Wednesday, July 24, 2013

Raising Equity is a Business in itself

I would like to share a very interesting matter which I discussed with my good friend Michael when I was in London recently.

Raising Equity is a Business in itself

by Michael G Ehlert

Raising equity is a business in itself which requires preparation, patience and well timed action steps based on systems, processes and procedures.

The lack of equity is the most often faced issue amongst real estate investment managers. More or less every investment manager - small or big - comes to this point in his portfolio building journey, when he reaches the end of his available equity and needs to search elsewhere to continue growing the investment portfolio. It’s a discussion without an end whether having first the equity is more important than having first a deal to invest. Most real estate investment managers start finding deals and look for equity to finance it thereafter.

As a professional capital seeker my approach is the other way around and I strongly recommend making a conscious decision and ranking raising equity at least equal to deal sourcing. In the following paragraphs I want to share a number of key points about raising equity, in no particular order.

1. Raising equity requires intense investor communication

Being able to scale your investor communication efforts is essential and requires a professional mindset and a set up similar to a small contact centre. Depending on the amount of equity and the targeted investors, you will need to get (and stay) in touch with hundreds of potential investors - often multiple times on the phone, via email or in meetings. Therefore raising equity means very much running an investor communication business. The means of communication itself can change and include traditional as well as interactive and social media tools, implemented in formal or informal settings.

Raising equity also requires strong marketing skills. Loads of content needs to be developed and (re)structured, especially at the beginning of each campaign. Your marketing skills will require a clear strategy on how to get in touch with investors and how to enable them to get in touch with you.

Time and preparation are the crucial success factors here.

The more sophisticated investors are, the more investment opportunities they have. Getting through to the top of their stack of opportunities will need to be earned. A clear defined accelerating communication model will be a crucial part of your investor communication. Also producing a state of the art investor information package will set you apart from most of the competitors and help you speed up your communication cycle. I’ve done this numerous times myself and it costs a lot of resources - but the effort pays off. I usually get through to decision makers fairly quickly and so can you.

 
Jamestown US Real Estate
I’m comfortable managing my investments independently. However I wouldn’t do this for investments in the Americas because I don’t live or travel there. My travel zone is between Europe and Asia. If I was seeking investments in 24/7 US-metropolis core office buildings, I would gladly hand over my capital to Jamestown, a specialised real estate investment manager based in the US and Germany.
 
Jamestown provides great investor communication, both in terms of completeness and on time delivery. The company understands keeping in touch with investors in good and bad times. As an example, only one day after the terror attacks of 9/11 they provided a statement to their investors that none of their buildings in New York had been affected.
 
Ask yourself: How can you update your investors not only on their direct investment but also the general investment environment? Be a thoughtful communicator. Three, four updates a year are enough. Investors value communication.

 

2. You don’t need to have a specific personality

I get this question quite often: “Will I be able to raise equity?” I can assure you that there is not only a single, specific personality that succeeds. Your dominant nature can be a thinker, a relator, an introverted or an extroverted person. All capital seekers are different and so are investors. But you will need clarity on what you can contribute to the process. Based on your strengths and weaknesses you can chose your preferred roles and seek complementation through collaboration with others - either employees or business partners. Raising equity is a team effort.

More important than your personality is your motivation. Raising equity requires a person that takes the lead and pushes through to the (successful) end (or quits early enough). If you want to take the lead you will need the drive and a lasting inner motivation. If that motivation is not just around the result - the equity - but about the journey with the people you meet, you have good qualifications for the job. Raising equity means dealing with many people and building lasting relationships. Being visible, approachable, transparent and communicative is the key to this.

You need to understand how you prefer to interact, how others prefer to interact, how you would like to sell and how others would like to buy. How you would like to sell might not necessarily match with how others want to buy. Your key to success will not be how well you understand how others want to buy but how quickly you are able to adopt and serve their (real or imaginary) needs. Listening and reading others behaviours is key - develop the skill for that.

It is also worth keeping in mind that not all capital seekers appeal to all investors and reverse. The chemistry needs to be right. Despite all psychological sales techniques, humans still very much trust a face. Modern sales techniques are less than 100 years old, but we’ve relied on face impressions over thousands of years. You enter the room and the other person makes a decision within a few seconds whether he can trust and wants to work with you.

Know your limits and aim at the right people. Don’t try to persuade everyone. Trust your guts on whom you can talk to naturally. The chemistry is more important than the money – hopefully to you as well.

My petite Indian friend
My friend Arjun (*name changed) doesn’t look like a successful property investor. He’s corpulent, short, doesn’t really dress smart and usually stands in the second or third row. You won’t notice him at property events. However he’s persistent and just great at implementing and following up on his promises. He’s warm hearted and enjoys making deals with friends (You can’t avoid becoming his friend over time). He’s grounded and takes all the glamour away from investing - how relaxing. He has raised over $30m from private investors in the last 4 years in the Netherlands and the UK.
 
Ask yourself: What are you good at? Starting, implementing, completing or finishing the job? Communicate that actively. Make it a tag line on your business card. There are many ways to do business and many ways that lead to success. It’s your way that investors want to find out about. 


3. You will need capital to raise capital

There are four main types of resources you need to succeed in life: knowledge, support, capital and time. For raising equity you will need all of them.

You will need knowledge to understand the campaign, support to run the campaign, capital to finance the campaign and time to become investable, particularly if you haven’t dealt with investors before and you need to build new relationships.

The ideal mix of these resources will depend on your background, the market circumstances and the size of your campaign. The more capital you have, the more support and knowledge you can acquire and the less time it might take you to achieve your goal. Conversely the more time you have, the less support and knowledge you will need to buy and accordingly the less capital you will need. You can save a lot of effort with detailed preparation and planning.

Unfortunately I very often see situations where there is not enough capital available to become investable. Becoming investable means working on your overall setup and build a state of the art investor information package. So you will need capital to finance your efforts. It will be hard to raise capital without capital. The amount of capital you’ll need will depend on at least 8 different factors:

1.    The amount of equity you want to raise

2.    The minimum investment amount per investor

3.    The type of investors you want to raise equity from

4.    The type of investment vehicle you want to use

5.    The number and type of markets you want to raise equity in

6.    The time frame you have in mind to raise the equity

7.    Your personal preferences for the quality of service providers

8.    The knowledge and experience of your sales team

There are also possibilities to raise capital through JVs and you might need less or no capital for that at all. But that is a different game which this article is not about.

Walton International
If you’re looking for a prime example of building a continuously growing client base, then look at Canada based Land Banking investor Walton International. I followed their market entry in 2 countries, long before they had today’s CA$3bn assets under management. Their main asset, in my opinion, is not their returns but their upfront investment in the education and training of their local distribution partners and investors. They spend thousands on it and they do it before they ask for the money.
 
Ask yourself: What can I do on a small scale to educate my investors? An investor information package could comprise not only written, audio and/or video material but also live sessions. If there is a gap for a local property investment event, start it. Alternatively, educate them on how to find the right property investment partner because that’s their main concern. They might (not only) want to know how to invest in property but how to run a due diligence on investment managers. These events will take time to grow and become profitable for you but are worth the investment if you are serious about it.
 

4. Look overseas if you can afford it

How likely is it that you will succeed with your campaign? This is a question that every capital seeker will be reflecting on. Your success will depend on a large number of factors, from the degree of innovation your product offers, to your personal history or your track record as an investment manager (which can either be beneficial or hindering). A very important question is however: Are you targeting the right investor market? Is the UK the only market to look for investors?

Capital seekers in the UK are in the lucky position to have a global playground to raise equity. Everybody wants to invest in London and for many overseas investors the UK is the doorstep for (continental) European investments. I once read that in 2010 nearly 25% of all new apartments in London were bought by Chinese investors. But there are also many Middle Eastern investors active in the UK. In January 2013 I met with a Saudi Family Office who are currently increasing their UK portfolio from £3m to £15m. Name me one African or South American country leader who has not invested in the UK to secure his assets (Ok, may be Robert Mugabe!). Different sources state that London’s Westend is 35% owned by non-Europeans. Investors from all continents invest in the UK. Not even Switzerland has such an international real estate investor base. Great Britain!

The downside with international investors however is: They want to be serviced - in person. They like to see you on a frequent basis and not just once to collect their equity. Therefore chose your overseas market wisely. Be prepared to go there a few times throughout the year for as long as the investment is active. I personally have lived in East and Southeast Asia for many years. It’s a home to me and I feel very comfortable traveling there on and on again to meet investors and maintain relationships.

Despite the attractiveness of overseas investors you need to keep your financials in focus. For small equity raising campaigns it might not be economical to go overseas. Don’t let your passion for traveling run your investor market decision.

Apache Capital Partners
I’ve known the founding partners of Apache Capital Partners for many years. I raised €80m for their previous company. In 2010 we tried to raise capital for 3 different UK real estate strategies. I was in charge for investors in France, Germany and the Netherlands. After 10 months we gave continental Europe up in favour of the Middle East. The continental discussions about the UK national debt level made it impossible to attract equity for Pound investments. The middle eastern investors did not have these concerns as they were in general less affected by the financial crisis.
 
Ask yourself: Which countries have traditional bonds with the UK and have experienced steady economic growth over the past decade? Investors in those countries are likely to be cash rich. And depending on the stability and security of their political system, they might be interested in a geographic save heaven for parts of their wealth.
 

5. Build a dedicated investor hand-out document

Often when capital seekers give presentations to potential investors or at industry events, members of the audience will ask for their presentation slide deck afterwards. If you present to professional investors it’s a must anyhow and you might have sent your presentation in advance before you meet.

Either way, this is where 95% of all capital seekers make a substantial mistake: They send their “Made-for-me-while-I-present” slide deck instead of a “Made-for-you-when-you-read-it-without-me” document.

You will need a presentation - only for your own use - that is not self-explanatory to the audience and just makes sense with your live comments. On the other side you will need a self-explanatory document that you can send to anyone interested. This document will contain the same ideas and info graphics but written text will replace you as the speaker.

If you send your own slide deck, audience members that heard you speaking before, might not remember everything you said and audience members that haven’t heard you speaking before might not understand your ideas and thoughts - unless you have a lot of text on it. Then however it’s no longer a presentation but a “slidument” - a combination of a slide deck and a document. Use limited written text on your slide deck. The audience in your live speech will otherwise be in permanent conflict between listening to you and reading the text on the slides.

The rule is: Not more than 7 bullet points per slide and not more than 7 words per bullet point.

Whether you have created investor information packages before or not - I strongly advise to hire a professional communication agency / visual communicator to help you with your marketing documents. There is too much stake at risk and you won’t get a second chance for a first impression.

Look for a dedicated real estate marketing agency
There are pros and cons when working with a marketing agency that serves multiple industries and sectors. I personally prefer to work with dedicated agencies for the real estate sector. They are rare but have in depths knowledge of real estate processes and terminology.
 
Ask yourself: What was the last product over £1,000 you bought that was accompanied by an inspiring and outstanding hand-out? How much did that hand-out contribute to your understanding and excitement?

 
6. Define a clear investor target group

Having a clear defined investor segment is very important, especially for small investment management teams with limited resources. To identify your target investor segment I strongly recommend to list all (1) demographic and (2) psychographic criteria, of which you think they would need to have in common in order to (1) invest in your area and (2) invest with you. This might take you a while. Do the exercise with a sparring partner.

Once you are clear about this, you will be able to stop seeing a potential investor in every person you meet. Big relief! The people you meet might still be investors, but not investors who want to invest with you or who you want as a client. I know this is a very complex exercise, but there is no way around it. Also: If I, as an experienced investor, don’t see that I’m part of your target group, I won’t see a reason to invest specifically with you.

Don’t be afraid to scare some investors off.

UCITS fund of funds
In 2006 I raised €30m for Belgravia Asset Management’s open end European real estate fund. The fund’s structure was well suited for Germany based regulated fund of fund structures under the European UCITS directive. The decision makers were progressive fund pickers, willing to invest beyond the common. I could easily identify their needs and pain points and create the gain they were looking for.
 
Ask yourself: What pain does my investor segment have and what gain can my product deliver. The bigger the problem of your investor segment the easier you will be able to close the deal. Search the web for the “Value Proposition Designer” PDF document. It can help you define customer pains/gains and pain relievers/gain creators for your products. It’s applicable for any industry, not just property.



7. Organise small equity raising campaigns in groups

If you work in a small team or are the sole responsible for raising equity, I strongly recommend teaming up with other capital seekers. Individuals easily get stuck in their thinking and actions and a dozen minds know more. In addition don’t forget that everybody needs accountability.

Organising equity raising in groups can save you finances, emotions, stress and effort. It can boost your confidence; you can share resources, share the workload, co-hire experts, exchange experience and accelerate the learning curve in general. Whether you need emotional, development, promotional or material support, being in a group will most likely be beneficial to you. However make sure you have something in common with the other group members to increase potential synergies.

 
Search a sector specific group
There are a few property Mastermind Groups around. However their main idea is to educate about investing in property and not how to raise equity. Form a small group of 6-10 capital seekers who want to raise equity for the same sector. The same sector is very important as it will guarantee you’ll benefit from others experience beyond the initial get-to-know phase. Equity raising for a developer works different from equity raising for the traditional single buy-to-let sector or the HMO sector. Make sure you’re operating in different geographic regions so you feel free to share your success stories and secrets. If you need help with setting up and running such a group feel free to get in touch.




If you have any questions please feel free to get in touch via michael@michaelgehlert.com or go to www.michaelgehlert.com.

 

Sunday, July 14, 2013

Young professionals in Malaysia struggle to own property

As a "compassionate" property investor / collector, I find the dramatic rise in inner-city and Central Business District Kuala Lumpur quite acceptable (in some cases) as they are mainly catering towards the expat rental markets. But there is really no excuse in the current prices of suburban properties. Developers should stop packaging their wares with low-quality furnitures and unjustifiable fancy marketing ploys such as SoVo, SoFo etc as an excuse to drive up margins. Here's why...

http://www.asiaone.com/News/AsiaOne%2BNews/Business/Story/A1Story20130714-437011.html


Malaysia - Wanting and actually being able to afford your own place are two very different things.
With the oversupply of high-end condominiums shadowing the property market, fresh graduates and young professionals may have to either send out an SOS to their parents for cash or live at home because having "my own space" just got a little tougher.
Fresh graduate K.T.S. Chua, 23, who recently took out a RM30,000 personal loan to start a hotdog business, is relieved at narrowly missing the July new personal loan cap ruling but the shorter home loan repayment period has dampened the budding entrepreneur's plan for a bachelor pad.
He currently lives at home with his parents and two brothers.
"I was looking to get a place of my own; unfortunately, the new ruling will gravely affect my plans to purchase a home. Without the new cap, it is already so hard for me to buy property and I will have to put it on hold.
"Needless to say, I am really concerned about the higher monthly repayments and qualifying for the housing loan," he sighs.
Most of his friends who have just started working are "fuming" over the new ruling, the Penangite shares.
Unless you are from a rich family, plans of owning a home will have to be put on the back burner, they feel.
"Those from wealthy families can ask their parents to support them in purchasing a house. But I think it's safe to say that many more fresh graduates will be staying with their parents until they are more stable and able to move out on their own," he says.
At the end of the day, he cites high property prices as the biggest problem, not the new ruling.
He laments how property prices keep increasing but the salaries of the fresh graduates and even those who have been working for years have not.
Lecturer Cheryl Withaneachi, 30, agrees.
The Teluk Intan lass, who currently lives in Petaling Jaya, says the new ruling makes it difficult even for professionals to consider buying a house.
On top of rising house prices, the situation becomes practically impossible, as though housing is only meant for the urban rich these days, she grumbles.
She says that with higher repayments, it would be more practical for her to continue renting despite having "seriously considered" putting the monthly rental towards purchasing a house.
Cheryl started working almost eight years ago and is currently renting a house for RM1,500 - not inclusive of utilities which, she says, is pretty high.
"Many of my friends who are around my age cannot afford a house and this is not only due to the ruling of late but the exorbitant house and apartment prices.
"I dread to think how fresh graduates or those who do not earn very much cope," she says, adding that fresh graduates who are based in the same location as their parents will definitely opt to stay in the family home due to the increasing living costs of transportation and housing.
"The rest of us who are not from the city have no choice but to struggle.
"The only way to buy a house is if it is jointly bought. So if you are married, the combined funds allow for more flexibility to purchase your first home but in my case (being single), it is a whole different ball game," she says, before calling on the government to look into house prices, instead of car prices, as a person can live without the latter.
"Paying through our nose for accommodation without actually owning the property is painful," she adds.
Single mother Fatimah Zakaria, 34, is also feeling the heat,
The frustrated civil servant, who currently lives with her adorable six-year-old daughter in Shah Alam, has been scouting around for a place in Selangor for some time now but it keeps getting harder due to high prices "that just keep rising".
"And we are not talking about the bank's interest rates yet," she stresses.

Tuesday, July 9, 2013

Raising Money to Invest In Properties - Introducing Guest Blogger Michael Ehlert


I was in London recently and caught up with an old friend, Michael who used to live and row with us in Malaysia. He is now based in London. It is always very interesting to chat with him, this time over a cup of tea in Greenwich. Michael is in the business of raising money or helping people/companies to raise money for their projects.

Before I post up some interesting articles that Michael wrote, may I just do a brief introduction. Born and raised a German, Michael was educated as a banker have worked for 20+ years in different sectors of ļ¬nancial services - all around raising equity. He has been self-employed since the age of 24 and has always been involved with real assets - from solid real assets (real estate, infrastructure) to green real assets (timber, agriculture, solar), transport real assets (commercial vessel & aircraft) and lifestyle real assets (diamonds, watches, wine). The total assets he has raised are about €250m, 60% of which were for real estate.  

There you go, all you Donald Trump wannabe... here's a guy you would like to get to know...


Sunday, July 7, 2013

Seri Bukit Ceylon - 2 units for Sale

A friend wants to sell... 2 apartments at Seri Bukit Ceylon

Level 21 - RM1,071,000.00 - (1260 sq.ft), 2-bedroom 2-bathrooms facing West/North corner unit

Level 22 - RM580,000.00 - (590.93sq/ft), 1-bedroom 1-bathroom facing North

The price is negotiable

Reason for selling - to raise cash for another investment. I can only post up pics after 20th July as they are both currently tenanted. While the 2-bedroom unit is the largest unit in Seri Bukit Ceylon, it is a bit clumsy. The 1-bedroom unit however, is quite interesting...