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In Search of Equity Capital? Follow Six Winning Steps

In 1997, The Ronto Group set its sights on rapid expansion in the Southwest Florida market with a core focus on developing gated residential and mixed-use communities, in addition to luxury, high-rise condominiums. In order to be successful in a fiercely competitive market, the company leveraged its strength as a privately held organization with the ability to act quickly, and then worked feverishly to line up equity capital partnerships that would last for the long haul.

With help and guidance through the ever-changing equity landscape, The Ronto Group took a series of critical steps that ultimately paid off. Today, the company is one of the largest developers of residential master-planned communities in all of Southwest Florida. With its financial partner, the company has pursued eight separate projects valued in excess of $470 million, consisting of 4,615 acres, 11,000 residential lots, 430 condominium units and 192,000 sq. ft. of commercial space.

The fact is, experience shows that developers and real estate acquirers can dramatically boost their chances of reeling in equity financing, if they follow six critical steps in order to secure a long-term, financially beneficial equity partnership.

  1. Make the right connections: Before doing anything else, research your options for financial guidance carefully. Brokers, financial advisors and financial institutions all offer assistance in the hunt for capital, but not every financial expert will offer to — or be able to — introduce you to a full range of investor sources. Above all, many advisors will be unable to match your needs to the right investor, and many will lack sufficient expertise and experience in the commercial/residential real estate fields. An advisor with a tested approach will offer negotiation strategies that will create clear financial benefits for you.

  2. Diversify investor targets: The best equity capital sources are often not the first that come to mind. While many developers and their advisors are inclined to pursue established Wall Street investors, it's vital to consider every potential source. Ultimately, it is in the process of targeting, interviewing and assessing capital sources that true financial and strategic compatibility can be measured. Beyond traditional Wall Street capital sources, foundations, high net-worth individuals, pension funds, foreign sources and family office investors are all viable considerations. Developers and owners who want to succeed must consider every option.

  3. Package the deal: Equity capital transactions are made and broken in the communication stages. Without clearly developing and expertly packaging your project, you might subject yourself to investment shortfalls. Properly outlining a strategy and clearly structuring the transaction is mutually beneficial for the equity investor and the developer or acquirer, and is critical to consummating the transaction.

  4. Act fast: With competition for real estate capital at its highest point in years, speed matters. Developers who secure the right capital partner under the best terms have started from a position of knowing their options and successfully targeting potential investors. In order to act quickly to expedite a project, you not only need to understand your potential targets, but you also must understand the extent of your role in the partnership.

  5. Know the details: Before you sign an agreement, make sure it is airtight and in your best interest. You will need to clarify key elements upfront, including who will pay for related legal costs and, later on, cost overruns, and how disputes will be resolved should a venture falter. Pay close attention to the negotiation of returns on capital, percentage of ownership, division of profits and losses, and priority of returns.

  6. Negotiate for the long term: A critical step in finalizing the best possible equity capital deal is agreeing upon, and planning for, long-term possibilities. The strongest arrangements between a developer or owner and an institutional investment partner are accompanied by an understanding that potential future deals will be brought by each partner to the other on an ongoing basis. Ultimately, by establishing long-term partnerships, you will gain a significant advantage when future opportunities arise. You will already have an equity capital source in place, with only the final details to arrange.

A solid equity partnership that will deliver results for years to come is clearly achievable, provided that you model the masters.

Jan David Reese is executive vice president of Cypress Creek Capital, a real estate advisory and investment firm based in Ft. Lauderdale, Fla. The company is a wholly owned subsidiary of BFC Financial, which is traded on Nasdaq.

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