NAREIM Capital Raising & IR meeting takeaways

December 6, 2024

Real estate investment managers are too transactional in their capital raising today – and need to relearn the skills of building genuine relationships with institutional investors if they want to raise capital in today’s highly competitive market.

NAREIM members attending the Capital Raising & IR meeting in Austin this week heard there were more than 3,000 real estate managers in 2024, with up to 50% actively capital raising at any one time.

In such an environment, capital raisers were feeling heightened pressure to sell products versus spending time building relationships, with the result that investors’ biggest complaint was that managers had become “too transactional”.

• “The skill set of building relationships has started to wane ,” the meeting heard. “But the reality is investors want to invest with organizations and individuals they trust. Investors have a fiduciary responsibility to make sure they are aligned with the manager and that doesn’t come if you don’t meet in person, pick up the phone or spend time making that relationship.”

According to live polling, 76% of real estate investment management firms do not provide training for capital raising and investor relations roles, and where training was provided it was for hard or technical skills such as presentation training versus sales.

Management firms should instead be looking to train teams on the art of sales, including training on how to you cultivate a market; knowing when to hold back or push a product; how to use, create and funnel a CRM; starting meetings with an agenda; leaving with next steps after every call and meeting; and preparing answers that drive results.

“There is no training ground for sales in institutional real estate,” members heard. 

The poll also revealed:

• 77% of managers do not have consultant coverage as a standalone function within their capital raising teams

• 44% have a generalist sales model vs 56% with a dedicated real estate model

• Managers were split equally on covering investors according to geography and investor type

• 60% of member firms have 1-3 vehicles in market at any one time; compared to 18% respectively having 3-5 and 5-10. A small number of firms (5%) had 10+ in market at the same time

To download the presentations from the meeting, click here.

Other investor pain points included:

• Managers need to actively listen to investors and ask them what challenges they were facing

• Research investors and their portfolios thoroughly before going into a meeting

• Do what was promised. If a follow-up is promised 2 weeks after a meeting, do it

• Understand the investor and consultant process

The Austin meeting was the last NAREIM meeting of 2024. Other key highlights included:

Marketing: Making an impression is 5x harder in 2024 vs 25 years ago:

Real estate marketing has been transformed thanks to social media and digital production – however to make any impression on a potential customer/client it’s 5x harder in 2024 compared to 1999.

“We are in the noisiest season our society has ever seen,” one member said. “Couple that with the most complex capital raising environment in a generation and it means we’re competing for a small bit of airtime where you have to be much more thoughtful [about marketing] than ever before.”

What will work in 2025?

• Video: One member used AI-produced video assets and saw a 300% increase in view rates vs a written report

• Tech: Start using AI to help with marketing output and breaking one piece of thought leadership into different formats, such as short videos, quotes, charts, infographics. AI tools cited by members included Lumen 5, Beautiful AI and Canva’s AI feature

• Lists: CRMs and investor segment is critical to all marketing. One member segmented by investor type and interest in topics. So while their Taft Hartley investor got a deeper report on the status of a development project, other investors received a summary

• Lists: Clean the CRM lists regularly to ensure investors are receiving the most appropriate materials – and not being spammed by everyone in the firm

• In-person: Team up with other capital raisers to co-host events/drinks together. Use peer networks to have a greater impact

• Talk about the platform, not the product. Everybody in the firm is a brand ambassador but the first and second conversation with an investor should be about the firm – so they are left with a clear image of the firm’s mission and culture

Inside Taft Hartley fundraising:

There are more than 14,000 Taft Hartley pensions representing $1tn of assets – and they represent a steady, sticky source of capital that typically allocates up to 40% to alternatives, particularly those in the construction field.

One member described their work with Taft Hartleys focused on construction, and provided the following insights:

• You have to have a responsible contractor policy to raise capital from Taft Hartleys, with most unions heavily focused on clauses relating to prevailing wages and the use of union labor

• Participating in the NAB2 ranking is beneficial if targeting Taft Hartleys in construction

• Taft Hartleys depend heavily on consultants as trustees are working full-time in industries such as construction. But capital raisers need to also invest time with trustees – and should attend labor-focused conferences

• Reporting to Taft Hartleys should dive deep into projects, as well as returns, as the pensions care deeply about job creation and can understand the field of construction intimately through their day-jobs.

Put MFN clauses in the LPA & GP revenue shares:

• Most favored nation clauses don’t need to be in side letters, they should be part of the LPA to help increase transparency and minimize negotiations – with concessions restricted to side letters

• During a conversation on side letters and a deep focus on MFN carve-outs, NAREIM members were also advised to create a compendium of concessions that is distributed to investors after a fund close, where they can elect what they want, in order to help investors

• GP revenue shares, typically used by investors only for emerging managers, were increasingly being used for established managers, typically for vehicles backed by publicly-traded private equity managers, to help investors benefit from the upside gained by the manager to future FRE and enterprise value. Revenue shares were typically 10% to 15% of gross carry, but had been as high as 20%

To download the presentations from the meeting, click here.

To access the attendee lists, contact Marynia Kruk at mkruk@nareim.org