Understanding different investor types is key to developing a capital raising strategy.
This section will break down five different investor profiles, discussing what they look for in a deal, how much they invest and when, what controls they require, and more. The characters we’ll be meeting in the journey to fund Washington Place are:
- Philip, the Pension Fund Investor
- Allie, the Accredited Investor
- Fred, the Family Office Investor
- Ralph, the Real Estate Private Equity Investor
- Hazel, the Hedge Fund Investor
Allie, the Accredited Investor
Allie views real estate investments as an opportunity to diversify her portfolio and is seeking unique or niche opportunities that can provide substantial above market returns in the “high teens to low 20s”. She is able to make quick decisions, has a relatively flexible hold period (5-10 years), and is happy to be a passive investor.
But her check size is $500k to $1 million, so her investment will have to be pooled with other limited partners in order to capitalize Washington Place (unless she invests as a co-GP).
Fred, the Family Office Investor
Fred seeks value-add opportunities and distressed assets that can offer significant appreciation, aiming for solid returns in the “low teens to high teens” range. Fred has a long-term investment horizon (often 10+ years) and prefers investments that align with intergenerational wealth transfer goals, i.e., money for the grandkids.
While Fred can provide substantial capital to Sam (up to $20 million) and has a deep understanding of the Big Apple real estate market, his decision-making process can be very slow as he needs to get approval from multiple family members.
Ralph, the Real Estate Private Equity Investor
Ralph is primarily focused on structuring strategic joint ventures with sponsors and is focused on value-add and opportunistic strategies. He aims for returns in the “high teens to low 20s” and is very “hands-on” to ensure maximum value is created and nothing slips between the cracks.
Ralph has a medium-term investment horizon (typically 5-7 years), driven by the fund lifecycle and the need to return capital to investors.
Ralph brings significant expertise and up to $100mm in equity capital (he will only do this deal with Sam if it is programmatic, i.e., this is part of multiple deals), but he will require significant controls over the projects and take aggressive fees.
Hazel, the Hedge Fund Investor
Hazel is focused on identifying real estate and infrastructure investments that offer potential for rapid appreciation, aiming for returns in the “low 20s to high 20s” range. Unlike Ralph, Hazel’s hedge fund approach utilizes significant leverage to amplify returns. She prefers shorter holding periods (typically 3-5 years) to realize quick gains and reallocate capital efficiently.
Hazel can provide up to $50 million in equity capital, likely via a programmatic structure. However, her approach can be highly volatile and driven by short-term performance metrics, leading to potentially higher turnover.
Carl, the Commercial Lender
Carl works for a commercial bank that offer a wide range of banking services, including real estate loans via ommercial mortgages, construction loans, permanent loans, and lines of credit.
He’s going to provide competitive rates and terms but may have stringent qualification requirements and longer approval processes than the other lenders Sam will consider, like private lenders and “hard money” lenders, who can be faster and more flexible but will be expecting much higher rates.
In this section we’ll get into detail on how each of these capital providers will look at Washington Place and why, and how Sam will navigate them as he seeks to raise money for his real estate investment.
