Institutional Advantages Despite the hassles of getting in the door and presenting a plan, it can be advantageous to go to institutions for capital. For one thing, the capital costs less from pension funds and other conservative investors, according to Gruendl.
Moreover, a long-term relationship with an institution can open up a steady flow of capital, which saves a developer the time and effort of seeking funding for each deal. That’s not the case in working with high-net-worth private investors. “Private capital is very fickle,” Williams says. “It likes to go deal by deal, and it probably won’t give you discretion like the endowments do.”
Real estate investment trusts also look at one deal at a time, and they expect high returns. “They have to pay their investors, so they will demand higher rewards,” Williams says. In contrast, many institutional investors have longer-term capital needs and are not looking for a quick return.
And, as a developer builds a track record with an institutional client, the latitude in making deals can grow. This helps when the developer needs to close quickly. “We will spend more time underwriting earlier deals than later deals,” Wu says. “We want to empower our partner with the knowledge that if things meet certain criteria, they know they have capital to move quickly.”
