In 2018 I helped a client raise over GBP230m from one of the biggest real estate investors in the world, a process which took over a year to pull off.
After I brought in what became the anchor investor, I had a choice: to consider my job done and to leave; or to raise some more money for the client, whom I had a great working relationship with.
Given a big-name investor had decided to come in, I knew it would be easier for me to raise more capital. That’s generally the case. And so I set out to do just that.
Then began the calls and meetings, not to mention the travel – between 1.5 to 2 weeks a month each month. I flew to Dubai, Abu Dhabi, Kuwait, Muscat, Hong Kong, Beijing, Shanghai and other key cities to discuss the proposition.
Early on in the process, I had shortlisted one particular investor – a global investment firm – that I knew was looking to deploy capital into real estate strategies similar to what my client was doing. They looked after over USD100billion of real estate assets globally and had ambitions to do more. Let’s call them XYZ Real Estate Investment Group (XYZ REIG).
I rang my contact, who was one of the seniormost people at XYZ REIG, and who ran the UK office.
“Hello Charlie,” I said.
“Hey, sorry about the background noise,” she said. “I’m on the Heathrow Express heading into town.”
“Where you coming from?”
“Barcelona,” she said. “Looking at a Student Accommodation assets in Spain. So what’s up?”
“I’d like to run something past you,” I told Charlie,
“Shoot,” she said.
“No,” I said. “Let’s sit face to face. Sooner the better.”
“Can’t do lunch but we could grab coffee in an hour.”
“Perfect. Let’s meet at the Nordic Bakery in Golden Square.”
“See you there.”
Scandinavian Café & Bakery
The first thing we did was to of course attend to the most pressing matter: ordering coffee and pastries.
It being customary, we began by talking about our personal lives and family. And by the time that ended, I recall being about halfway through my coffee and wondering whether I should order another cup before I delved into the deal. So I did just that and ordered another round. Thereafter, the business discussion began.
“One of my clients is setting out to build a large scale residential real estate platform,” I said.
“Go on,” said Charlie.
I went on to summarise the investment opportunity and provide background information on my client, its senior team and track record.
“What’s the target IRR?”
“What’s the forecast equity multiple?”
“Are the sites secured and what about planning?
By the time we’d said our goodbyes I knew Charlie was interested.
Afterwards, I went over to my client’s office.
“They’ll request data room access in the coming days,” I said. “Get the NDA ready.”
XYZ REIG goes into due diligence
Charlie and his team spent the next four weeks going through the data room in detail, making their own analyses and drawing their own conclusions. Calls were made. Meetings were held. Site visits were carried out.
Though a deal is never done until it’s done, and I’ve certainly learned not to get excited too soon, with the amount of time and effort spent by XYZ REIG I assumed this one stood a good chance.
Then, one day, as I was about to enter a meeting with an investor in Kuwait, Charlie called.
“I’m just going into a meeting,” I said. “Can I ring you in an hour?”
“I’m going to busy all day,” said Charlie. “Let’s talk tomorrow.”
His tone concerned me.
“Have you had IC (investment committee)?” I said.
“We did and you know we took a long and hard look at the opportunity,” he said.
I knew it. Bad news coming.
“We decided to give it a pass.”
“Let’s schedule a meeting,” I said. “It would be useful if I can get some feedback.”
The different shapes and sizes of NO
There was a time when an investor would say NO to an opportunity I showcased to them and I would simply mark them off a list and move on. But with the benefit of experience I’ve learned that there are various shades of NO.
Whilst of course I will always respect an investor’s decision, I find myself increasingly curious to understand the root of their decision to pass or forgo an opportunity. And while there was a time I would accept a response such as, “We’re already too exposed”, or “It’s not attractive enough”, or “We’re not investing in the UK”, or “It’s too small” and so on and so forth, I now want to know everything there is behind the decision. If they’re too ‘exposed’ then I’d like to know what asset class they’re exposed to already and where are they lacking or under-exposed. If the deal is ‘not attractive enough’ then I’d like to know what makes it unattractive and what actually makes one attractive to them. If they’re not investing in a particular geography, say, the UK, then I’d like to know why and also where they’re currently underexposed and wish to gain exposure. If ‘it’s too small’ then I’d like to know what ticket sizes they’d prefer to write and whether they could start with slightly smaller amounts and grow larger with time. Or, if a deal is very large, would they be okay to co-invest alongside another investor. In short, I want to learn as much as I can about them. To understand what makes them tick. For this to happen I need to stay close to them and speak and see them regularly, as their objectives can change over time.
By staying close to an investor you not only become more informed about them but:
a) they begin to trust you; and
b) you understand them more deeply than most.
Quite a number of fundraisers I know rely on a few paragraphs they see on an investor’s website as their intel. Let’s be honest, that doesn’t even begin to scratch the surface of how an investor makes investment decisions. What’s more, to build relationships you need to put in the time and get in front of them. Stay in front of them.
So after XYZ REIG came back with a NO, I arranged to meet Charlie back upon my return to London. The ensuing discussion gave me two insights: 1) they had not completely shut the door on my client but would require compelling reason to reconsider; 2) I would need to wait around 3-4 months to revisit the opportunity given some of the high-level changes going on within their firm would distract them from anything I presented.
Near the end of 2018, I re-approached Charlie. Fortunately, within the last couple of months the proposition at hand had improved. Several very positive headlines emerged in real estate news about my client. Additional, blue-chip investors committed to the investment. Also, some of the initial concerns and risks XYZ REIG cited early could now be addressed with the benefit of further supporting evidence and material.
Going into December, XYZ REIG re-opened the case. In the coming weeks I will know whether they will invest or not.
They may very well pass again and that’s fine. Sometimes, there’s not a whole lot one can do to persuade an investor. But it can be a numbers game. It may not work 9 times out of 10 but all you need is one win and that makes it all worthwhile.
Understanding why someone says NO is critical
The main takeaway here is to never dismiss and turn your back on a NO from an investor, or potential client or whoever you’d like to do business with. Try and understand why they’ve come to that decision.
You may only receive a brief response such as ‘Thanks for sharing the opportunity but we’re not interest.’ Yet, without being overly pushy, you ought to try and obtain feedback. The more the better. Usually, there’s a much longer story for why they’ve passed on your proposal. Convince them, with professionalism, charm and patience, to share their rationale with you. And take a keen interest in what they tell you. Your genuine curiosity will paint you as a genuine potential partner.
Through this process you’ll learn a little more about that investor (or client or whoever it is you reach out to). That information is power. The more of it you have the more powerful you become. For there will come a time when perhaps another opportunity arises and when it does you’ll know that it will fit perfectly with that investor (client).
One final point and goes without saying: this article about NO applies only to scenarios mentioned above. If someone says NO, it means NO. Don’t want anyone to confuse my message 🙂