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Many real estate syndicators are concerned about their ability to raise equity for deals during the darkness we are facing today, the ultimate definition of a black swan event. This pandemic has hit the U.S. — and the world — fast and furious and has managed to force us into a recession. With oil prices and stock market prices crumbling before our eyes, I have heard some say that they feel guilty and even awkward talking to investors during this very strange time in history. I might be guilty of this one myself.
After spending the last month listening to countless virtual webinars put on by a myriad of experts, I have completely changed my stance on this topic. The common theme has been “be the light in a dark world.” That phrase got me thinking, what if?
Investors are still hungry for great investments, but longing for a sponsor who is confident enough in the product they are offering that they feel guilty for not sharing it with anyone willing to listen. Countless mentors have relayed to me Henry Ford’s notable insight that whether you believe you can or you can’t, you’re right.
Are you confident in the product or investment opportunity that you are offering?
If you are, then why would you hold back?
Finding New Investors
With so many investors realizing that they can’t rely on Wall Street for their financial well-being, there is no better time to share the undeniable benefits of having a physical asset backing their capital investment. It’s important to paint the picture for them and make sure that your messaging is on point.
In times of turmoil, especially in the current economic climate, the real estate investor may be nervous about the future. However, the stock market investor can’t sleep, looks at his phone every five minutes in hopes that the Dow Jones doesn’t go to zero and is begging the government to do more. If you are in the stock market and you lose everything, no one is going to bail you out. But, if you are in real estate, the government is practically falling over itself to offer a solution and help. It is impossible for a real estate investment to go to zero. This should be comforting to potential new investors.
Nurturing Existing Investors
Passive investors are absolutely looking to put their capital somewhere, and the latest Wall Street crash was the last straw for many. They will be looking to place their funds in a different asset class, primarily real estate. So what are you waiting for? This pandemic has not changed the fact that there is so much money out there that is looking for a safe, above-average return. It’s important to be a beacon of hope for these investors and share the good news of multifamily syndication and the security and preservation that it offers.
Investors are not only looking for a good return, but right now more than ever, they are wanting to know that their capital is safe and in good hands. Build rapport with everyone, be honest and trustworthy and you will likely be able to raise the capital you need for every project despite the current economic uncertainty. Be the operator who people want to invest in and build your presentation so that it is clear who you are and what you do. Ask yourself not only if you are a good fit for your investor, but also, is your investor a good fit for your company?
Passive investors expect the sponsors they invest with to over-communicate and update them often on the state of their investment. You don’t want them sitting on the sidelines, being fearful and possibly looking for somewhere else to put their money. They care about the way you are handling the crisis and solving the problems that are before you. If you can earn their trust and confidence in times like this, they will be lifelong capital partners and share their experience with everyone they know.
It’s as important to be honest as it is to share the positives with them. One of the positive things that we are seeing this month is that more current tenants are renewing than ever before. They don’t see this as a wise time to move, and the government is sending a vast majority of Class B and C tenants a stimulus check that can be used to help pay their rent, etc.
Let investors know what you are doing to protect the capital of the organization and exactly what you are doing to solve the problems you are anticipating. If you have plenty of cash in reserves, you should let them know that. Remind them that their investment is backed by a physical asset and it will never go to zero. Also, remind them that with real estate, you can force appreciation, there are huge tax benefits and you have multiple exit strategies.
You also want to be honest and tell them what could happen in case things don’t bounce back quickly. The return they were expecting could be reduced during this time, but since it is backed by real estate, they will still be getting an ROI and we expect it to return to normal before long. There is a possibility that distributions could be paused for a time period to ensure that the asset stays in a good cash position. This is not a loss of return, just a deferral until you feel comfortable releasing the funds.
As a multifamily syndicator, you have a once-in-a-lifetime branding opportunity. Make sure that you over-communicate with everyone and take extremely good care of your current investors. Show them that you are capable of protecting their investment during extreme circumstances and you will have an investor for life. Economic uncertainty can create plenty of problems for all; however, incredible opportunities will be waiting for those who are prepared to take action.