Real estate investments are a bit like finding a life partner.
The expectations of capital seekers and investors are often far apart – and the disappointment is great when you have to move on after a hopeful commitment without having achieved anything. Along with the importance of mezzanine capital, there is also a growing desire for digitization and standardization of the placement process. Interested parties can now register on the new digital platform Mezzalite. Matching starts in spring.
Exciting insights came to light after the soft launch
In the current investment environment with very low interest rates, the allocation of mezzanine capital is increasingly in demand, especially among family offices. But the search for a partner is full of traps, time-consuming detours and often ends unsuccessfully. Rapid property development is essential from the perspective of the investor and his financier.
Painful experiences can be avoided if a standardized approach contributes to the analysis of whether the partners are “on the same wavelength”, and whether there is a good chance of establishing a professional relationship as a result. “Applied to real estate developers and investors looking for capital, this means that you can avoid many disappointments in advance with a well-digitized process,” says Georg Stampfl, Managing Director of Mezzalite GmbH.
During the registration phase, digital expert Stampfl and his colleagues carried out an analysis of around 100 investors and capital seekers on their new digital platform Mezzalite and found out which main reasons make it difficult to find a partner in the mezzanine capital sector.
Hurdle 1: The match has so far been a matter of chance
Getting to know investors is not easy for real estate developers. So far, according to the study, it has mainly been third-party contacts, often word of mouth, that have brought the two parties together. Media and search engines also play a role in getting to know each other. The bottom line is that searching and finding is unstructured, and matching is a matter of chance. In the end, 50 percent of the cases fail, according to the Mezzalite study, for example because the project does not fit the investment profile and / or the price expectations diverge too much.
Hurdle 2: The search is too time-consuming
Finding investors and borrowers together often takes more time than necessary. This is particularly bitter if, for example, some investors do not really listen to the capital seekers. Months of negotiations follow, only to find out in the end that the project would not have suited the investor right from the start. Some people looking for capital, on the other hand, shy away from the effort of looking for capital for smaller real estate projects, although these could also be of interest to investors.
Hurdle 3: Fear of competition makes checking seriousness more difficult
Investors expect project developers to show their track record in the first step and disclose the people involved, e.g. their own construction workers on board, external partners, banks, securities, etc. The borrower, on the other hand, acts cautiously when releasing data, after all he is faced with tough competition in which he has to protect his market position.
Hurdle 4: Complexity of the process and lack of comparability
Investors are often faced with those looking for capital who do not have a clear idea of how to raise capital or what the capital providers are. The financier, on the other hand, has no way of comparing different conditions. In addition, he is confronted with a wide variety of requirements, for example from what amount a family office invests, what expectations it has in terms of security and what project presentation it would like.
For Mezzalite one thing is certain, says Georg Stampfl, co-founder of Mezzalite GmbH: the automation of the preselection and a standardization of the process for the allocation of mezzanine capital is the most important step towards the goal. The financing partners can – almost like when looking for a partner – handle almost everything digitally, from “dating” to “matching” and “monitoring” to feedback. This has enormous potential to simplify mezzanine capital transactions and reduce transaction costs. This more efficient “partner search” process lays the foundation for a trusting cooperation. After the digital match, the personal negotiations and discussions that are essential for the success of the real estate project or investment are pending.
As with the partner exchanges mentioned at the beginning, the decisive question is what quality are those who register on such a platform. In addition, the quantity is crucial – will there be enough potential partners? Ideally, quantity and quality go hand in hand.