How to Attract Institutional Capital through the Development of Operating Guidelines

A version of this article was previously published in October 2018 by  NAIOP Development Magazine.

Emerging investment managers, such as smaller developer-operators building institutional capital sources—also known as sharpshooters—have been on a years-long surge in the US growth economy. To help ensure continued success in attracting investment capital, now is the time for firms to solidify their operating and reporting systems within a set of operating guidelines.


An article published by Prequin in January 2018 reported that real-estate firms raised $109 billion in 2017. Even though this represents a decrease from 2016 fundraising levels, it still puts 2017 as the fifth consecutive year in which fundraising topped $100 billion.

Without taking the time to draft or implement high-quality reporting and guidelines, many sharpshooters that have built institutional relationships during this economic upswing will likely be adversely affected when a downturn hits or new executives take over at their institutional investors. Companies with solid systems already in place will fare significantly better.

Companies that are using or planning to use institutional capital can benefit from reviewing their internal systems for best practices and planning for what-if property or market changes and downturns. For many firms, this involves implementing clear operating guidelines.

Operating Guidelines

Operating guidelines aren’t only for a CEO or CFO’s benefit during strategy and client reporting. They also serve a firm's marketing team, who understand using these guidelines can be a selling point for gaining new capital sources.

Institutional investors also generally want institutional-grade operating and reporting systems from their partners. While some investors will overlook weaknesses in this area if an investment manager has a long track record of superior performance, evaluating systems and instituting best practices can improve an already good relationship—helping investment managers avoid future problems.

Accordingly, the majority of successful real-estate investment firms employ a consistent behind-the-scenes tool: operating guidelines. These are a set of working documents comprising a firm’s policies, practices, and procedures and incorporating operational and investment strategies.

Operating guidelines serve as a basic building block of success for any real-estate operating firm—especially for an early-stage firm aiming to become a major investor-partner or a registered investment adviser. While some companies succeed without them, those companies are taking a risk because potential partners and investment sources rely heavily on operating guidelines to assess a firm and move forward with capital decisions.

For companies already using operating guidelines, it may be time to revise and update these documents due to reporting changes as well as other institutional investment, finance, and accounting changes.

What to Include

Once a company chooses which reporting standards and approaches it wants to use, it’s important to codify them in its operating guidelines. These can include the following:

  • A statement of objectives or an overview of process points and timing that specifies how each process is handled—providing checks and balances as well as a system that can be referred to in the event of staff changes or other disruptions
  • Quarterly or mid-year forecasting
  • Asset-management reporting practices
  • Valuation processes for properties and investments—especially if a company is operating under net asset value reporting
  • Development of a valuation committee with assigned roles and responsibilities
  • Disposition or acquisition processes, including steps for solicited and unsolicited transactions


Timing is essential when assessing what steps need to be taken to meet financial reporting deadlines. Listed below are some externalities that may be overlooked, however a firm needs to carefully map out the process:

  • External information gathering
  • Vendor set-up and work flow
  • Internal review and feedback of their work

This process could include internal and external reporting that involves specific actions, such as valuations, appraisals, disposition planning, and asset repositioning.

Accounting and Reporting Trends

Transparency, consistency, and accuracy are essential when creating, revisiting, or updating a company’s operating guidelines. As companies strive to create stronger operating and reporting guidelines, certain trends emerge, as shown below.

Investment Company Guidance

Entities that qualify as investment companies that are reporting at fair value, are becoming more standard as investment partners and their investors are pressed to report values that are more transparent.

Quarterly Valuations

Many companies continue to increase internal/external valuation frequency to a quarterly versus annual basis. Most larger companies are also alternating the external appraisal firm they use for annual valuations every three years.


The following examples illustrate various ways sharpshooters have used operating guidelines.

Residential Real Estate Development Firm with Private-Equity Partners

A real estate firm specializes in master-planned community and land development, including for-rent and for-sale housing as well as multifamily projects and condo conversions.

Although the firm had successfully launched two funds already, it wanted to create a more diversified fund with the potential to attract pension-fund partners for the first time. The effort to create operating guidelines focused on supporting institutional fundraising and establishing timelines driven by financial reporting deadlines for the following reasons:

  • Engaging third-party appraisers
  • Reviewing appraisals
  • Finalizing reports

Commercial Real Estate Firm Using Private Equity

An owner of industrial, flex, and office properties had successfully created two private funds. Prior to launching a third fund, the owner realized she needed to boost processes because of inefficiencies around financial reporting—including internal valuation processes and internal appraisal reviews. 

New operating guidelines served to incorporate commonly accepted best practices for a fair value reporting framework as well as document internal valuations.

Medical Office Working with a Private-Equity Firm

A company was launching its first fund—in acquisitions and redevelopment—and realized it needed to update and expand its internal systems. The effort to develop operating guidelines focused on several objectives, including the need to hire additional staff and provide them with the tools to assist with fundraising. The company also implemented new employee training and hiring in acquisition and asset management functions, which incorporated fair value exercises, such as appraisal reviews.

Whichever road a company takes in adopting and implementing operating guidelines, doing so can produce valuable insight into improving current operations, establishing a strategy for growth, and attracting new capital.

We’re Here to Help

For more information regarding attracting investment capital and solidifying operating and reporting systems, contact your Moss Adams professional.

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