When raising capital, you always think about how you’re positioning yourself for your next raise.  For Sam, he’d like to be able to raise a $100mm+ JV or institutional fund to go assemble a portfolio of small multifamily buildings in the next few years.

So in the near term–with Washington Place, and similar projects–he needs to:

• Prove he can deploy capital efficiently with strong returns; while…
• Maintaining the flexibility to raise from other capital sources, and
• Avoiding getting locked in to low fees and profit share for next raise

But there are certain trade-offs he will need to consider. It will be hard for Sam to deploy capital efficiently on a deal-by-deal basis as he’ll have to be raising for deals #2, #3, #4, etc. while executing on Washington Place.

But an institutional joint venture will likely come with lots of strings attached given his lack of track record, specifically aggressive fees, ROFO/ROFR requirements, and future ownership in the GP and/or his OpCo, Koala Capital.

Threading the needle

The good news is we can explore both options simultaneously, where the base case is to raise a single asset syndicate for Washington Place, but in the process start engaging with PERE & large family offices regarding joint ventures (as it’s always helpful to open conversations with institutional groups around a specific, even if it’s just to start building the relationship).

And what’s more, it will force Sam to learn to position Koala Capital and Washington Place as an institutional quality sponsor & investment strategy.

Institutional positioning

The notion of positioning Sam, Koala and Washington Place as an institutional quality sponsor is a key theme through the course.

Take this example:

_{Sam decides he wants to approach his very rich Uncle Ted to invest $5mm into Washington Place–and then get Ted’s rich friends to pitch in for the rest.}

_{Pitch 1: “Uncle Ted, I’ve been buying a few small multifamily projects in Big Apple City; they’ve performed well and I’m now raising money for a new, slightly bigger deal with the same return profile.. Want in?}

_{Pitch 2: “Uncle Ted, I’ve been talking to a few private equity real estate groups and large family offices about doing an $80-100mm joint venture to scale my small multifamily strategy; but they’re looking for aggressive fees and I’m thinking I might keep doing this on a deal-by-deal basis with investors I trust, at least for now… Want in?}  

Pitch 2 is going to create a lot more credibility for Sam, but Uncle Ted–and any other HNWI or family office–is not going to believe him unless his sponsor profile and the deal profile appear to be institutional quality.

This chapter will get into specific strategies to position Sam as an institutional quality sponsor–including ways of enhancing his track and layering in additional competitive advantages that institutional investors will want to see in order to consider Koala a viable platform for deploying significant capital in the future.

We’ll also review how to modify this general positioning for specific audiences based on their specific investment objectives (e.g., Allie focusing on IRR and needing a good story for a cocktail party, vs. Fred seeking longer term holds and unique downside levers).

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