Finding the right firm to partner with for your company’s financing needs can sometimes be a daunting task, especially if you’re new to the capital-seeking arena. Knowing the specifics to look for in a perfect capital partner before you start your search is imperative to success.
Strategic Direction
The firm you choose to work with needs to be aware of your current capital stack and future needs. In your initial conversations with capital brokerage firms, both parties need to know where your business is strategically as well as your plans for future growth. Understanding the full scope of your business’s end goals and growth plans positions both you and your partner for success and makes it easier to develop specific tactics for reaching your growth goals more efficiently and effectively.
Often, a developer will jump at the opportunity to obtain capital just because it’s readily available. But forming the wrong partnership with an investor, broker, or lender not only could cost you money but a lot of time, as well.
Depending on the asset class, your prospective financing partner should be able and willing to formulate alternatives for you should your needs change, as well as develop a time frame to exit a deal if necessary. Your broker should also understand the best way to lower your effective weighted cost of capital through financial engineering, potential off–balance sheet structuring, and methods currently being used with many public companies to increase return on equity.
You may decide to work with multiple capital firms when, in reality, it may be more beneficial to find a single partner that’s capable of handling all of your business needs. And any intermediary should have multiple sources of capital, traditional debt, equity, and mezzanine financing available through one singular capital partner.
Some developers choose to operate on their own without institutional capital sources. Deciding which style would best suit your business for growth and positioning is crucial to ultimately meeting your overall financial goals.
Versatility a Must
Strategic partners are more valuable than the capital they offer. It can’t be stressed enough that the importance of building a long-term relationship with your capital partner is invaluable. Whether your business is in the beginning stages, in a period of growth, or planning for growth, having a trusted relationship with your capital firm positions you to become more strategic with your plans.
My firm, Land Advisors Capital, for example, has relationships within all tiers of the capital stack, going as high as 90% LTV. Investors with the flexibility of going from $2 million to over $100 million in forms such as multiple sources of equity placement and debt are investors you should consider working with.
Some investors place debt in longer-dated land plays, equity in multifamily projects, master-plan recapitalizations, joint ventures, and partner buyouts. Some may opt for rolling lot options, equity placements in home builder operations, and even acting as an adviser and facilitator to developers involved in M&A activity. Being able to raise these funds essentially is what capital sourcing is all about. The flexibility of your capital partner, especially as your business grows and ventures into new territories where your needs may change, is key to continued success.
