PRIVATE FUNDS AND ADVISORY
CapRiser acts as the manager of limited partnerships or private equity funds which provide equity or mezzanine financing for major residential real estate development projects. Our funds are capitalized predominantly by institutional and individual investors globally.
Underwriting Process and Investment Criteria
For our funds, proposed development projects must meet certain pre-conditions or criteria before being considered, including the following:
+ Nature of Underlying Real Estate: Our primary focus is the residential real estate development industry, specifically residential land development, single-family homebuilding, multi-family construction and retail developed in conjunction with residential projects.
+ Market Opportunity: We generally only consider development projects in markets with populations of at least one million. Each of the markets in which our funds invest typically have, according to management’s judgment, solid underlying real estate fundamentals including strong job and population growth (in the long term) and rising or stable rental rates, occupancy rates and asset prices. Only markets with significant upside potential in the short- to medium-term are considered.
+ Investment Size: We typically seek development projects that require commitments from our funds in the $10-30 million range. We also consider smaller or larger investments that, among other things, solidify a relationship with a key developer, obtain a foothold in a new sector or market, or offer above-target risk-adjusted returns.
+ Investment Period: In the case of development projects, return of capital is typically sought within two to four years of the initial investment, with complete project build-out expected within three to six years. Occasionally, we undertake longer-term transactions which have the potential to offer above-target risk-adjusted returns.
+ Returns and Underwriting Standards: Investments are generally made by our funds only in development projects that have sufficient margin on cost to absorb reasonable variations in the business plan.
+ Calibre of Developers: In selecting our funds’ transactions, the reputation, integrity, experience and competence of the developer (or operating partner) is likely to be the primary determining factor in our underwriting process.
+ Financial Commitment of Developer: Investments are generally made by our funds only in development projects where the local developer has invested its own funds in the project. The developer investment requirement is typically 10 per cent or more of the total required capital above senior debt. Guarantees of the developer may also be required; the nature and extent of the guarantee is dependent on the perceived risk.
+ Construction/Acquisition Financing: Since acquisition and/or construction financing for a particular development project is generally required from third parties, the making of any investment by our funds is typically conditional upon strong indications from a financial institution that senior lending will be forthcoming. It is the responsibility of the developer to obtain acquisition and/or construction financing from a local bank and to provide any required guarantees. The financial institution and the terms of the senior lending must be acceptable to CapRiser.
+ Security/Control: Unless our funds acquire property for their own account or enter into a joint venture with a developer our funds’ investment is secured by way of a mortgage on the underlying real estate and/or a pledge of ownership interests in the borrowing entity. We take an active role in monitoring and managing each project our funds invest in, typically through approval rights contained in our contractual agreements.
+ Due Diligence: Investments are subject to extensive due diligence reviews, generally including in-depth developer reference checks, environmental audits, market analysis, site analysis, financial and construction cost analysis and legal review.