#323 - Nancy Lashine - Founder @ Park Madison Partners - Cycles, Crises, and Capital: Navigating The New Normal in Real Estate
Dec 5, 2023
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In this episode, Nancy Lashine, founder of Park Madison Partners, discusses various topics including capital markets, capital allocation, development valuations, fundraising structures, and wisdom for first-time fund pursuers.
Trust and discretion are crucial when raising a fund, and building long-term relationships and effective communication are key in the fund management business.
Fund managers must consider the motivations and perspectives of different types of investors and decide on the best capital structure, such as joint ventures or separate accounts.
First-time fund managers face unique challenges in attracting capital, but strategic considerations can help build strong relationships with investors and provide a pathway to subsequent fund raises.
Deep dives
Raising Funds and Building Trust
When raising a fund, trust and discretion are paramount. Investors give power of attorney on their capital, and earning their trust is essential. Building long-term relationships and effective communication are key in the fund management business, where discretion and fiduciary responsibilities come into play. It is crucial to consider the motivations and perspectives of different types of investors, such as institutional investors, family offices, and sovereign wealth funds. Fund managers must decide whether they want to be fiduciaries to investors and navigate the complexities of the fund management business, or opt for other capital structures like joint ventures, development platforms, or separate accounts.
Crossing Promotes and Investment Discretion
When raising a fund, fund managers need to earn the trust of investors as they gain discretion over their capital. This entails crossing promotes and operating as a fiduciary, leading to changes in the timing and structure of payment. The fund manager's ability to demonstrate a track record of successful deals, unique strategies, and effective client service is crucial in attracting new investors. On the other hand, operators might choose different capital structures to access cheaper capital and maximize operating returns without the same level of fiduciary responsibilities and discretion attached to fund management.
Fund Management vs. Deal-by-Deal Approaches
Fund management involves being a fiduciary, managing investor expectations, and providing long-term client service. It requires earning trust, reporting timely information, responding to investor inquiries, and adhering to fiduciary obligations. On the other hand, deal-by-deal approaches allow for more flexibility in accessing capital, as capital is sourced project by project without the same degree of fiduciary responsibilities. Each approach has its own advantages and considerations, such as the ability to raise discretionary capital, the potential for crossing promotes, and the demands of client service.
Navigating First-Time Funds
First-time fund managers face unique challenges, as investors typically prefer managers with a proven track record. These managers often need to build trust, demonstrate a unique investment strategy, and show alignment with investors' long-term goals. First-time funds may face difficulties in attracting capital due to the preference for established managers. However, strategic considerations, such as offering investors the flexibility to exit after the first fund or planning for future fund series, can help build strong relationships with investors and provide a pathway to subsequent fund raises.
Transitioning Between Capital Structures
Managers who have operated successfully using one capital structure for a significant period may consider transitioning to a different structure for various reasons. This could involve restructuring existing funds to incentivize staff, motivating them to continue working on the portfolio. Managers may explore options like programmatic joint ventures, development platforms, or co-investment vehicles to access capital differently, depending on their business goals. Understanding the unique dynamics of each capital structure and weighing the advantages and challenges is crucial in making a successful transition.
Nancy is the Founder and Managing Partner of Park Madison Partners. As a leading real estate capital markets firm, Park Madison is an advisor to investment managers and operators and provides capital placement services for institutional investors. The firm has placed over $25 billion of equity in PMP-sponsored vehicles and maintains relationships with over 2500 real estate investors and managers.
