We can all agree that investing in commercial real estate is somewhat similar to a relationship business. Even though investors first check the investment returns, yet the essential part of any syndication is the sponsor. Therefore, it is significant to analyze the sponsor from various angles to ensure that your need gets fulfilled in the syndicator’s strategy.
It must be understood that all deals, irrespective of industry, asset or energy, revolve around three main components.
Even though many would feel that these three components are unimportant, it is unarguably true that the sponsor/indicator plays an important role. Mainly because, the sponsor is making all the management decisions and is also responsible for executing the business plan. Therefore, let us look into the framework for vetting a commercial real estate sponsor.
Background and team
- Investors have access to the common information from the website of the sponsor. These include information on acquisition criteria, investment philosophy, as well as portfolios of their previous projects.
- First impressions often say a lot, so watch out whether the syndicator interacts professionally and continuously across the board meetings, online and offline presence, and via other communications.
- Look at their investment strategy and the way it is presented.
- Check whether they are targeting a particular niche where they have experience, knowledge or competitive advantage.
- Assess the team to see whether it is structured and look into the role of the partner in the teams. It is wise to prefer a team that has cross-functional abilities yet clearly defined roles.
- It should be noted that one individual shouldn’t be wearing lots of hats and spreading themselves too thin.
- Don’t forget to check if their key partners have their bios listed with their experience. Also, verify whether at least one partner or more have the experience of one market cycle.
- Know the key partners’ tenure because some are amazing managers with many years of experience working with new sponsors.
- It is also advised to check the syndication team’s online and social media presence because reputation matters a lot in this case.
Track record and investing strategy
- A simple way to build your trust is to find out the experience that the sponsor has. So look for any track record that you can review. Look for the number of deals they have closed and the number of deals that they have dropped. The other way to know about the particulars of the deal they have done is by reviewing their portfolio. You will find this information in the investment offering or /and on their website.
- Look for consistency of the project where they have invested in.
In addition to the discussed facts, you should be keen on finding out whether the sponsor has time to answer your questions and educate you. Also, you must be able to talk to the sponsor directly. Another important point is that the sponsor must be ethical in being conservative in their numbers and assumptions about business plans and investment performance projections. To get more understanding of commercial real estate sponsors, contact Wealth BCI for the best guidance on this subject.