4. You have recently been hired to start up a real estate venture capital progra

Question

4. You have recently been hired to start up a real estate venture capital program for a pension fund advisor. During your employment interview you were told that the advisor who has been in business for over 20 years has traditionally acquired fully leased investments for its clients. Over the years, the fund has returned a leveraged IRR of approximately 10 to 12%. The reason that you have been hired is because the clients have told their advisor that they would like to have some real estate investments that can achieve leveraged IRRs between 20 and 25%, while at the same time, being able to make take some risk to achieve this and realize that to achieve these returns, the investments will be valued added deals or real estate development projects. Because the value added and development business requires a level of experience not common to people working for pension fund advisors, the board of directors of the advisory company made the decision that these types of projects will have to be done

Explanation / Answer

To bring up the IRR from 15% to 20 or 25% is not easy. It needs a lot of strategical decisions to be made, risk to be taken, lot of efforts needs to undergo with this. Even though the clients are ready to take risk and add further more investment, the same investment needs to be allocated appropriately to ensure funds are utilized appropriately. There are some measure which the company will need to take to add a joint venture with third party and also bring efficiency inside the company to see the result of IRR above 20%.

In the Board meeting the first important thing is to analyse what are the loop holes in the organization and needs to be addressed at the earliest to move further with the bigger project.

Identify the group of people with sound knowledge who can really bring in some difference inside the company to be involved in the project

A proper research to be done to coalition with the third party who can contribute to the success of the project with their expertise. This needs to be done wisely and a proper Market research is required

Upon all these a proper project charter needs to be developed with the details of who is the project lead and the team members, Deadlines for each department to be mentioned, Person responsible for each department to be mentioned and also the charter needs to be updated frequently with the status of the project and discussed on weekly basis to ensure there is no delay and no issues. Even if there are issues. It needs to be addressed by the panel members immediately

The additional funds which are supplied needs to be invested wisely in consideration with requirement

There needs to be a separate team who are only responsible for managing the funds and maintaining the Accounts to ensure the cash outflow for the project

A Board meeting needs to be scheduled every week to discuss the status of the program and help the team in need with the expert advice. This will reduce a lot of issues, delays and miss-understanding

The above said points are really necessary to make any project successful and also bring in efficiency in the project in order to see the enhancement in returns.

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