Fishing for Capital

Fishing is a sportsman’s experience that brings many benefits even if the catching is minimal or altogether non-existant. A successful fishing trip can be sighting a rare species of wildlife or a day spent with a 10-year-old son. Capital raising, unlike fishing, does not bring collateral benefits and is generally considered a failure without

funding. It can be a very expensive and discouraging experience. The benefit of capital raising is only one-funding.

The term “fishing”, as a verb applied in the paraphyletic sense, carries with it the implication that somehow “catching” is guaranteed. This is a misnomer, and much like the effort of capital raising, funding is seldom guaranteed. And why is this? We think the answer is obvious, but often misunderstood. Below we have outlined what LANDCO deems most important to accomplish successful funding.

Everyone witnessed the downfall of the US and world economy in 2008. Recall the barrage of predictions ranging from V-shaped bottoms, stagflation, and even deflation. At that time, LANDCO predicted a 13 year recovery defined by regression or return to the mean if we were to set prices on historic growth trends (see Q3-09 Situation Analysis). Regardless, then and now, there are many perspectives on what is happening and how to best deploy capital.

Few agree on what the outcome from the underpinnings such as regulation, fiscal and monetary policy will be. And with so much uncertainty, there is hesitation, and as such, a myriad of product suitable for every anticipated outcome.

First, know your setting. Real Estate investment, whether be for fiduciaries purchasing on behalf of pension funds, hedge funds, private equity, or individuals, requires an outlay of capital for a specific period of time and for specific purpose in mind. New structures for deployment of capital into real estate are being developed all the time. Even a summary of the numerous products,

their origins and objectives would require more time and energy to conjure than is appropriate for this writing. It is important, however, to know the trends in capital. What are more or less popular product types? What kinds of sources, debt and/or equity are focusing on different real estate categories (multi family, retail, industrial, office) and what kinds of structures are being considered at any given time? What forms of assets are more popular investments take; i.e. debt or direct real estate acquisition? Is it more opportunistic to go after the less popular forms?

Second, determine investment parameters in advance. Spend some time with the capital source telling them what kinds of investment opportunities you intend to bring them. LANDCO Capital sources funding for the ventures it identifies through its LANDCO Advisory Services business unit, an acquisition team working closely with banks and other lenders facing challenges in their loan and REO portfolios. We address the capital markets

by using our current ventures. There are other grades of investment we are not targeting at this time and as such there may be other techniques more appropriate in those instances. We target type, geography, size, and grade in advance based on where we see competition, availability of capital, a host of economic indications (see LANtelligence-“The Knudson File”), and familiarity. Our current targets include the following:

1. Loan portfolios of approximately 50MM or individual loans which can be purchased for between 3MM and 15MM
2. Secured by multifamily, industrial, office or retail
3. Six markets consisting of Southeast Florida, Dallas, Houston, Phoenix, Los Angeles, and San Francisco
4. Un-leveraged IRRs of 11% to 13% and above
5. Multiples on equity of 1.3 to 1.5 and above
6. 6 to 24 month investment durations

Third, define your team. It is not always practical to have all required disciplines in house but it is imperative that team coordination is demonstrated and viable. Our experience has shown repeatedly that clear explanation of the team members and their specific roles in every aspect of the investment is a critical. Deal size, category, location, and business plan are all requirements of a successful investment venture. Demonstration of ability and preferably experience working together as a team are heavily weighted in attracting capital. In tournament fishing, competitors often spend days if not weeks angling in the designated fishing local of the tournament. Day one of a tournament is rarely a fact finding excursion for the winning team. Usually the team has

fished together even if one or two members of it are new.

Fourth, identify your competition and drivers. Who are the likely tenants for a retail deal?

Can they enhance the project at hand? Is the location and size of the project going to appeal to the new potential tenants or is a competing project more attractive? What is the job environment surrounding a multifamily project? Is it best to target a well located mid-tier project needing management replacement for value add proposition or can new construction secure the more reliable income stream? Answers to all of the above and more will be deciding factors in any decision to invest. The terms of the capital are as important to the overall success of the deal as any other single element and as such must be negotiated.

Fifth, have fun preparing the materials and delivering a quality presentation. As is always the case in fishing, know what you are after. Without the proper rigging, tackle, and all applicable skill sets designed specifically for the sought after targets, it is unlikely even a well stocked pond will yield. Likewise, if the materials are lacking in sufficient detail or the presentation is not credible, capital will flinch and usually not return. Last June I was fortunate to be on the team that took second place in the IGFA International Rooster Fishing Tournament in Baja California.

We placed because of our equipment, experience, and being in the right places at the right times. Second place is winning. We might not get positive responses from all capital sources but several may be more than enough. Whether assembling a presentation package for a third party or for one of our in house ventures, LANDCO Capital will anticipate questions before they are asked and accordingly be prepared. If the material and presentation align so that capital sources can affirm interest with minimal effort, the odds of a successful funding are greatly increased.

Fish come in several types; salt water, fresh water, bass, trout, bill fish, and on and on. Each are lured differently. Its important to know our appetite before we present and that we can demonstrate our proficiency at capitalizing when the opportunity arises. With a wide ranging array of sources, LANDCO Capital arranges the most appropriate capital for the optimal result. In today’s uncertain economic environment, LANDCO Capital enhances investment returns by accessing alternatives that designated funding sources and discretionary funds often cannot.