With the right partner, you can accomplish far more deals, faster than you could possibly complete on your own.
Commercial Real Estate, because the transactions are capital intensive, is rarely a solo sport. Most transactions, at every level, require some sort of partnership. Partners of every nature can be easy to find, but solid, agreeable ones are rare.
These are some strategies that can improve your chances of finding a solid partner for Commercial Real Estate deals:
1. Begin your search with those that have the resources to make deals happen. A good friend might be a wonderful person but if he doesn’t have the necessary funds or can’t secure another piece of the transaction, the tenants or architectural drawings for example, they may not be the best choice for a partner.
• Make a list of everyone you know with a high net worth and those that invest in real estate. For smaller deals, you could work with a partner with some disposable income and decent credit score. For larger deals, you are going to need someone with greater experience and financial resources.
PRO TIP – Industry professionals can be a great resource for investor leads. Bankers, Architects, Engineers and General Contractors are always sourcing of leads and can be great partners and investors. These professionals typically have a solid network and are always looking for opportunity.
2. Know what you’re bringing to the table. If your partner has the cash, what do you have? Besides providing the deal (which you should have under contract), there are other skills you can put to use. Doing the legwork for the deal, managing the team, and possibly painting a room or too can be your “sweat equity”.
3. Clarify what you need from a partner. Are you considering a partner that write a check then get out of your way? Do you need a 50/50 partner that will devote equally as much time and resources to the deal as you will? Identify the division of labor first. Set expectations, and then stick to them.
4. Find a partner with the appropriate capabilities – Are they currently doing the types of transactions that interest you? Great partners can offer more than just capital. Their experience and deal specific expertise can decrease your overall risk.
5. Begin contacting potential partners. It is especially important that you know the details of the deal inside and out. Present your opportunity professionally and be prepared for all questions. Your potential partner will want to vet you and verify your numbers and other information. It could take a while until someone shows interest and you could face several rejections. Keep knocking on doors until you receive the YES you need.
6. Negotiate the terms. There are several standards in the industry, but every transaction is unique. Equity partners can require between 8-15% preferred return. That’s before you see any of the profit. Common agreements consist of a General Partner or GP that handles the operations and a Limited partner or LP that is primarily a capital investor. With a marginal deal you may receive little to no return with the majority going back to investors. Make sure there’s enough income and fees for you to get paid.
7. Communicate often and in Detail. Partnerships can go sideways quickly when issues are not communicated. Things do happen in any investment, but too many surprises can erode trust. Be upfront with bad news. Discuss the rationale behind larger decisions and strategy. Stress is reduced when everyone is on the same page.
When you are first starting out in commercial real estate, you may not have the funds, expertise, or network to complete a deal on your own. A partner can provide valuable expertise and financial resources. The appropriate partner can accelerate your success, grow your network, and help provide opportunities for more deals. Choosing a genuine partner will provide an abundance of experience and put your growth and advancement on a fast-track. Connecting to an unethical or dishonest partner can be a disastrous incident, financially and legally. Take your time and choose with caution.
