Many investors are actively transitioning from limited partner (LP) roles to capital-raising positions as they gain more experience and success in real estate investment. In the multifamily real estate sector, individuals can start raising capital compliantly and adhere to SEC regulations by using the Fund of Funds (FOF) model. These fundraisers typically raise anywhere from $500,000 to several million dollars. This article provides expert insights from Chris Parrinello, Viking’s Director of Investor Relations, on the do’s and don’ts of successful capital raising.
Mastering Capital Raising in Multifamily Real Estate
What is Capital Raising
Capital raising is a critical process in real estate investments, involving the collection of funds necessary to acquire investment properties. This typically involves sourcing funds from investors keen on achieving strong returns on their investments. At Viking Capital, our Investor Relations team, supported by our marketing experts, plays a pivotal role in leading this process and ensuring its success.
Role of the Director of Investor Relations
The Director of Investor Relations at Viking, Chris Parrinello, is crucial in facilitating clear communication between Viking and its investors. His main responsibilities include educating and being transparent with investors about the financial performance of existing and upcoming projects. Additionally, he fosters strong relationships to attract new investors and assists them in determining whether to invest with Viking. His daily focus is leading and teaching his team by emphasizing the importance of these priorities through open and honest communication.
Mastering Investor Relations
When Chris speaks with investors, his top priority is to set realistic expectations. He strongly believes that transparency and honesty are essential in these discussions and are crucial for building a successful long-term relationship with any investor. When Chris was interviewed on Viking’s podcast, he spoke about the importance of understanding your audience and the individual investor’s level of sophistication. He emphasized that catering to each investor’s unique needs and financial goals is crucial to providing the best possible service.
Creating a Compelling Investment Thesis
A strong investment thesis is paramount in the investment process. Our investor relations team begins to build the thesis during Viking’s investment committee. The committee, including our entire team, reviews the new deal and aims to identify potential weaknesses to ensure its strength and viability. This review occurs after the deal has been carefully assessed and approved by the acquisition team, meeting Viking’s strict financial criteria. During this committee, the investor relations team gains a deeper understanding of the benefits and risks of the new investment opportunity, which helps them build the investment thesis.
Understanding Investor Preferences
To develop the investment thesis strategically, we need to understand the goals of our current investor base. If the majority of our investors are seeking a specific investment location or type of investment class or strategy, such as value-add, or if they are more concerned with long-term appreciation rather than monthly cash flow, our Investor Relations team will advocate for their interests and strive to align with their investment objectives. If the new deal and investor goals are aligned, the team can build the investment thesis encompassing these attributes while discerning the potential risks as well.
Understanding the Range of Risk Appetites
The investor relations team must balance the varying levels of risk tolerance among investors. An investor’s risk tolerance depends on factors such as the current volatility in their investment portfolio. Additionally, new investors tend to be more risk-averse, while those with prior investment experience, either independently or with Viking, feel more confident entrusting our experts to navigate and select investment opportunities. While discussing investment opportunities with investors, understanding their personal risk appetite helps the team put the right deal in front of each person.
Pitfall to Avoid
Our team’s most important task when creating a thesis is understanding potential risks. This includes understanding economic fluctuations due to the election year, changes in interest rates, or unexpected natural disasters. We need to have open and honest discussions with investors and set realistic expectations in case of a worst-case scenario. It’s important not to be overly optimistic in our projections. If things don’t go as planned, investors may feel surprised or deceived, which is something Viking wants to avoid. Chris is particularly cautious when explaining the details of each deal to ensure that every investor fully comprehends the complexities involved.
Effective Communication and Relationship Building
Transparent Communication
As mentioned before, transparency is crucial when communicating with investors. Chris and his team make extra efforts to communicate clearly and consistently with Viking’s investors. Chris believes that every question deserves a response, whether it’s through a text, call, Zoom, or email – he and his team are always readily available.
Investor Toolbox
Viking has developed an Investor Toolbox at the request of our Investor Concierge, Amber Butler. This tool can be found on our website and is designed to provide investors with educational content to support their continuous growth, as well as to offer further transparency on Viking’s activities. Inside the platform, you can locate your investor portal and current deal opportunities, book a call, reference an investment checklist, see our featured articles, and so much more.
Building Meaningful Relationships
One of my favorite quotes from Chris on the Viking podcast was, “People invest with people.” Investors are hardworking individuals who aim to grow their success. At Viking, our Investor Relations team embodies this philosophy by building genuine relationships with each investor and their families. This commitment to personal connection and trust sets Viking apart from other private equity firms. We prioritize authenticity and trust over viewing investors merely as a means to financial gain.
Fostering Long-lasting Relationships
One of the most valuable parts of Chris’ role at Viking Capital; is the importance they put on his face-to-face meetings. Chris travels the U.S. consistently to meet old and new investors and put a face to the name. His devotion to fostering long-lasting relationships is apparent in his actions and his words.
If you would like to meet with Chris, keep an eye out for our city-wide meet and greets, and feel free to contact our team and make a special request.
Diversifying Capital Sources
Having multiple capital sources is important for raising capital. As Viking continues to grow, we require alternative funding options to sustain our growth. In addition to individual investors, we also rely on institutional investors and JV partnerships.
Our recent acquisitions have largely been off-market deals facilitated by our strong relationships with brokers. Other equity firms initially secured these deals but couldn’t raise the necessary funds, prompting us to step in. We extended the offer for these firms to join us as JV partners, ensuring their investors could still participate. This mutually beneficial approach enabled Viking to manage the deals while leveraging their $3-5 million capital as part of our capital stack.
Navigating Regulatory Compliance
When raising capital, it is essential to prioritize compliance. Staying compliant when raising capital is crucial to avoid penalties and to build investor confidence. We encourage all investors considering raising capital as a new source of income to conduct intensive research into compliance and to utilize a Fund to Fund (FOF) model.
Viking has partnered with Tribevest, a company that assists sponsors like Viking as well as partners in creating a Fund model, to make it a reality. They offer white glove services that include everything from setting up the entity to establishing back office systems. This one-stop shop is a huge asset to both us and our FOF partners who are continuing their real estate journey.
Key Takeaways
Viking is committed to maintaining excellence in our investor relations and setting high standards for transparency and integrity when raising capital for real estate investment deals. We prioritize open and honest communication with our investors, providing them with authentic, realistic projections that accurately reflect market conditions and investment potential. This transparency builds trust and ensures that our investors are well-informed and confident in their investment decisions.
We also understand the importance of keeping our investors informed and educated, which is why we provide a wealth of educational resources, including in-depth articles, engaging podcasts, and up-to-date market reports. These resources empower our investors with the knowledge they need to make informed investment choices and stay abreast of industry trends. Additionally, we offer flexible communication options and ensure that our team is always available to address questions and concerns, building long-lasting relationships with our investors. To continue our growth and expansion, we strategically leverage joint venture (JV) partnerships and fund-of-funds (FOF) partnerships, enabling us to pool resources, share expertise, and pursue larger and more diverse investment opportunities. Our partnerships are carefully selected to align with our values and growth objectives, ensuring that we can provide our investors with robust and profitable opportunities.
