Institutional Standards, Entrepreneurial Execution
Topic:
[email protected]
310-692-4480
www.SilverPortalCapital.com
www.SilverPortalDirect.com
Raising Institutional Capital for Private Real Estate
Speaker: Robert E. Lee, MBA, CCIM
Company Overview
Silver Portal’s business platform provides a full complement of strategic/financial advisory and capital raising
services for public REITs/REOCs, non-traded REITS, and private companies in the real estate industry. We
focus on both traditional and non-traditional (core and non-core) property types, in situations that provide the
potential for dynamic growth and superior risk-adjusted returns. The firm’s highly experienced partners have
advised on and raised capital of more than $17 billion for the real estate industry in over 140 transactions,
and have completed over 275 investment banking transactions in total.
Investment Banking
Advisory Services
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Strategic recommendations
Recapitalizations/Restructurings
Valuations/Fairness Opinions
IPO Listing Advice
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Transaction Negotiations
Merger and Acquisition Advisory
Portfolio sales
Private Equity raised from long-standing institutional and high-net-worth relationships for multi-year, multiasset partnerships or entity-level investments, from $50-$250 million, as well as significant individual projects
which require equity of more than $10 million.
Merchant Banking
Sector-Focused Growth Capital is obtained from large institutional and high-net-worth investors for
companies in sectors with strong demographic fundamentals and clear growth trends, in which Silver Portal
may participate as a principal.
Our Principals are industry veterans who have formed and led the real estate investment banking, merchant
banking, and high-net-worth investor departments of multiple Wall Street firms. They form a powerful team
with an unmatched combination of real estate transaction experience, industry knowledge and investor
relationships.
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Investor Types and Investment Considerations
Silver Portal creates competitive tension to enhance value and optimize Joint Venture terms for sponsors
Institutional Sources
Traditional Sources
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Owner / developer personal resources
Friends & family
HNW investors
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Multi-family family offices
Co-mingled dedicated real estate equity funds
Pension funds (public and corporate)
Endowments
Foundations
Life insurance companies
Sovereign wealth funds
Listed and unlisted REITs
Hedge funds
Taft Hartley funds (unions)
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Investment Criteria
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Real estate private equity investors will consider the following investment criteria:
– History
– In-house capabilities
– Risk/return relationship
– Structure
– Strategy (e.g., acquisitions, development, capital allocation between asset types)
– Partner/Advisor (e.g., history, financial strength, reputation)
– Property type
– Geography
– Hold Period
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One size does not fit all
– Certain investors are constrained by very specific investment mandates
– Investor’s “role of real estate” will determine strategy (cash flow/current income vs. return)
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Investment Return Characteristics
Core - Plus
Core
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Class A assets or premier multi-tenant
buildings
Primary markets
High occupancy/credit tenants/long-term
leases
Stable cash flow investment
Modest leverage <50% when used
Return targets ~ 8.0% - 9.0%
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Value-Add
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Class A and B assets
Recovering primary markets or secondary /
tertiary markets
Mid-high vacancy / re-leasing risk /
obsolescence / rents below market /
repositioning
Balanced mix of cash flow and appreciation
Moderate leverage 60-70%
Return targets ~ 14.0% - 17.0%
Variation on core investing
Primary markets
Fewer credit tenants
Some vacancy or re-leasing risk
Cash flow with some potential for growth
through increased cash flow
Slightly higher leverage 50-60%
Return targets ~ 10.0% - 13.0%
Opportunistic
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Class A and B assets
Recovering primary markets or secondary /
tertiary markets
Mid-high vacancy / re-leasing risk /
obsolescence / rents below market /
repositioning
Balanced mix of cash flow and appreciation
Moderate leverage 60-70%
Return targets ~ 18.0%+
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Investment Structure
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Single Asset Joint
Ventures
Strategic / Programmatic
Joint Ventures
Joint ventures are
individually negotiated
and tailored
transactions
 Vehicle for sponsors
who have a good
reputation and track
record
A joint venture may be
formed to:
 Establishes terms on
which a series of
investments may be
made with a single
investor or a small
number of investors
 Acquire a specific
property or a
portfolio of
properties
 Recapitalize an
existing partnership
 Develop or
redevelop a property
 Terms vary widely and
are individually tailored
(discretion within a box
vs. deal by deal
approval)
 Can offer a more certain
funding source for
projects within specific
parameters
 Sponsor can contribute
existing assets and/or
close around pipeline
assets
Entity / GP Investment
 Investments by one or
more investors at the
operation company
(entity) or sponsor
equity (GP) level
 Involves sale of a
portion of all income
streams generated by
the entity or the GP
 Investments can take
form of common or
preferred equity and can
vary with respect to
governance
Co-mingled Funds
 Group of investors pool
their resources to create
a larger investment
 Money is gathered from
various sources that are
managed together in
one account
 Includes a wide variety
of entities including
insurance companies,
group trusts, limited
partnerships, LLCs and
private or untraded
REITs
 Can provide permanent
capital and a long term /
global solution for the
sponsor
 Creates alignment of
interest; typically aids in
raising additional JV
capital
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Structuring Joint Ventures
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Involves formation of a new, special-purpose entity to own the properties of the joint venture
– Development joint venture
– Acquisition joint venture
– Disposition joint venture (e.g., sponsor contributes assets at agreed upon value while institutional
investor contributes cash)
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Single asset or programmatic joint venture
– Ability to attract programmatic capital largely determined by investor appetite, sponsor track record,
investment parameters and visibility of pipeline
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Each joint venture is idiosyncratic; there are no pre-set terms and conditions
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Profit sharing based on value of equity, skill set, and operating team contributed by the parties to the joint
venture
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Terms to be negotiated include:
– Co-investment (e.g., 90%/10%; 95%/5%)
– Preferred returns, total returns, clawbacks
– Promotes
– Governance
– Guarantees (Development: completion; payment; environmental; non-recourse carveouts)
– Hold period
– Exit Buy/Sell (may include buy/sell provisions where properties are liquidated through acquisition by one
JV partner or sale to a third party)
– Transaction costs, fees and expenses
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Key Terms
Term
Comments
Waterfall Structure
Portfolio returns crossed vs. project or deal-by-deal returns.
Preferred Returns
Calculated from the day capital is contributed to the point of distribution. Development: 9-10%.
Promote
Waterfall distributions: Preferred return pari-passu; return of capital; remaining proceeds split TBD
based on return requirements (consider two separate waterfalls – strategy determined) of Investor.
Target Returns
Leveraged returns a function of acquisition / development strategy (TBD – strategy determined).
Investment Period
Generally now being scaled back to 1-3 years, 2-3 years for deep value-added and development.
Exit Period
Evidence suggests shorter JV durations, now 5 years on average (based on real estate strategy).
Clawback Provision
The period may extend beyond the term of the venture, including liquidation and any provision for
LP giveback of distributions (clawback typically to preferred return plus).
GP Commitments
LPs expect aggregate GP commitments to be “meaningful.” Contributed through cash and not
through a waiving of fees (95/5 or 90/10 is market).
Fees
As Managing Member, provide services to the JV and entitled to receive market fees (e.g. property
management, leasing, development management, acquisition).
Leverage Maximum
Averages in the 60-70% range.
Governance / Discretion
Will manage the day-to-day affairs of the JV subject to decision-making authority guidelines to be
set forth in a JV Operating Agreement and an approved annual business plan. The Investor will
have the right to control all major decisions that would affect the property (e.g.,
contributions/distributions of cash flow, capital transactions, major capital programs, inter-company
payments or contractual relationships, etc.).
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