Real Estate Joint Ventures and the Current Market Environment
Jim O’Brien, Managing Director in Baird’s Real Estate Investment Banking group, attended this year’s IMN Annual Winter Forum On Real Estate Opportunity & Private Fund Investing in Laguna Beach, California. While at the conference Jim connected with players across the real estate space, including owner/operators, developers and various institutional investor groups. Jim also participated in the well-attended panel “GP/OP Joint Venture Shark Tank,” where he and other participants provided their insights on real estate joint ventures in the current market environment.
Jim was accompanied by Brady Stern and Josh Butler, both of whom are Director’s in Baird’s Real Estate Investment Banking group. Brady, who heads the group’s Healthcare Real Estate practice, met with developers and investors in the Life Sciences and Medical Office space. Josh met with industry leaders in the PropTech space, the Real Estate group’s newest vertical.
Top Takeaways from the Conference:
- Institutional LPs focused on experienced sponsors with dynamic platforms that can provide attractive opportunities. The recent turbulence in the debt and equity capital markets and predicted market downturn in 2023 have many investors “laser focused” on sponsor relationships. LPs are spending more time looking for vertically integrated groups provide a multitude of services including, but not limited to, acquisitions, property management and asset management. With the market uncertainty, investors want to be aligned with groups that have a proven ability to source attractive opportunities and have demonstrated success executing on those opportunities.
- Preferred and recapitalization investments becoming more popular. Investors are turning to alternate investment structures as a result of the current environment. Preferred and participating preferred investments can provide an attractive return on capital and downside protection in the case of a liquidation event. Additionally preferred investments are becoming more common because of the lack of near-term price discovery. Recapitalization opportunities, or Recaps, provide access to proprietary and off-market deal flow, often at an attractive basis. Recaps also provide a liquidity mechanism to investors that may need to exit due to market conditions, while allowing the sponsor to stay in the deal.
- Sponsors and LPs alike weigh the pros and cons of a co-GP partner. Co-GP partners can bring significant value to the table for certain Sponsor groups. For a newer or smaller Sponsor, co-GPs can help with equity and debt raising, bolster asset management functionality and provide balance sheet enhancements, all of which can make a Sponsor more attractive in the eyes of an LP. That said, LPs are primarily focused on their relationship with the Sponsor. Some LP groups would prefer not to have a third-party involved in the transaction. This can be because it complicates the underwriting of the Sponsor or because the LP wants to limit the number of voices at the table.
Current market conditions are and will provide interesting opportunities but how a sponsor positions themselves is very important. Baird’s Global Real Estate Investment Banking team has the expertise and long-term experience to navigate through any market conditions and provide sponsors with exceptional results.
Interested in learning more? Connect with Baird Global Real Estate Investment Banking:
Real estate companies and sponsors seek new capital raising solutions as the market sees continued effects of COVID-19
Baird’s Real Estate Investment Banking team has an established track record of providing clients with comprehensive strategic advisory and capital market services.