Hedge funds and private equity firms are investment companies created by Wall Street investment banks and financed by wealthy individuals and cash-rich corporate entities. Unlike standard publicly traded mutual funds, hedge funds are largely unregulated and have much more leeway in their investment options. Many of these funds have recognized the opportunity that has arisen in commercial real estate loans and have stepped in to fill the financing gap. The money managers in charge of these huge equity funds are investment experts, they know a lot when they see it, and they can be very nimble. Hedge funds and private equity funds are not afraid of risk; in fact, they thrive on it. If they like a deal, they make decisions quickly and can close loans or equity financing in just days.
There are many private funds that specialize in commercial real estate investments or have a commercial mortgage loan division. They are cash rich and actively looking for quality deals to finance. They can be an excellent alternative to banks and other traditional lenders.
But keep in mind that they are very professional and very sophisticated. Don’t approach hedge funds with poor-quality or incomplete packages. They are professionals and work exclusively with other professionals.
Hedge fund and private equity folks have a Wall Street mindset; they are merchants of the heart of art. When they look at a deal, they want to be able to make decisions quickly.
When approaching a background, you’ll want to have a complete, well-documented package ready to show you at any time, but don’t give it to everyone at once. Having worked for Wall Street firms for over 20 years, I have determined that the best way to approach money managers is with a concise and well-written 1-page deal summary.
Summarize the selling points of your deal on a single sheet of paper, emphasizing the earning potential, the level of investor experience, the strength of the location, and some of the other strengths of the project. They will appreciate the fact that you respected their time by being short. If they like what they see, they will ask for more. Give them precisely what they ask for; don’t jam them with documentation until they tell you they want to see it. Sell them the big story before you try to sell them the details.
If you want to raise funds from a large private equity shop or hedge fund, I strongly suggest that you use the services of a professional broker with Wall Street experience. They can speak the language of the fund managers and know exactly what is important to highlight about a particular deal. These funds tend to operate like private clubs, it helps a lot if you have an “in”. If you are lucky enough to develop a relationship with this unique type of lender, you will enjoy a seemingly endless source of capital.