Debt and alternative financing
Growing a Real Estate Credit Platform to Nearly $1 Billion
Growing Platforms, Structuring Deals & Raising Capital in Real Estate Credit
Real estate credit managers and fund sponsors who want to move from friends and family money to institutional capital.
Worth quoting
"If you have a good deal, it is not difficult to raise capital."
"I never fall in love with a project. I don't fall in love with the real estate. I fall in love with the deal."
"It sort of compounds after that, and we doubled every single year, just doubling."
What you will hear
Fair Bridge now manages just shy of a billion dollars, and John ties that to a series of forced changes. He started 25 to 30 years ago as a small hard money lender charging 16% and four points, beginning with $20,000. For his first 10 years he stayed inside the Bronx. When yields fell from 16 to 14, 12 and 10, he moved from participating out loans to a fund structure.
Institutions then asked for audits, a fund administrator and legal counsel. John got his first audit at $10 million in assets under management. Later, Oaktree spent 9 to 12 months on diligence before writing a $100 million ticket, and assets doubled each year after that. John also says a good deal draws capital, so he treats origination as the priority.
Facts from this talk
- Fair Bridge manages just shy of a billion dollars, with investors backed by Oaktree, Nomura and High Tower.
- The firm repositioned to a REIT at about $300 million in assets, and it now has 625 investors.
- John got his first audit when the fund had only $10 million in assets, and he now has over 10 years of audited financials.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Growing Platforms, Structuring Deals & Raising Capital in Real Estate Credit. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around REIT conversion considerations, fund structure choices and institutional diligence requirements. Do not use AI to write your own legal agreements.
Five points worth keeping
- Yield pressure forces a pivot. John saw yields fall from 16% to 14%, 12% and 10% as private equity firms and hedge funds entered hard money lending. He chose to use leverage through a fund rather than lend at 10% without it.
- Institutionalize before you scale. Institutions asked for an audit, a fund administrator and legal counsel. John got his first audit at $10 million in assets and now has over 10 years of audited financials.
- Use third-party checks and balances. Third-party administrators, IT providers, top legal counsel and top auditors review the operation. John moved from small auditing firms to top firms as the platform grew.
- Structure choices are worth discussing with advisors. Fair Bridge moved from a typical 80/20 fund with a 2% management fee to a REIT. John described moving to a REIT structure, and the firm is now a national real estate investment trust. Many sponsors talk to a tax advisor and a securities attorney before considering a change like this.
- Good deals attract capital. John says origination is the new value add. If raising capital is hard, he says to look at the deal, since he competes with 20 other funds to price a good one.
- 1Lend and raise from friends and family
- 2Pivot to a fund structure
- 3Get audits and a fund administrator
- 4Add top legal and IT providers
- 5Pass institutional diligence
- 6Reposition to a REIT
Related questions
- How does asset-based lending work for growing companies?Asset-based lending is a loan secured by company assets such as receivables, inventory or equipment.
- What is venture debt and who qualifies for it?Venture debt is a loan made to a venture-backed company, usually alongside or after an equity round.
- How does a bridge loan work for a real estate deal?A bridge loan is short-term money that covers a gap in a real estate deal.
Questions about this video
How long did the first institutional ticket take?
John says it took about nine to 12 months to get the first $100 million ticket from Oaktree. The diligence covered his fund administrator, accountants, legal firm, IT and cybersecurity.
Why did Fair Bridge become a REIT?
John said tax considerations were one factor in the decision to reposition to a REIT. The firm moved from a typical 80/20 fund with a 2% management fee, and it had about $300 million in assets at the time.
Does Fair Bridge invest in equity?
No. John says the firm does only debt and credit in real estate. He wants to keep a senior position in the capital stack and stay close to the real estate behind each loan.
Put this into practice with the data room checklist. See all debt and alternative financing resources.
