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Programmatic capital is highly beneficial for both real estate operators and investors. However, creating these relationships and executing multiple transactions requires skillful marketing, careful structuring and expert execution. The results can be economically rewarding and can take the right deal sponsor to the next level.
For a sponsor, creation of a programmatic partnership eliminates the stress of seeking out a capital partner for each deal they pursue, replacing that uncertainty with the knowledge that they will have needed capital to win on deals, including those marketed with a short fuse where you must be able to react quickly in order to be successful.
For the capital partner, a programmatic joint venture is an efficient way of investing capital with a partner where they have a track record, and one that brings specialized attributes to an investment deployment strategy, such an having expertise in a desired asset class or geographical area.
Dekel Capital managing director Peter Houghton has cultivated a track record of raising programmatic equity over the last 20 years. When putting sponsors and investors together in a programmatic partnership Houghton said there are multiple steps involved in facilitating the process.
As a sponsor, gaining the trust of a potential investor is crucial. It starts with demonstrating to a potential partner that your company has unique and differentiated investment strategy, a proven track record, depth of the leadership team, and the necessary systems in place to execute on the business plan.
It is also important for the sponsor to understand their potential contribution to the investor’s overall investment strategy, including how their offerings impact the composition of the investor’s overall portfolio and their real estate investment objectives. Asking these portfolio-level questions of a potential investor builds trust between both sides by showing a big-picture interest in building a mutually beneficial relationship.
For example, Houghton arranged a programmatic deal with an East Coast-based health insurance company whose objective was to grow its West Coast commercial real estate presence. The sponsor, an established West Coast operator, had a strong presence in five markets the investor was looking to gain a foothold in. Using programmatic capital, the two sides ended up closing $150 million in gross acquisitions and were ultimately able to broaden their relationship to include both commercial and residential investments.
When using their own capital, or non-institutional capital Sponsors are often able to control all major decisions and retain a majority of the economics. With a programmatic partnership, sponsors must be willing to give up some of that control. Investors want partners that act like an extension of their in-house operations.
Because it is a partnership, investors generally want to be able to provide input, including sitting in on pipeline calls and offering their thoughts on deals. They’re not looking to just give money to a sponsor and then you talk to them again when the property is sold. It’s a partnership where both sides contribute.
Most investors are well versed in real estate and will have a lot of value to bring to the partnership, including lender relationships, market expertise, product knowledge and best practices. This type of investor is also going to want to provide input, so the sponsor needs to be willing to listen and collaborate.
Listening to the investors overall goals was a key part of another deal that Houghton was involved with. In this instance, his client was a European Pension Fund that had only done direct in-house acquisitions and was seeking to break into the US in a new asset class where it lacked expertise. His operating team had a strong track record and leadership that convinced the fund to engage as the sole JV partner for US transactions. This partnership ultimately acquired over one billion dollars of residential assets.
Programmatic capital has a lot of advantages for sponsors and investors. To see how it could work for you contact Peter Houghton at phoughton@dekelcapital.com