Equity investors and ownership structures

Individuals and families, private equity funds and institutional investors are all potential sources of equity. They could be members of an investor’s personal or professional network: friends and family, or connections from the local real estate community. On a larger scale, they could include family offices and pension funds looking to allocate a portion of their investment portfolios to real estate.

Equity investors’ level of involvement in commercial properties varies. They could be someone who actively co-owns and manages the property in addition to contributing capital. Or they might take a more passive role, providing capital to an experienced multifamily owner as a way to invest in real estate without responsibility for day-to-day operations and decision-making.

Equity investments in commercial properties and their ownership structures can take a variety of forms, including:

• Sole ownership: In a sole ownership, one investor or a family ownership provides all the equity required to purchase a property and retains full ownership.
• Joint venture: In a joint venture, parties combine their strengths and share ownership of the property. It’s up to the parties to define the division of ownership and their roles. For instance, both might contribute funds and actively manage the property, or one might lead operations while the other contributes most of the capital. Typically, all parties engage in decision-making.
• Syndication: In a typical real estate syndication, the sponsor raises capital from investors and is responsible for finding, acquiring and operating a property. Investors share in ownership and profits but generally take a hands-off role in operations and decision-making. Real estate syndications can be a good way to pool funds for larger investments, but they also involve navigating federal and state securities laws that regulate the marketing and sale of investments—including investments in real estate ventures. 

Strategies for raising capital for real estate

Once you’ve identified a real estate investment opportunity and determined how much capital you’ll need to raise, it’s time to explore potential sources of equity. These five strategies can help you get started.

1. Evaluate your equity resources: How much of your own equity are you willing to invest in a property? Remember, equity includes more than available cash. If you own other properties, refinancing a loan may unlock equity to grow your portfolio. 
2. Consider what you’re looking for in an equity investor. Are you simply looking for capital, or do you want an investor willing to contribute time and expertise along with their funds? If you’re looking for a more hands-on investor, think about the skills and experience that person could bring to the relationship. For instance, an investor who’s passionate about the financial side of commercial real estate might benefit from working with someone who excels at property management.
3. Assess potential investors’ goals. Understanding potential investors’ priorities can help you determine whether they’re a good fit. Are they looking for steady cash flow? Properties that will appreciate over the long term? Or a chance to gain experience in commercial real estate by investing alongside a mentor? Also consider investors’ risk tolerance and whether they’re seeking short- or long-term investments.
4. Craft your pitch. Investors considering putting capital behind your project will want detailed information on the proposed investment property, its market and potential return on investment. Be ready to present a clear message that puts a potential investment in the best light—but don’t overpromise. Your analysis of the property and its projected returns should be realistic. Be prepared to speak to areas potential investors might ask questions about, such as your team’s track record, experience navigating the full real estate cycle, overall financing plan and whether you’ve done your due diligence on potential red flags such as title or environmental issues.
5. Leverage your network. Securing equity investment for commercial real estate requires building relationships and trust. Tapping your personal and professional network can be a great place to start. Even if your connections aren’t looking to invest, they might know someone who is.