Henry Thoreau said it best: “Our life is frittered away by detail…simplify, simplify.” Ackman-Ziff managing director Phil Lisciandra offers insights regarding how joint venture equity investors’ “back to basics” approach influences their view of new value-add investment opportunities and how they structure mutually beneficial partnerships with operating partners. Ackman-Ziff is currently advising leading owners and developers across the US with equity financing mandates totaling more than $1.25B for all asset classes using this approach.

Rely on fundamental value-add initiatives at the property level that generate absolute profit while shying away from financial engineering tactics.

Establish embedded competitive advantages such as a favorable purchase price relative to a historical trend line, as well as pre-packaged proprietary value-add initiatives.

Emphasize business plan experience. Investors are more comfortable accepting greater risk to achieve target returns, but to do so they desire operating partners with a relevant track record.

Use of an equity multiple test. To focus operating partners on generating absolute profit, more joint venture equity investors are adding an equity multiple test to the typical IRR-based promote structure.

Phil adds that both tests are interrelated but it is their application to a particular set of investment cash flows that requires an appreciation of their nuances. As a result, a sophisticated evaluation of a combined IRR and equity multiple promote structure will ensure that the operating partner is properly incentivized and fairly rewarded while the equity investor achieves investment return targets. For more info on our education partner, Ackman-Ziff, click here.