DEVELOPERS/INVESTORS

Developers and investors commonly find that having a single source of institutional capital – rather than raising equity from multiple investors often results in a less encumbered reporting process and a more cohesive working relationship with a joint venture partner.

Institutional investors such as Pension Fund Advisors, Life Insurance Companies and Opportunity Funds generally have capital allocations dedicated towards Joint Venture real estate investments. Many of these firms have substantial allocations dedicated to commercial real estate ventures.

Required Investment Amounts
If you have an equity requirement between $1M to $50M, Flagstone Capital can often assist by creating a joint venture relationship with an institutional investor.

Investment Types
Capital is primarily provided for traditional commercial real estate investments such as multifamily, industrial, retail and office. However, capital is also available, selectively, for other kinds of investments. Return expectations of the equity partner vary depending on asset class, age and property condition.

Investment Structure
Investment structures typically take the form of Joint Venture Investments, with both parties participating financially. These ventures are often structured with the institutional investor providing between 80 to 90% of the equity. Asset management, development and leasing fees, are often allocated to the developer or investor – also known as the sponsor. Preferred returns are commonly provided to the capital provider. Typically, both partners participate in a negotiated backend split of revenues after an identified hurdle rate is hit, such as a specified percentage return or a predetermined amount of capital is returned to the capital partner.

Preferred return rates vary with asset class and property. Sometimes the return to the sponsor escalates as the percentage return to the investor rises. Ventures are sometimes structured in the form of presales, and mezzanine debt is also a popular component in some deal structures.

Multiple Transactions
Institutional capital providers prefer to do business with experienced partners. Successful relationships commonly result in multiple transactions. Once institutional investors become comfortable with partners, it is easier for them to do additional deals, rather than seek new partners.

Flagstone Capital’s Fees
Fees are commonly a line-item expense to the Joint Venture, and are contractually obligated by the developers and investors (sponsors). Flagstone Capital’s fees average 3% of the capital-raised, and are graduated lower for larger transactions. Fees are also required, but graduated lower for second and third generation transactions done with capital partners introduced through Flagstone.