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Skills and Processes Run Acquisitions
April 12, 2022
The acquisition process is the lifeblood of any real estate or private equity business. Maintaining a robust acquisition pipeline provides imperative market knowledge, identifies superior opportunities which aids capital raising efforts, and allows a business to scale faster. In this article, I will share my thoughts about the facets of building a successful acquisition pipeline.
The first step is to have a clearly defined acquisition target, or a “buy box”, so you can narrow down the universe of opportunities into a manageable set of opportunities driven by your investment thesis, criteria, and ability to execute. When just starting out, I think it is important to take your time to develop your buy box with a refined thesis and business plan, and then stick to it for at least six months. Problems can occur when deals outside of your criteria come your way and can act as more of a distraction than an opportunity.
The next and most important step is sourcing. You can’t evaluate and purchase property without seeing deals, lots of deals. We source the vast majority of our deal flow through brokers – we truly live and die by brokers. Brokers have tremendous influence over the market, so it is well worth it to make sure you are building solid relationships with all brokers that are selling deals that fit in your buy box. The best ways to build relationships are through consistent communication, quick deal feedback, track record of closing deals, and face-to-face contact.
To ensure that your pipeline is being optimally managed, it is vital to keep track of key performance indicators (KPIs). We report on KPIs weekly and focus on the number of deals underwritten, number of LOIs, and number of property tours. There are other KPIs you can keep track of so I would find what works best for your team. Another way to make sure your team stays organized and that no deals slip through the cracks is to keep a list of all the brokers (and other deal sources) that you need to be in contact with on a regular basis. Most brokers and investors recommend a 2–4-week communication cadence. Some of the best deals have very quick timelines so you never know what opportunity might come up from a routine phone call.
To keep your pipeline organized, it is best to have a tool such as Asana, Monday, Notion, or Airtable (or even Excel) to keep track of all the deals across the various stages in your pipeline. For example, you may have some deals which were just sent to you and your team has yet to underwrite while you may also have deals that you have been working on for months. By staying organized, it is easier to jump on 0pportunities such as when a deal comes back around after having LOI’d it many months prior. This leads me to my next point which is the pipeline meeting.
Pipeline calls or meetings are a great way to share updates and stay on top of your deal flow as a team. We hold weekly pipeline meetings where we go over the above mentioned KPIs as well as discuss deals active in our pipeline as well as the acquisition priorities for the week such as getting in touch with certain brokers, touring deals, or performing due diligence.
Another meeting which is great to have on a weekly basis is an investment committee (IC) meeting. ICs are a great way to take deeper dives into the merits of deals and make high level decisions about business plans, pricing, and contract terms. It is rare to have everyone’s attention at the same time but this is arguably the best way to fully evaluate a deal from multiple perspectives. Starting in 2022, Lone Star Capital will begin to hold formal, weekly investment committee meetings. An agenda and investment memo(s) will be circulated prior to the meeting to ensure everyone is up to speed on the deal(s) we will be discussing. Even though our meetings will be weekly, we place great importance on speed, so we will continue to make decisions very quickly about deals that have short fuses in order to not miss out on unique opportunities.