It’s often said real estate is not about buildings, but about people. This is especially true in the world of multifamily investment, where strong relationships often lead to stellar outcomes for all stakeholders.
Relationships are important across the board, but few actions will pay more dividends than building and maintaining relationships with investment partners. From small family offices to global institutions, all investors are more likely to trust their capital with those they have successfully and amicably dealt with in the past.
For example, my firm, EQT Exeter, has sponsored multifamily acquisitions in numerous markets across the globe over the past 15 years. Our partners often work with us on multiple deals because of the relationships we have cultivated. Instead of reaching out only when we have a potential investment to share, we are in frequent contact, discussing the market, understanding their needs and offering guidance and an unbiased opinion – even on deals with which we are not involved.
Relationships require trust. Building that trust can come from knowing when to say “no.” At times, investment partners have approached us with prospective acquisitions, and we advised them the transaction at hand was not the best use of their dollars. This willingness to turn down deals hopefully shows we treat their dollars as if they were ours and care about the ability to have a fruitful relationship for the long term rather than one deal.
Access to Financing
Volatility is roiling the marketplace, which makes the ability to leverage existing relationships on the lending side instrumental. With the rise in interest rates and the likely coming of economic headwinds over the next several quarters, debt guidance is more valuable than ever.
Unfortunately for some, this change in the cycle and a shortage in financing will teach many just how important relationships are in real estate. Past performance may not be predictive of future results, but past relationships are definitely more likely to yield future financing.
Consider, for example, how alike many deals can look on paper. With multiple borrowers vying for the same dollars, banks will rely on intangibles to determine where their funding goes. Those with a proven track record will be more likely to secure funding.
Most real estate transactions will go out to the full market because that approach will generate multiple bids and maximize pricing. However, some circumstances can lead to off-market or limited competition offerings. Buyers and sellers alike should rely on their established relationships to make the most of these opportunities.
There are many reasons why an owner may opt to unload an asset off market. Perhaps they are a developer needing liquidity to launch a project. Maybe they have an upcoming loan maturity, or they’re trying to fundraise and need some wins to show prospective investors. Whatever the reason, one commonality is overall execution. If an owner wants to sell an asset quickly without heavily diminishing their return, they’ll probably turn to someone they have worked with in the past that has previously executed a transaction with them.
On the buying side, the lack of competition in off-market transactions mean extending the value of every acquisition dollar. These deals are inherently hard to source because the seller is not widely marketing the asset. Long career relationships are the simplest path connecting buyer to seller in off-market deals.
Last year, Redwood Capital, now part of EQT Exeter’s multifamily team, acquired 10 properties – seven of which were handled off market. This was only possible because of the relationships we built with other owners, operators and investment sales folks over previous years. All long-term relationships are important – which is why we are willing to pay a fee to the investment sales team that introduced us to these sellers. Though this step isn’t required, it shows to our friends on the investment sales side of the business that we care and are committed to them.
Relationships in New Territory
Longstanding business relationships can have value even when your business goes in an unforeseen direction. Earlier this year, EQT AB, a purpose-driven global investment organization based in Stockholm, acquired Redwood Capital Group, which is now part of the firm’s real estate platform, EQT Exeter.
The relationships these two organizations bring to this merger will strengthen the combined company’s performance in the years ahead. The incoming team can go to their existing partners with new capabilities and better market coverage. In turn, EQT Exeter now has a broader network of business partners and boots-on-the-ground teams to leverage as the company looks to expand in the U.S. multifamily sector.
Strong relationships are vital to multifamily real estate – whether they help to fortify investment partnerships, secure access to financing, source off-market deals or blaze new business paths.
About the author:
Field Stern is the managing director, investments and head of capital markets for EQT Exeter’s U.S. Multifamily platform. He has 17 years of multifamily real estate experience.