint venture structure?

To show off how smart you are to your investors (and to embarrass others who may be soliciting them for money) download this handy blueprint.

Opportunistic Fund Structures vs JV Structures

Generally speaking, you’ll use these structures for the following scenarios:

Use a JV Structure if working on a value-added or opportunistic commercial real estate deal where there is a key event that needs to happen to achieve the highest terminal value possible or ADV whatever that means.

This is not to be confused with equity syndications or tenants-in-common structures (“TICs”).

Use a Fund Structure for private lending or most of your non-commercial, higher transactional (in number of deals) residential deals you’re buying direct from a bank to immediately flip.

What Capital Structure Will You Use?

This is the most critical question that is almost always overlooked or answered with a deer-in-headlights look. It separates the grown up men and women from the flakey-sounding boys and girls. This requires you to think about what you need and how you’re investors will be secured or unsecured, otherwise known as defining their rights and remedies.

Here are some examples:

If you are looking to assume a smaller, stabilized, income-producing property, then you’re probably better off syndicating debt from private lenders / investors to fill the gap of what you need rather than syndicating equity.

Dealmakers Tips 25This is not a one-size-fits-all strategy; however, it will materially lower expenses as you just need to have a trust deed drafted and recorded, rather than having an full doc set for an equity syndication.

If you are looking to raise money around a multi-family rehab deal, you’re going to want to raise equity as – if structured correctly – it allows you to pay your investors out when the building is refinanced into a permanent loan or sold. This saves you from the stress of making monthly interest payments.

Pencil Out The Incentives

Use a Microsoft Excel model to determine what exactly your investors will get and what you will be paid. Here’s a great head start.

Look at these numbers dispassionately. The broker will always tell you he has 4 other buyers who are looking at this deal.

The seller will taunt you by saying you don’t have the money to close. This is as sure to happen just as the sun will rise again tomorrow.

Just go radio silent for a day or 3 until you get this penciled out.

Almost all of the mistakes I’ve seen people make in investing – across all asset classes such as stocks and bonds – have been people making decisions based on emotions. They close their eyes, hold their nose and jump into the deep end, worrying about those pesky details later.

If your investors aren’t going to make any money, neither are you. And that is how failure happens. 

(NOTE: Want access to my business vault? Right now I’m offering access to my systems, strategies, templates, trainings, and recordings. It’s all included in The Investor’s Syndicate, and is available to you here.)

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Button Down Your Deck

If you have one of our pre-templated pitch books, then you just make a few tweaks to it to reflect everything we spoke about above.

If you don’t, then you’ll want to find someone on SpareHire or Upwork to get one done for you.

This is probably the most critical tool you’ll need in your investing career.

Don’t humiliate yourself out of the gate by trying to do this yourself. Most people have terrible grammar and spelling, don’t know what they are doing and will put something together that will be less than professional, hence scaring your prospective investors like same as a creepy blind date.

If you love your reputation, and have any dignity whatsoever, you’ll spend a few bucks to get this done professionally so you look at the very least smarter and more experienced than you probably are.

Violate this rule and the following will happen: You’ll get laughed at, embarrassed; which will lead to you becoming fully discouraged and dropping out of the business.

Don’t be a dropout.

Before you do that, you’ll want to download this handy blueprint so you don’t waste time and money hiring someone who doesn’t have the right skills. In a world where everyone has an online gig trying to make money on the side these days, you need to make sure you are – you guessed it – as specific as possible on who you hire.

Start Talking To Investors

Take your deck – that you had professionally proofread by someone on Upwork or Fiverr – and start making calls. Have your elevator pitch down. Solicit interest. You want to find a real and meaningful investor here.

Note For The Nervous Nellies:

Let me emphasize here that this is the practical way to do this and the way many experienced investors do this. You’re going to hear a lot of scare tactics from industry “gurus” telling you to buy their $10,000 or $50,000 document package otherwise you’re breaking the law and the SEC will come after you.

No, you can’t advertise on billboards, however, this is meant for you to quietly talk to established friends and family members who may be interested. Quietly.

You have absolutely no recourse if you should get into trouble.

Their terms of service you agree to when you purchase their “docs-in-a-box” effectively release those gurus from any and all lability.

When dealing with such important matters, you always want to be able to point the finger back at someone who has malpractice insurance if something wasn’t screwed down as tight as it should have been.

The grownup way to do this is to work with an attorney to paper the deal after your investors have been identified. Find a date to the prom before buying that expensive dress.Dealmakers Tips 57

Also, depending on who your investors are and how sophisticated and experienced they are, they may want to use a different transactional structure.

So don’t do what the inexperienced rubes do and have to pay double to re-paper the deal because the money didn’t like the way the docs were written the first time around.

Paper The Deal

Congrats!

You’ve found a few investors who are serious and committed. Now it’s time to consummate the marriage. Get the entities set up, docs signed and capital and operating accounts set up.

Purchase the Asset

You’ll want to use the operating expenses – depending on the agreement you have with your investors – to go hard on due diligence.

That’s a topic for another blog post, however, you’ll want to make sure that you have your belt, suspenders and lifejacket on before closing.

Never rely on appraisals that you didn’t pay for, never just trust the seller that the building is up to code, do a UCC search for liens, never take candy from strangers… you know how to act.

When you do close you’ll use those funds form your capital account, and wire them to the same title company where you have your earnest money held.

Anything else? You betcha!

Set Up Post-Closing Management And Infrastructure

This is making sure the management company is set up, any lockboxes are created, making sure the servicer has the account info for your private lenders who have that second on that grocery store you bought so they can send them their coupons each month, insurance is set up having your investors as additional insured, etc.

The list goes on.

If using a fund, making sure the fund administrator or accounting firm has the PPM and operating agreement, contact for all managing members and members to send distributions and Form K-1s to.

…Rinse, Wash and Repeat.

Do it all over again on your next deal. Always be talking to prospective investors.

Now here’s the question you’ve been asking all along…

What happens if you don’t have the requisite experience?

Well, if you’ve found the deal and you’ve raised the money, but lack real experience doing a value-added rehab, for example, seek out someone who has the experience who you can legitimately partner with on your first deal.

If you have a sharp, buttoned down profile on LinkedIn® like this one here, than you’re all set to start courting the right owner-operators in those invite-only groups. Simply send them your deck and your numbers and you’ll attract the right person.

If you need to qualify them, you’re in luck. We have a post on that you can go to by going here.

Want more resources?

We’ve grown a lot since this post was originally published in March 2016. A full year later and we’ve launched a podcast where we’re able to share even more great information with—ahem—even more coloring.

Check out the resources below to get even more information to aid your capital raising.

Episode 11: How to Raise Commercial Real Estate Capital [Part 1]

Too many commercial investors believe that if they raise capital for their deals, they’ll automatically be profitable. It’s a nice idea but, in reality, it’s not the least bit true. Raising capital and providing returns on that capital aren’t the same thing.

Sorry, wishful investors.

So what does work? Rock solid fund structures—THIS is the foundation of raising capital. You can’t successfully raise capital and maximize your profits if you don’t understand the different types of fund structures.

That’s exactly what Sal and AJ are unpacking in part one of this multi-part mini series about capital raising. So whether you want to start your own fund or are just looking for creative ways to get your deals up and running, this episode’s for you.

Here’s what you’ll learn…

  • The seven most commonly fund structures in commercial real estate, and how to use them to your advantage
  • The motivations for starting a fund—why you just might want to consider getting in on the action
  • Why real estate is inefficient—and why that’s a really good thing for YOU
  • How even the dullest crayon in the box can outsmart the market (so really, you have zero excuses)
  • Why your investors are more secured and insured with YOU than

Episode 12: How to Raise Commercial Real Estate Capital [Part 2]

It’s simple: if you rely on banks in this economy, you’re going to die.

A little extreme? Possibly—but in today’s commercial real estate industry, it’s not far off.

That’s why, now more than ever, you need to find alternatives to traditional banks and debts. And that’s exactly where part two of this three-part series picks up—with Sal and AJ digging deeper to help commercial investors get even better at raising capital. Capital raising is the lifeblood of the industry—get it right, and you’re on your way to some serious success. Miss the mark and, well, you’re not.

In this episode, the guys unpack the ins and outs of raising money thoughtfully and consistently… ensuring you land a portfolio built around the diverse deals and opportunities. And as an investor, that’s your job at the end of the day. So listen up and dig in, because in this edition, the guys are helping you pick up where the banks leave off—and raise some serious capital in the process.

Here’s what you’ll learn…

  • Understanding Placement Agents—what they are, what they aren’t and the moral and ethical obligation you have when you ask someone for their life savings.
  • The reason so many Baby Boomers and millennials are flocking to commercial real estate investing, and why it probably won’t be seen as an “alternative” investment class for long.
  • The importance of a powerhouse pitch book, and why no one wants to read your PPM.
  • The right ways to structure away the risks, and how to insulate yourself and your investors.
  • Why specificity gets you funded, and how to communicate your deal like a pro.
  • How to make sure your documents, like grandma’s nightgown, cover everything.

Episode 13: How to Raise Commercial Real Estate Capital [Part 3]

Now that you’ve established how and where to raise all that capital, it’s time to roll up your sleeves and figure out what’s next.

We’ve seen a ton of people who didn’t know what they didn’t know going in, and wound up screwing a lot of people out of a lot of money in the process. And that’s no good.

So that’s where this episode picks up—with how not to get started in your capital raising adventures.

A sneak peek?

Don’t ask for money if you don’t know why you’ve got a good deal on your hands. If you haven’t analyzed and verified that deal yourself, then you have no idea why or even if the deal is rock solid.

And if you can’t say for certain—from real, first-hand due diligence—then you have no business talking to investors. Plain and simple.

From there, Sal and AJ unpack the best ways to build killer relationships with investors, while ensuring you’re steering their money in the right way every time. Never forget that’s the goal. Never forget that you’re dealing with an investor’s life savings.

And to help you tie it all up with a bow? Sal and AJ are offering TCI podcast listeners an opportunity to score a FREE downloadable pitchbook template worth more than $5,000. Tune in and learn how to get yours

Here’s what you’ll learn…

  • Why people invest in you and not the deal—and why you need to take that seriously
  • How—and why—to sharpen your axe by raising capital (or at least talking to people…) before you dive in with investors
  • The ins and outs of building credible relationships with investors, and why that starts with listening
  • How to leverage “VVP” (value, verify and pitch) in every single deal
  • The best ways to communicate a deal, including an opportunity to get a FREE pitchbook template right now
  • …And why those pitch books are so valuable, even if you’re pitching to someone who “gets it”

Episode 19: The 8 Biggest Mistake New Investors Make Raising Private Capital [Part 1]

Many of you loyal listeners have written in to ask Sal and AJ one very important question:

What, exactly, do I SAY to investors?

This is a great question the guys are tackling head-on in this episode of the Commercial Investor Podcast. Sal and AJ dig into everything, from why you should create a “swipe file” with key learnings from the podcast, to customizing your pitchbook (and where to get a FREE pitchbook), to what private investors really want to hear from you. The best part? It’s simple.

This episode couldn’t come at a better time. We were at a market top, and between cap rate compression and President-elect Trump taking office, there are endless opportunities for smart, savvy investors—the kinds of commercial investors who listen to this podcast.

Sal and AJ will share their own first-hand experiences and help listeners navigate the world of private investors versus big, bad banks. They’ll also unpack the biggest mistakes commercial investors make, so you can dodge the bullets that sideline way too many high-potential newcomers. Don’t be one of those investors—listen in, get the edge and raise some serious capital right now.

Here’s what you’ll learn…

  • Why private capital is superior to any other form of financing (…seriously, the world can become your investment oyster)
  • How to talk like a power player, and why you should always build a persuasive argument with potential investors
  • How cap rate compression and the recent market spikes mean MAJOR opportunity for you
  • Why it’s so hard to get money from a bank, especially if your credit isn’t spotless (…and really, whose is?)
  • And if you DO manage to get a loan from a bank, Sal and AJ explain why you’re always in default—even if you’re not really in default. (hint: it happened to AJ and it’s NOT good…)

Any questions? Leave them in the comments below.

(NOTE: Want access to my business vault? Right now I’m offering access to my systems, strategies, templates, training, and recordings. It’s all included in The Investor’s Syndicate, and all available to you here.)

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Until next time.

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Salvatore M. Buscemi
A former investment banker for Goldman Sachs in NYC, Sal is one of the nation’s leading authorities when it comes to investing in residential and commercial real estate. He’s raised over $50 Million in capital for his real estate hedge funds.

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Salvatore M. Buscemi

About Salvatore M. Buscemi

A former investment banker for Goldman Sachs in NYC, Sal is one of the nation’s leading authorities when it comes to investing in residential and commercial real estate. He’s raised over $50 Million in capital for his real estate hedge funds.
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The Definitive Guide to Commercial Real Estate Capital Raising

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