The best way to start a new acquisition fund?

We just missed a great deal on a bank-owned apartment because it took us about 24 hours to line up the cash. Now I'd like to have a fund available so I don't miss out on the next one (and the ones after that).

How specific should I be on what assets we will go after?

How do we get commitments without taking their money upfront?

What percent should I estimate will sign up but not contribute at crunch time?

My current investor list is about to receive a PPM for a current development we're doing and that they've been aware of for several months. I don't want them to lose their focus, so should I wait until that one closes before mentioning another fund to them?

What am I forgetting to ask?

Thanks in advance for all your ideas!
Les

Les, I see that you had asked some interesting questions here...and did not get much response. I'd like to know where things stand for you now. Have you masde progress or are you still struggling with these issues?

I think the folks with the money need to let you know how much information they want, how quickly they can make a decision, and what types of properties they are interested in. Once you define what their appetite is - be it class C substantial rehabs or recently stabilized class A properties - you can go out and fill their bucket.

I am in conversation with a group that is looking to buy properties in Central Florida. One of the key point of focus is to have a clear set of expectations for the investors. It helps to create a box in which you can buy assets that meet a specific set of guidelines. The investors agrees to give buying power based on these agreed upon guidelines. In my view the key to these types of venture is who the investors are and what do they expect.
This will accomplish two things;

reduce the number of properties you look at faster
enable to move fast

To me the investors have to be able to trust your judgment in order to give you the ability to be aggressive in your purchases.

Les I think that one of the key points that you made is that you only had 24 hours to get your capital in line. That is not an uncommon situation in this market. What I would focus on in setting your fund up is your capital. After all product supply is not a constraint.

In this market there is a tremendous amount of equity sitting on the sidelines, waiting to pick off and gazelle that strays from the pack.

I'm not sure why you are putting together a PPM though, unless you are soliciting strangers. In that case, you must have a very clear idea of what you want to buy, expected hold periods and return expectations (all of these are important, but I didnt get the feeling that you had this dialed-in from your initial post). Also, get your cash in hand if you are raising a fund outside of friends and family (you can tier your pref to accomodate the time where you search for a deal), but commitments are easier to walk away from if there is no personal relationship involved (plus everyone knows that you arent going to prosecute if they default).

I put together a fund at the beginning of last year and the key was (to get started) to assume the first few purchases were 'all cash' with infused leverage at 90 days. Even then our equity position expectations were high. If you are assuming all cash offers then you are much better by taking in the capital up front (at least in significant enough traunches to be able to buy your first asset) or you will likely find yourself chasing down your capital once you go to contract.

In this market, capital isnt 'hard' until its in your hand. I know you're saying 'well, I dont want to get eaten up with pref while I look for a deal.' But frankly, if you are not willing to bet on your ability to generate dealflow, you are better off not raising a fund.

All of this to say, there a lot of vultures searching for carcasses. If you want to take home some meat, you need to be ready to pounce.

Les,

I can help with both the acquisition + financing in one transaction. Click on my profile for my contact info.

Everyone is invited to read my profile for more information.