Real Estate Consultants & Emerging Manager Investors: Do's and Don'ts for Managers

Upwind surveyed the real estate consultant and emerging investor community for pet peeves in a manager meeting.

Consultants evaluate thousands of managers every year and conduct due diligence on a select few to provide recommendations to pensions, endowments, and various institutional investors. Many of the themes identified below build on Sharon O’Leary’s articles (CIO of Saint Paul & Minnesota Foundation): What Managers Get Right and How Not to Get a Second Meeting. Here were the themes:

Manager Don’ts

1. Do not: be overconfident.
   • Given the tough fundraising environment, statements like, "if you are not investing with me, then who are you investing with?" will not bode well.
   • Over confidence comes off as salesy. If it sounds too good to be true, investors will think: what are you not telling me?
   • Do not make claims such as “we source almost everything off-market” or “outperform our peers” without providing data.
   • Use the Ray Dalio principle of: Be Radically Transparent. Be Confidently Humble.

2. Do not: make assumptions.
   • Do not insist on only meeting with the most senior professionals.
   • Often the senior team will refer a capital raiser to other team members because the strategy falls outside of their purview, so it is in one’s best interest to meet with the person who covers that area, regardless of seniority. 
     
     
3. Do not: be a poor listener.
   • If the investor says they do not typically invest in a specific capital format (fund, JV, SMA, co-investment), do not proceed to pitch that very same format. Instead, try to tailor the pitch and try to identify ways that could lead to a working relationship.
   • Managers that hire placement agents with a short deadline are the most common offenders of poor listening. In addition, in-house capital raisers with only one product are often guilty of poor listening. 
     • The placement agent is compensated on the transaction, so the alignment is off due to the short term engagement. Instead, managers should find ways to be consistently in the market  as opposed to when the firm has a need. 
     • If a firm only has one product, then the in-house capital raiser feels obliged to pitch regardless of the investor’s criteria. Instead, be helpful by sharing market research or offer tailored solutions that meet investor needs. Otherwise, move on.
   • One consultant keeps a list of people that he will never do business with purely due to their inability to listen, so do not pitch just to pitch! Instead, facilitate a dialogue to share and exchange market notes.
     
     
4. Do not: have weak meeting mechanics.
   • Time management. Be on time and recognize the end of the meeting.
     • Identify a meeting quarterback to keep the team on time and provide investors with the ability to ask questions or leave.
     • Many investors are too polite and do not have the courage to tell a manager when a meeting has gone over.
   • Confirm the meeting agenda. Do not put the burden of a meeting agenda on the investor.
     • Consultants often have meetings back-to-back and do not have time to review the pitchbook ahead of time. As a result, when they are asked "what would you like to talk about?", they find themselves flipping through the pitchbook on the spot. 
     • Instead, it is helpful for a manager to outline the meeting agenda and confirm if it aligns with the investor's expectations. This provides the consultant with the opportunity to get up to speed on the strategy.
     • The take-away: it is a delicate balance of providing a meeting structure that is tailored to the investor and provides them with opportunities to participate.
       
       
5. Other considerations. 
   • Do not send the meeting request email as a calendar invite. Only send the calendar invite once availability is confirmed.
   • Keep attendee list small, especially for general updates. 

Manager Dos

1. Do: research the organization and team.
   • Managers that understand the organization and how the business model works are better received by consultants. 
   • Understand the different research verticals to be more efficient with outreach. For instance, knowing who to contact for equity funds vs debt funds, or core funds vs non-core funds.
     
     
2. Do: qualify.
   • Prioritize investor needs.
   • Confirm familiarity with an asset class and geography to avoid over or under explaining.
   • Develop an understanding of client processes and procedures. Below is an illustrative list of qualifying questions.
     •  What are the property types and markets they are interested in?
     • What is their appetite for deploying capital and what are their liquidity needs?
     • What does a good partner look like to you?
     • What are the structure or economic thresholds? (e.g., must be below a percentage of the overall fund, tax considerations, vehicle preferences, economics, etc.)
     • How might, or might not, the offering fit this need?
       
     • Ensure alignment from a portfolio management, approvals, and compliance perspective.
     • Think ahead of implementation. How is this partnership going to be executed? 
     • A lot of time, energy, and money can be wasted if there is a lack of transparency.
       
       
3. Do: learn to say no. This comes back to active listening. 
   • Managers need to get comfortable turning down capital if it is not a good fit.
   • Investors remember managers that are direct and respect their time.
   • Patience. Good rapport over time will help get more deals done over the course of a career. 
     
     
4. Do: storytelling.
   • Provide a clear track record with a narrative or explain the lack thereof.
   • Be explicit with roles, responsibilities, and qualifications for the team.
   • If the story is unclear, investors will move on.
     
     
5. Do: provide differentiation beyond property type or geography.
   • On a podcast with Stan Miranda (Founder of Partners Capital), he identified the following as his number one pet peeve: “Do not mistake alpha for beta”.
   • The main value driver for the relationship should not just be the strength of the underlying property type or geography. There needs to be differentiated value to working with the manager such as strong execution capability, access to superior pipeline, or unique partnerships that drive value to the business plan.
   • Communicate your competitive advantage clearly. It is very likely the investor is meeting with competitors.  

The general advice is to be flexible in the capital formation strategy but show conviction in the business plan and initial ask. A manager might not raise capital in the format that was set in the beginning, but if it still helps advance the business and allows one to build a track record in a strategy, do not be too stubborn in only going after a singular solution.