With the passing of the JOBs Act in 2013, private real estate investing has become much more accessible to accredited investors. This has led to the emergence of crowdfunding marketplaces and the ability for companies to generally solicit, enabling investors to connect directly with sponsors all over the country looking to raise money from retail investors.
The new transparency in the private real estate syndication space, a business that was previously 100% relationship-based, has led to increased competition. Syndicators are now competing directly with each other for investment capital. The increased competition has raised the bar across the industry, with many groups emerging as the leaders in attracting and managing their investor base.
One group I’ve been particularly impressed with is Origin Investments, a private real estate fund operator based in Chicago. Origin has developed a best-in-class online presence, custom investor management platform, and institutional investor relations process which has enabled them to raise in excess of $4M in a single week online!
In this two-part series, Ben Harris, head of investor relations for Origin, will dive into Origin’s approach toward raising capital online directly from high-net-worth individuals.
In July, Origin raised $4.4 million in one week from 16 new high net worth investors for our latest private equity real estate fund. It was exciting to receive so much recognition for the equity raise, but we were even prouder to see Origin’s new mission come to fruition.
It wasn’t our first effort. In 2011 and 2013 we raised capital locally for our Funds 1 and 2, respectively, both with $500,000 investment minimums. That made them suitable only for Chicago’s wealthiest investors. Yet we never did any formal marketing, and relied only on referrals to raise the equity.
Origin’s mission has changed for Fund 3, which has a lower minimum of $100,000 to make this institutional investment accessible to a wider number of individuals.
Also for the first time, we’ve embarked on a nationwide marketing campaign, which has been an educational experience. Digital real estate investing is only a few years old, but it’s already a crowded marketplace. Early on, we learned that the best way to stand out is to be yourself. We do this by following these five principles:
Show a track record to prove your worth. The initial conversation almost always starts with past performance, since investors view track records as an indicator of future performance. They want to see consistent market-beating returns proven out over many deals. The greatest asset to current Fund 3 fundraising efforts is Origin’s first two funds, which are on track to return net IRRs of 28% and 24% across 28 different individual deals. These returns place us in the top 10% of all fund managers according to Preqin, a third-party private equity research firm.
Show off the team. Real estate is about location, location, location. However, real estate investing is about manager, manager, manager. Private equity real estate is an actively managed investment, and choosing the right sponsor could make the difference between doubling your money and a complete loss. That’s because the manager chooses what properties to acquire, develops and implements the business plan and decides when to sell to maximize returns and profits. As a result, investors have put their trust in Origin’s team, which has $5 billion in transactional experience. Its members have worked at Origin as well as firms with household names, including Equity Office Properties, Goldman Sachs, RREEF and Starwood. Sharing our institutional experience reinforces the message that we provide institutional-quality investments.
Put skin in the game. Investors want to know if our interests are aligned with theirs. Origin’s two principals, Michael Episcope and David Scherer, commit their own equity to every one of our investment opportunities. To date, that has amounted to more than $40 million, and they’ve pledged another $10 million to Fund 3. This sends a powerful message to investors that our founders are “putting their money where their mouth is,” and have interests that are aligned with investors.
Play the long game. Virtually every day, new investment opportunities become available on other platforms that project net IRRs of 25% and higher. And high net worth investors seem to flock to these investments. While it’s certainly possible for some of these deals to meet projections, we choose not to participate in projected return “beauty contests.” Our projections reflect responsible institutional underwriting standards. Origin’s first two funds were originally projected to return a 17% net IRR, but are on track to significantly outperform that number. In fact, 96% of the 28 deals in our funds have outperformed their pro formas. Even so, we are projecting a 17% net IRR again for Fund 3. Our goal is to build trust with our investors by playing the long game. This policy has been integral in our 90% partner retention rate.
Don’t say “transparency,” show it. Origin’s principals are so committed to this principle that they’ve invested heavily in technology over the past year to make transparency and real time reporting possible at our website. We offer prospective and current investors personal portals. Prospective accredited investors use the portal as a due diligence tool on Origin’s past investments and available offerings. Current investors use the portal to stay up to date on the performance of their Origin portfolios any time, from any device. Also, we disseminate investment updates every six weeks.
Origin’s story has been resonating with high net worth investors for almost a decade. Our recent marketing efforts have simply enabled us to resonate with more of them as we continue to embark on our new mission. We know high net worth real estate investors are trying to meet their own personal investment goals – from planning for their children’s educational needs to generating retirement income or a family legacy. And they need time to make decisions. It can take a day. It can take six months. Every so often, it all comes together at once. A $4 million week was especially meaningful to us because it meant that we had 16 new partners, and our persistent educational efforts, transparency and uncompromising commitment to execution has earned us their trust.
In part two of this series Ben will outline how Origin uses online marketing efforts, an email follow-up sequence, and phone calls/meetings to build trust with individuals, taking them from prospective investors to brand advocates. Stay tuned!