The Capital Stack
How To Identify A Productive Partnership
Two Types Of Partnerships
We have experienced two types of partnership. One where the equity is split evenly and both partners contribute to purchasing and managing the property. The second type of partnerships we have experience with involves equity and workload that are unevenly distributed. Usually this happens when one partner lacks experience; or their equity in the deal is very small and it’s understood their time is best spent elsewhere. In the past we have partnered with several individuals, all who bring value in a unique way. The right partner can offer money, the deal itself, or experience in a key area.
Money
A potential partner could contribute financially in three ways. One, by personally investing their own money. Two, by signing on the loan and having a large balance sheet to back it up. Three, by leveraging the relationships they have with their investors. We have a partner on two of our properties who signed on the loan and contributes only equity. He is not involved at all with the day-to-day management. On another, we partnered with an individual when purchasing our property in Ferndale who has personal money invested, has access to investor money and high expertise in construction management.
The Deal Itself
A potential partner could also “bring the deal”. Or in other words, bring an available property to our attention that we would otherwise know nothing about. The deal could be at any stage. Meaning, they could simply know a seller interested in parting ways with their properties, or they could have already approached the seller and agreed to a purchase price, or they could even bring a deal that’s on market to our attention. We purchased our very first deal by partnering with a more experienced buyer. We found an off-market property and had early negotiations with the seller before bringing in a partner to help us get our first deal across the finish line. Just a few months later it came full circle when a less experienced buyer came to us asking for help to close on his first property. Since then, we have closed on numerous other properties brought to us by less experienced buyers looking for their break into multifamily. When writing about partnerships our property in South Carolina comes to mind as we ended up purchasing the property with a group of partners. The deal was found on market, we were brought in for our expertise and to insure the property closed and had a solid value add business plan, and then I looped in a third partner to handle the bulk of investor relations. Partnerships are very powerful and help spread risk and reward.
Expertise
A potential partner can also offer expertise in a key area and contribute significantly to the workload. Prior to purchasing the Cambridge Apartments in Ferndale, we brought in a partner for his expertise in managing heavy renovations. Other partners on other deals, we have contribute by heading asset management which includes communication with property managers and investor relations. When a partner is sharing equally in the workload, they usually have a sizeable piece of the equity and are individuals whom we trust and deem reliable.
Major Market News
Partnership Purchases For $41 Million.
According to an article by TheRealDeal “Multifamily investment firm Security Properties and affordable housing nonprofit Hearthstone Housing Foundation jointly paid about $41 million to acquire more than 100 units of low-income senior housing”. Even large multifamily firms partner with other established firms to secure larger or sometimes out of their primary focus, multifamily investments.
Check out the full article here:
https://therealdeal.com/sanfrancisco/2022/09/02/in-rare-deal-affordable-senior-housing-sites-sell-for-41m/
Tips and Tricks
Terms
“The Deal”- In this newsletter we use the term “the deal” numerous times. To avoid confusion, we will elaborate. It simply means the property we have purchased or are attempting to purchase.
