Friday, January 25, 2008

Interesting trend - don't buy the dirt, buy the developer

Private Equity Real Estate has a good article (free sub. required) about a trend among private equity players: instead of buying up property or finished buildings or even developments, they are buying all or chunks of development or doing equity participation deals with them.

I've seen the latter trend forever, of course. And it is a wise move on their part to do so. Take the undercapitalized developer, bring in a money source with cash to place, give the money partner a preferred return and the developer a nice promote and you have a total win-win situation.

Buying the developer itself is an interesting twist. The upside is guaranteed stability. The downside? Are you expected to work exclusively on the owner's deals? What happens to the promotes -- are they there in the form of high bonuses or gone? The flexibility may not be there. But I still find the idea intriguing.


BawldGuy said...

David -- As usual your net seems to catch most everything.

This post however is maybe something you can bookmark. You may want to go back a year from now and read again, cuz it may be one of the indicators the correction is losing steam.

These kinds of deals don't happen unless the investors have confidence in the real estate market in general.

Great stuff David.

David Stejkowski said...

Jeff, we are going in the right direction. I'm on the verge of an exciting announcement that I can't just make yet, but stay tuned. If it works out I'm gonna be helping a lot of players in the business make (or keep) their lives easier....

Lisa Michelle Galley: said...


The CRE pricing and private equity deal posts are, IMHO, the best snapshots for knowing how commercial real estate is faring. Keep on postin'!