| The first step in raising private equity for any | | | | equity with the sponsor adding the remaining 10% (a |
| developer is usually to compile a detailed information | | | | 90:10 split). |
| package. This typically including comprehensive pro | | | | Moving on to one of the more important sections, |
| forma spreadsheets, investment vehicle structure, | | | | for obvious reasons. One needs to display exactly |
| site details, and other such information. | | | | what the investor will receive in return for their |
| However, the packages often neglect to include a | | | | equity contribution - "Expected Returns to Investor". |
| snapshot of the deal from the investor point of view. | | | | You state what you are going to pay (typically per |
| At a high level - how much investment is required, | | | | year) followed by an IRR calculation. The IRR tells |
| for how long, at what rate of return and how will | | | | the investor what their annual return would be if they |
| that investment and return be repaid. | | | | invested in your project for x number of years. |
| Investors first want to know the basics and establish | | | | The most common time frame for real estate |
| if a deal matches their investment criteria and how it | | | | investment opportunities is probably between 3 to 4 |
| rates against other deals currently on offer. | | | | years. But, investors can also be sweet to deals that |
| If a deal is presented in a beautiful, large package | | | | have a high long term return if the figures stack up. |
| that has to be read from cover to cover to | | | | When the equity requirement and the associated |
| determine its essence it can be a major turnoff to | | | | returns over the timeframe have been established, |
| the busy investment professional and casual investor | | | | the next step is proving the model. This requires |
| alike. | | | | presenting a breakdown of the various cash flows to |
| The more detailed information is really only necessary | | | | the investor and sponsor, along with the refinance |
| when an investor has established its suitability on a | | | | assumptions that feed the model. |
| general level. What is suggested is first producing a | | | | On the supporting worksheets it is best practice to |
| more simple deal overview for the potential investor | | | | build the model in such a way that when an investor |
| to review. | | | | sees a number in the summary sheet that isn't clear, |
| Begin with the name of the project and a very brief | | | | they can follow the links and understand its origins. |
| description of the deal (it may be that this is the only | | | | Constructing an investment summary can be |
| document that the investor will look at to determine | | | | relatively easy, especially if you have the proforma |
| their interest in your project). | | | | model outlining all the costs and revenues - it is really |
| The next piece of information to be included is the | | | | just highlighting the right information and presenting it |
| cost of the deal and so the equity needed. This part | | | | in a clear and concise manner. |
| of the document will resemble a traditional debt | | | | Without it however, your deal can die before it is |
| term-sheet. It shows the investor how much the | | | | even reviewed by the investor. |
| sponsor is committing to the deal themselves and | | | | We hope this give you an idea of what the investor |
| how much is being sought externally. A typical equity | | | | is looking for, and ultimately aids you in your pursuit |
| split involves investors providing 90% of the required | | | | of the equity you require. |