When to Raise Equity Capital In a Fund Structure

The operating entity is usually the face of the operation and family or entrepreneurially owned. Even though there is plenty of capital in today's hot real estate market, raising equity capital for smaller and midsized companies is a very arduous task. It is usually done on a deal-by-deal basis in the affiliated flow-through entities that own the individual properties. For example, an established medium sized West Coast-based CRE investment firm may have 25 or more different affiliated partnerships and limited liability companies that own CRE assets valued at $300 million, with an aggregate of $200 million in debt and $100 million in equity. The general partner or managing member of these entities and the operating company have to manage over time, 25 separate mortgages, equity offerings, private placement memorandums, partnership agreements, subscription agreements, etc. If the average equity investment is $250,000, then there are 400 separate investors in the 25 deals.