Chuck Shinn: Rx from the Profit Doctor

Time to Start Looking for Equity Money

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This last week I have been contacting builders across the country and everyone has said their traffic has increased since the first of the year and that the quality of the traffic is very good.  From New England, the mid-Atlantic, Florida and the west coast builders are seeing increased buyer traffic.  Today the Seattle Post had an article entitled “Home buyers getting off the fence – Low interest rates entice some to jump in”.  The reduction in housing prices, the historically low mortgage interest rates, and the revitalization of FHA may be taking effect and we are seeing the beginning of stabilization for housing.

As the market stabilizes and begins the recovery, builders are going to need equity to invest in new homes and projects.  During the last three years of free fall most builders depleted their cash and equity trying to stay alive by satisfying the financial institutions demands for more equity investment in the current projects to reduce their exposure.

As the market begins to turn the corner the financial institutions will still not want to finance anything that has to do with real estate, especially housing.  This means we are not only going to have to find equity to replenish what had been lost during the recession but to replace the lending that had previously been supplied by the banks.   

What does this mean?  You should be in the market right now trying to locate equity money.  It takes a long time and you need to be on the radar screen when investors determine the time is right to act.  As you try to raise equity capital, you will have sticker shock.  The money is expensive, generally in the 20 to 25% internal rate of return.  (We even have had one group request a 35% return.)  However, it is still better than not having any equity and having to sit out as opportunities materialize.

 
 

Comments (1 Total)

  • Posted by: mitchsr | Time: 5:30 PM Thursday, January 15, 2009

    We are trying to raise money for a distressed equity fund and be happy to offer 25% or 30% to an investor group. Can you point me in their direction? Thank you very much - Mitchsr

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About the Blogger

Chuck Shinn

thumbnail image Charles C. Shinn, Jr., Phd, often referred to as the Profit Doctor, created the Shinn Group of Companies, The Lee Evans Group, and Builder Partnerships to help increase the professionalism and management standards of the homebuilding industry. His constant focus is to help builders and manufacturers to improve performance of their companies, improve relationships and ultimately maximize their total profits. Chuck inspires hundreds of builders each year through his frequent speaking engagements and educational seminars. Chuck Shinn holds a BA in Economics, and an MBA and PhD in Business Administration from the College of Business Administration at American University in Washington, DC.