‘Choose Wisely’

By Marcelo Bermúdez, President, Figueroa Capital Group, a subsidiary of Charles Dunn Company: Figueroa Capital president shares tips on whom to pair up with on your next big deal.

As a kid who played video games with friends at arcades where you actually inserted a quarter in the standup consoles, I saw technology change quickly and often. The 1985 release of Atari’s Indiana Jones and the Temple of Doom game included challenges in underground dens and near scorching lava pits you could control through difficult mazes. It was the first game to use digitized speech, including voice clips from Harrison Ford. Four years later, Indy and the Last Crusade came out for home video game consoles like the Amiga and the Sega Master System. Atari even used the Templar knight’s voice clip saying, “Choose wisely.” Your good friends would join in with you to say it in unison which brought a smile to everyone’s face.

I rarely play video games anymore, but I still maintain many of those childhood friendships and am an early adopter of technology as it becomes available. The history I have with old friends has created a foundation of stability for long-lasting and healthy interactions. Some relationships I’ve had only for a few years, or they don’t last due to conflicting ideals or standards. Today’s technology lets you start a business relationship with a tweet or by adding someone to your social network. In fact, my current partnership that I have at Figueroa Capital Group came together while networking and doing research on LinkedIn.

Syndicators, (those who sell shares in or offer participation in the financial sharing of a risk venture, loan, or the like), are in a similar situation of relationship-building when they are trying to get a venture off the ground or recapitalizing a scenario. They are out there finding the right fit with potential investors through various matchmaking websites (technology) or personal introductions – or some combination of both. In order for a relationship like this to grow and thrive, below are some tips to consider when determining whom you’re going to pair up with on your next deal.

Financials – Any investor with an attorney worth their salt has created some kind of entity or entities to use in place of their personal assets. Taking time to inspect the financials is paramount. If you don’t understand how that person is going to take recourse, especially if other assets are in the entity, you may be left holding the bag.

Experience – Owning apartment buildings is not the same as owning office or industrial, even if your potential partner owns large complexes with hundreds of tenants. Banks want to understand the team’s ability to execute a potential transaction, especially if there is a lot of repositioning involved.

Control – Are you taking a back seat or are you doing most of the work? I’ve worked with some people whose strategy is to avoid having anyone control more than 5 percent of the entity and others who make it very clear they want certain management, leasing and brokerage companies in place to make the deal work and share at a 50/50 partnership level. Taking time to read the operating agreement and figuring out potential pitfalls is best negotiated up front. Once you’ve signed documents, you want to make sure your partnership is sustainable.

Culture – Are you working with a local investor or trying to use international EB-5 funds that are flowing in from all over the world?  Maybe it’s a foreign investor who has the balance sheet but no access to capital in the United States. Understanding the culture of the investment you are working on and the people you are working with is extremely important. There is a big difference. “We’re going to make an 8 percent return by buying value-add industrial in a major Metropolitan Statistical Area (MSA)” is a start, but how you intend to do that by leveraging the networks from your investor and how they perceive what are the right and wrong way to do things based on their cultural norms can be worlds apart – literally. Some cultures are very relationship-oriented versus transaction-oriented, regardless of your great reputation. It will take time.

Finding the right investment partners takes time, persistence and passion. Like the old school video game told us when we were kids but still rings true today in the business world … when it comes to cultivating stable, long-term relationships: “choose wisely.”