If you have ever invested in a real estate deal as a limited partner, you gave your capital to a sponsor (also called the general partner or GP) and trusted them to deploy it well.
But do you know what their job actually is?
Here is what a good sponsor does:
1. Finds deals: sourcing, underwriting, and negotiating with a broker/seller to purchase a property.
2. Raises capital: structuring the deal and bringing in the right investors. Obtaining a loan for the property (we typically like to have 50-65% leverage on our assets).
3. Executes the business plan: improving the physical condition of the property, leasing, operations.
4. Manages the asset: tracking performance, managing vendors and tenants, watching the market.
5. Communicates with investors: reporting regularly, not just when things are going well. Quarterly reports are common.
6. Returns capital: managing the disposition or refinance to deliver returns.
That is the job. All of it.
Here is what to look for before you invest with a sponsor:
--> Green flags: track record across cycles, conservative underwriting, aligned fee structure, proactive communication, focused thesis.
--> Red flags: fees that are too high (DM me, I can send you what we see as market), projected returns that depend on aggressive exit assumptions, vague answers about past deals.
The deal matters. The sponsor matters more.
What is the first thing you look for when evaluating a sponsor?
Wednesday Real Estate 101: What does a real estate sponsor actually do?
