So, how do you raise predevelopment capital? This is the capital that takes you from starting working on a multi-family or mixed-use development all the way through to breaking ground and starting construction.

I’ve used this on over 1,400 units of development and our current pipeline of over 1,200 units.

So, let’s dive in.

Raising pre-development capital is extremely important because, without predevelopment capital, you won’t ever be able to get your project off the ground. This is the money that takes you from the site under contract to starting construction. What I’m sharing with you is the exact step-by-step process we use to raise capital for our multimillion-dollar deals and what has made us successful in developing over 1,400 units.

First things, first. You’ve got to know your costs. 

What is it going to cost you to go from contract to starting construction and how long is that period of time? Are you looking at 6 months, 8 months, 12 months? Once you’ve determined the costs and length of the project, you then need to determine when you’re costs are going to need to be paid within that pre-development timeline.

For example: When does your architect need to be paid? How much are they going to charge you? How much are your lawyers going to charge you? How much are your third-party reports, your Geotech, your phase one, your survey? How much is each one of those reports going to cost you?

All of that should be documented in a predevelopment spreadsheet, breaking down each cost and when you’re going to need to pay it. 

If you don’t already have something like that, you can click the link below and download a free our Sample Pre-Development Breakdown spreadsheet (see form below). This document will give you a snapshot of what it costs to get from start to finish, to start construction, and to start your first development.

This document will show how much the project is going to cost before breaking ground.

Next, you want to create a concept narrative. This concept narrative is typically a 10-to-20-page document that outlines the project its opportunities. It’s very similar to a SWOT analysis, where you define the strengths, weaknesses, opportunities, and threats. Your concept narrative acts as your pitch for the project. You’re putting your project in the best possible light in order to convince investors that this is a great investment.

You’ll also want to talk about your returns. What are you offering your investors? 

As an example, we typically offer our impact investors with Holladay Ventures anywhere from 8% to 12% return. As an example, our investors will receive their 8% to 12% accrued returns after 3 years. Three years gives us enough time and some cushion in case our development takes longer than expected.

We typically expect developments to take about 24 months, so we always add on an extra year just in case we need extra time to pay back that capital. In addition, if something goes wrong in the development process, that gives us more time to correct it. 

All of that needs to be outlined in your concept narrative. This document should be well thought out, well-designed, and communicate your vision. You’ll want to include high-quality renderings of your project, outlines of the site, the location, and the market within the outline.

It may be beneficial to pay someone on Fiverr or Upwork to help you organize your concept narrative in a visually enticing way. If you have an in-house marketing director, use them. You’ll want to make sure the outline looks extra pretty because this is what your investors will see first. Put your best foot forward.  

Once you have your concept narrative together, you’ll want to talk to an SEC attorney – a Securities and Exchange Commission attorney. This is a legal professional who is qualified to handle a securities fraud claim. 

Basically, they can help you set up the proper documentation you need to offer securities in investments to your investors. You want to do everything by the books and lean on their guidance. I would recommend having an SEC attorney that knows how to put together those investment documents on your team.

Lastly, now that you have those three steps in place, it’s time to reach out to your investors and start those initial conversations. Whether those are contacts from your email list, social media, or friends and family, you want to get investors on board for your next project. 

If you’re just getting started and don’t have an established list of investors or aren’t confident getting started on your own, you can seek a joint venture partner or JV partner as an alternative to raising pre-development capital. You’ll want a JV partner with experience in the type of project you’re doing and who can bring capital and/or guarantees on the loans.

With your partner’s help, you’ll save time, allowing you to focus on the project. If you’re just getting started, I would definitely recommend that option.

We could, of course, go into much more detail, however I hope this helps you understand the basic steps to raising pre-development capital. Stay tuned for more step-by-step guides like this one and Good luck with raising your pre-development capital!