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Financing Small Scale Development

Real estate developers face unique challenges assembling the capital stack to fund small scale development projects.  Without access to money center banks—and often regional banks—they must go to friends and family and credit cards.  But these funds only go so far.  Where do they go next?

That was the subject of a recent standing-room-only workshop for Mason MS in Real Estate Development students and other members of the DC region development community.

Drawing on years of real estate finance experience, a panel seasoned pros brought together by Mason’s Center For Real Estate Entrepreneurship covered the ins and outs of debt, equity and private lending financing.

Small Scale Development Panel: Mason MS in Real Estate Development

Leading the workshop were:

Tony Marquez, Executive Vice President, EagleBank
Hobie Mitchel, CEO, Landsdowne Development Group
Colin Hart, Managing Partner, Freedom Development, equity investors
Jared Fausnaught, Associate, Washington Capital Partners, private lending

“These panelists offered a range and depth of lending expertise that you don’t often find all in one place,” said Bob Wulff, the director of Mason’s entrepreneurship center. “Our students were really drawn into the discussion and appreciated the insights.”

Q. What constitutes “small scale” development?

Tony Marquez, EagleBank: For us, it’s depends on the story.  If someone is just starting out and we think we can grow together over time, we’re willing to listen.  That’s the great part about being a community bank.

Hobie Mitchel, Landsdowne Development: We look at the return.  We can start in the $3 to 5 million range; our sweet spot is $10 to 15 million—generally outside of the Beltway.  But in the end, it’s all about the margins.

Colin Hart, Freedom Development: We’re looking for where we can best deploy our Colin Hartdollars with least resistance and highest return.  There’s a lot of competition in the DC commercial real estate market; a lot of people looking to put money in.  We try to stay below the radar of institutional investors.

Jared Fausnaught, Washington Capital Partners: We can go as low as $100,000 in the traditional single family market.  Our typical client is someone just getting in and looking to grow capital for the next project.

Q. What are the critical drivers to attracting capital (debt or equity)?

Tony Marquez: SuccesToney Marquez and Hobie Mitchel: Small Scale Development Workshop, Mason s builds on itself.  Build a track record.  And partner with the right team—people that bring added value.  Collaboration with respected skill sets resonates with the markets.

Hobie Mitchel: The market, capital structure and price point all need to make sense.  And you can’t underestimate the importance of communication.  Get out in the community; build relationships.

Colin Hart: The human qualities are very important.  We have to have confidence in the people we are going to deploy with our cash.  They have to get along with us and our culture.  It’s truly based on trust.

Jared Fausnaught: We tend to lend at higher rates because our clients are not traditionally bankable.  If the numbers make sense, we should be able to lend.

Q. We’re just starting out.  How do we get that first investment?

Hobie Mitchel: If you’ve got a lot of great ideas but little experience, bring in someone you absolutely trust who can give you credibility as well as practical advice.  Give them a little piece, maybe with a buy-out provision later on.  And be careful about overhead.  People don’t care what kind of office you have; they care about financial results.

Tony Marquez: Creativity is great, but this isn’t the time to be Frank Gehry.  It’s all about the cash.  Your best course is to reduce the amount of unknown in terms of timing, budget and reputation.  The DC market is a small town; everyone knows everyone.  Bring in someone with a proven reputation to reduce the risk and increase the appeal of the loan.

Colin Hart: Create a board and put them front and center.  Use them to convince others to join you.

Patrick Connors

Patrick Connors, Mason MRED professor and SVP Finance and Operations, Saul Centers; Director of Finance, ASB Capital

Sponsored by the Mason Center for Real Estate Entrepreneurship, “Financing Small Scale Development” was offered as part of Professor Patrick Connors’ Real Estate Finance class.  To learn more about the Mason MS in Real Estate Development program, visit http://business.gmu.edu/real-estate-development/

 

 

 

Photos by Benjamin Myers

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Janet Palmisano

Janet Palmisano is a member of the Recruiting and Admissions team at the George Mason University School of Business.

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