Last month we closed on our latest investment offering at Wildhorn Capital. As we always do after closing, we sat down to reflect on the lessons we learned going through the project and getting it to the closing table. This project represented a new type of deal for us, so the lessons learned were aplenty.
Over the last two years we have been focused on the Build-To-Rent space and just about 12 months ago closed on a BTRBuild-to-Rent: a real estate development model where a property developer constructs a residential building, community, or group of single family homes with the specific intention of renting out the units rather than selling them as individual properties. development project in Lockhart. We have a development partner for our BTR projects who is a homebuilder based in Austin, which we believe gives us an edge in identifying and building new projects. They are experts in developing residential neighborhoods—both in adding the horizontal infrastructure (streets, utilities, etc) and building the homes. It is our collective goal to build a portfolio of Build-To-Rent assets around Central Texas to help meet the housing needs of our growing city.
In the pursuit of that goal, we came across a piece of land that initially we thought would make for an ideal little BTR community. We knew we loved the area and the basis for the land. We quickly determined that the area was so nice that it would be better to build for-sale homes on the land. That isn’t what we typically do, and there wasn’t a business plan in our back pocket for that execution. But, we sat down with our partners and mapped out a strategy, a business plan, and, ultimately, an investment structure we believed in.
Four months later, we’ve closed on the project and it is off to a great start. So what did we learn?
1. We must give ourselves permission to try new things.
We are a Central Texas-focused Real Estate Investment Company. Historically that has meant acquiring multi-family assets and operating them (with a variety of business plans). More recently we have partnered on a couple of development projects—including the BTR project referenced above. What we had not done before was a land development project, which this latest closing represented.
When we first determined this site would make more sense as a for-sale project than a BTR asset, we had long discussions about whether to proceed. And then specifically HOW to proceed. What sort of investment structure was right for this project? What was our role going to be? How did we get comfortable with the execution?
At the end of the day, we worked through all these questions and wound up with an awesome project we’re excited about. We created an investment structure that offers investors a very high floor (a 17% Preferred Return) on a project that is expected to last 24-30 months, and we know the exit timing and price based on having a takedown contract in place with our builder.
The lesson for me in all this is to not be afraid of trying new things. When we find a unique investment opportunity in Central Texas, we need to flex our creative muscles and our network to fully explore it. We always talk about having conviction in our investments; when we find something we truly believe in, this project was a great reminder to follow that gut instinct and work to make it happen even when it represents something slightly new and different for Wildhorn.
2. Work with experts.
This isn’t a groundbreaking takeaway or something new for us. But this project was a great reminder that we a) have an incredible network of experts that surround us in Central Texas, and b) we can leverage their skill sets and expertise to get us up to speed and comfortable when we are looking at something new.
The most obvious expert here is our homebuilding partner. They have years and years of experience in developing neighborhoods and creating finished lots; they have a deep bench of team members and contractors they could rely on to inspect the work that had been done onsite, and estimate the costs to finish up the work. We wouldn’t even be looking at BTR development sites without them as part of our team.
Outside of them, we relied on a host of other friends and firms to digest this project. This project had been a failed development where we were buying it from the main investor who had stepped in and was ready to just get out; we estimated that about 80% of the work was already complete onsite. Streets had been paved, bridges were built. What we didn’t know was if any of the work had been done correctly, or to the requirements of the service providers. We enlisted the help of a civil engineering firm, a land use attorney and a title company to help us understand and work through the issues that were onsite. Without being surrounded by a team of experts, it is unlikely we’d have gotten comfortable moving forward.
3. Different Investment Structures Attract Different Investors.
As I mentioned above, we ended up creating a new and different investment structure for this project. As a different type of project than a multifamily acquisition, that makes sense. Different investment profiles carry different risks—and we always want to create a structure that protects and aligns our investors with the project. We believe we did that here.
What was fascinating, but again not revolutionary, were the many conversations we had with investors who were so excited about this project and the structure. Investors who have been reading all our materials for years and tracking our projects, but who had never before invested in a project, wound up investing in this deal. Even amongst a number of repeat investors, who appreciated the diversification and different strategies that this represented. It truly was a great reminder that different people like different types of projects, and it’s ok to present new offerings and structures.
4. Stretching Your Team is a Rewarding Experience.
If you’ve noticed a theme to this project, it’s that this represented something new for us. And we aren’t going to go into something new without doing a ton of homework, due diligence, and giving it an outsized amount of thought. We’re going to take everything we get from our trusted experts, and consume it all. Verify it. Ask questions. Get totally comfortable with it.
In that process, we are stretching ourselves—and our team. Watching our team dig into this project, accept new responsibilities, and go all-in on something new was probably the most rewarding aspect of this project for me personally. We grew and we got better as a team. And each person on our team got better as a result. They challenged themselves, and sometimes convention. They asked tough questions. And ultimately had fun in getting a new type of project complete. I’m so proud of how they collectively answered the bell to this idea.
With this closing behind us, we’re hard at work ensuring the business plan is executed correctly. And we’re actively on the hunt for our next multifamily acquisition. Or BTR development. Or land infrastructure. Or whatever else we find that we have conviction about in Central Texas.
Andrew Campbell is a native Austinite and Managing Partner at Wildhorn. He is a real estate entrepreneur who first broke into the business in 2008 as a passive investor. In 2010 he transitioned into active investing and management of a personal portfolio that grew to 76 units across Austin and San Antonio. He earned his stripes building and managing his personal portfolio before founding Wildhorn Capital and focusing on larger multifamily buildings. At Wildhorn, he is focused on Acquisitions and maintaining Investor Relations, utilizing his marketing and communications background to build long-term relationships.
