Equity Preparation Process for Local Asset Manager
The Equity Preparation Process is to insure that there is no mutual mystification between the local asset manager and the global investor. The goal in this process is to create a “pull” and not a “push” relationship with an investor. What does this mean and why is it important?
Our work is to provide deep-value global investors turnkey deep-value investment opportunities that match their investment interest. Hence, our process with our local asset manger is to develop a real estate investment opportunity, “the product”, that will attract investor interest.
Together with the local asset manager, we are not creating a “product” or sourcing an opportunity and then trying to change investor behavior to make a deal. Creating a real estate investment opportunity that attracts this type of interest is often an interactive process with the investor and requires close investor relationships.
Importantly, our unique newsletter and blogging program are key to these close relationships. We are effectively communicating with investors in detail every two weeks and this helps our investor base understand our thinking before we present a deal in the marketplace.
I. Investor Engagement Process
- Outline Core Investment Thesis
- Understand Basic Economics of Transaction
- Verify Asset Manager Checklist – This is a crucial step. Often at this stage, a limiting constraint, or a specific limitation of the asset manager, is dealt with up front before moving forward with an investor. This saves all parties time and money.
- Determine Investor Interest Level – Often through newsletter
- Engage Asset Manger
At the end of this stage, we have made the preliminary estimation that there is investor demand and we feel the asset managere has the infrastructure, processes, and transactions to source large-scale JV Capital.
II. Asset Manager Product Development Process
- Live Deal Under Negotiation – We need to see live deals that are proprietary and/or in a limited non-professional auction process where the asset manager has a clear advantage.
- Private Placement Memorandum – Investment Thesis, Pipeline, Initial Comparable Transactions for First Deal(s)
- Why Now – Discussion about why now is the time for this specific strategy or investment opportunity
- Management Team – Multi-disciplinary with deep experience in the investment strategy presented
- Proof of Scale – Is there enough mass to justify a large-scale investor’s time?
At the end of this stage, we are ready to move the ball forward rapidly. Our initial product development process is completed. Although InDev has already been in contact with the “customer,” large-scale global investor, it is now time for the sponsor to meet the investors face to face and talk about a specific deal to rally around.
III. Road Show
- PPM Sent to Pre-Identified Interested Investors
- Initial Conversations – Verify Interest
- Investors Invite Asset Manager to Present
- Meeting in NYC, Boston, London etc. going through the Live Transaction and Strategy
At the end of this stage, the asset manager has met with interested investors in the strategy face to face, usually three to five investors. Both parties can determine if the relationship is a personal and business fit. In addition, both have a chance to evaluate each other face to face.
- Post Road Show
- Feedback from Investors
- Term Sheet Offers
- Sponsor Decides on an Investor
- Term Sheet Signing
This process takes about two to four weeks when investors provide feedback in writing about the opportunity. Although we sometimes only have one very strongly interested investor, our goal is to always have two investors interested.
IV. Due Diligence
- JV Agreement Draft
- Business Due Diligence
- Legal and Environmental
- JV Negotiation
- Investment Infrastructure
- JV Signing
The investor will expect the asset manager to have significant experience with due diligence given this is a sector of expertise. Depending on the type of investor, this process can work very differently. Our large family office investors “piggy back” or rely more on the sponsor due diligence and verification. However, our large-scale hedge funds and financial firm balance sheet investors send their people to perform due diligence with the sponsor. All InDev investors desire to close as rapidly as prudent as time kills deals.
At this stage, a new world of opportunities opens up. InDev stays involved and is often a co-investor. We try to build a long-term relationship with our clients and we stay in touch as the client may have new opportunities and will be kind enough to offer a referral.