Navigating the world of real estate syndication can feel like exploring uncharted territory. But fear not, as I will show you what to look for when you first evaluate a sponsor’s website.
Basic Information About the Sponsor
To start, a sponsor’s website should serve as your compass, providing essential information to help guide your investment decisions. Your first stop is to gather foundational information about the sponsor, specifically their history and credibility.
Company background
Typically labeled as the “About Us” section, this is where sponsors usually outline their mission, vision, and history. Pay attention to how long they’ve been in business. A longer track record often indicates stability and experience. If the company is relatively new, it might lack the practical know-how and connections that come with years of operation.
Team members and their experience
Investigate the team behind the sponsor. Look for detailed bios that highlight their experience in real estate. Experienced professionals with a solid background in the industry are preferable over a team that lacks significant experience. Check for relevant certifications and affiliations that add to their credibility.
Don’t forget to also look for how long they have worked together. While individual experience is good, teams that have worked together for years are much more valuable, as they have already experienced and mitigated through the inevitable highs and lows that come with investing.
Contact information
A transparent sponsor will make it easy to contact them. Ensure phone numbers, email addresses, and office locations are readily available. A live chat feature, while not necessary, is still a good sign that the sponsorship team is willing to provide immediate support.
Scope of Operations
Understanding the scope of the sponsor’s operations gives you insight into their capacity and market presence.
Assets under management
A reputable sponsor will prominently display their assets under management (AUM). A higher AUM usually, but not always, suggests the sponsor has a significant amount of capital and experience managing large sums of money, which can indicate stability and expertise.
Number of properties or units
Examine the number of properties or units under the sponsor’s management. A larger portfolio often, but not always, signifies a well-established sponsor with efficient processes in place. Look for detailed information on their portfolio to get a sense of operational expertise.
Geographic focus
Knowing where the sponsor operates can reveal their market knowledge and strategy. Sponsors with a broad geographic focus may offer diversified risk, while those concentrating on specific areas might demonstrate deep local expertise.
Investment Strategy and Track Record
Delve into the sponsor’s investment strategy and past performance to understand their approach and effectiveness.
Types of properties they invest in
Identify the types of properties the sponsor targets, such as multifamily apartments, self-storage, or industrial warehouses. This helps you determine if their investment strategy aligns with your goals, as each asset type has its strengths and weaknesses.
Investment philosophy
Look for information about the sponsor’s investment philosophy. Are they conservative, seeking steady returns, or aggressive, chasing higher yields with more risk? Understanding their risk tolerance and strategic approach is crucial.
Investment offerings
Similar to investment philosophy, investment offerings will provide insight on whether the sponsor’s philosophy matches their investment offerings. In other words, if they are more conservative in their approach, they may offer more turnkey-type cash-flowing opportunities. Alternatively, if they are more opportunistic, they may offer more wealth-building opportunities, like new construction or heavy value-add.
Limited information on returns
Due to securities laws, sponsors can’t advertise specific investment returns on their websites. Be cautious of any sponsor making grandiose promises about returns, as this can be a red flag. Reputable sponsors will save detailed financial discussions for private conversations.
Case Studies and Portfolio Highlights
Reviewing case studies and portfolio highlights can provide concrete examples of the sponsor’s capabilities and successes. Similar to returns information, it is not common to find this on a sponsor website, but if you do, here is what you should look for.
Importance of case studies
Case studies offer insights into the sponsor’s past projects, detailing the strategies used, challenges faced, and results achieved. Look for comprehensive case studies that cover timelines, problem-solving approaches, and actual outcomes.
Visual representations
High-quality photos and videos of properties indicate a professional, detail-oriented sponsor. Investing in quality visuals often reflects their meticulousness in managing properties.
Video slide decks vs. traditional PDF presentations
Sponsors may offer information through video slide decks or traditional PDFs. Videos can be more engaging and provide a sense of the sponsor’s personality and professionalism. PDFs are useful for detailed information that you can review at your own pace.
Legal Compliance (What You Can’t Learn from a Sponsor’s Website)
Securities laws restrict certain disclosures on public websites. Here’s what sponsors legally can’t share online.
Explanation of securities laws limitations
Securities laws ensure fair practices in the investment world. Depending on the investment offering, sponsors may not be able to publicly advertise specific investment opportunities or detailed financial projections on their websites.
To access these details, you typically need to engage with the sponsor directly, often by signing up for their newsletter or contacting them for a private discussion.
Red Flags to Watch Out For
As you evaluate a sponsor’s website, be aware of potential red flags.
Exaggerated credibility
While experience is good, be careful of sponsors who exaggerate their experience by “buying experience.” Sponsors do this by utilizing a previous firm’s tenure as their own when speaking on a newly formed organization’s experience. Another way this is displayed is by combining experience from partners to say the investment firm has the sum of the partners’ experience without disclosing that it is from previous experience.
A better, more transparent way experience should be disclosed is by highlighting that the experience is combined, but that the partners have worked together for only the time they have partnered.
Lack of transparency
Transparency on all items is key. If you struggle to find basic information or the website is full of vague statements, consider it a warning sign.
Outdated information/poorly managed website
An outdated or poorly managed website typically reflects on the sponsor’s professionalism.
Unrealistic promises
Be wary of sponsors making unrealistic promises about returns. If it sounds too good to be true, it probably is. Legitimate sponsors will provide a balanced view of potential risks and rewards.
Final Thoughts
A real estate syndication sponsor’s website can provide a wealth of information if you know what to look for. From basic company details and team experience to investment strategy and past successes, there’s much to be learned.
However, always remember: A website is just the first step. Engage with the sponsor, ask questions, and conduct thorough due diligence to make informed investment decisions.
By approaching this process with a critical eye and keen sense of inquiry, you can confidently navigate the world of real estate syndication and find sponsors who are truly worth your investment. Happy investing!