Choosing a Sponsor: Look at Background & Track Record
These days at BAM, my primary focus is on big-picture ideas, company strategy, acquisitions, and equity finance. We've built Barratt Asset Management into a best-in-class property management company, and recently received Inc 5000 recognition. After all the years of growing and scaling BAM and “paying tuition (my fancy way of saying “making mistakes!)” along the way by learning on deals, I wanted to share what it takes to find the right sponsor if you’re a passive investor.
Do Your Homework
I always advise that people do their research when it comes to sponsors and deals. When you're considering an investment sponsor, do due diligence. I advise that you:
Ask for references: Email references and set up a time to call them. Ask some open-ended questions and find out what they have to say about the sponsor.
Look at the team: Is the sponsor a one-man show? If there's a team, what do they bring to the table?
“Stalk” the sponsor online: Do some basic internet searches. If you're not finding much about the sponsor, that could be a red flag.
Research the Asset & Property Management Teams
You should absolutely research the asset management and property management teams. Be aware that some sponsors have an in-house, vertically-integrated property management team and some hire an outside team to take care of the asset. With third-party property management, you may end up with a great group but you can also lose some control. The important thing is to research whoever is taking care of the day-to-day management of the property. I tell people to look online, but don't be too disappointed if you see negative reviews. It's hard to please every resident and still turn a profit! What you should pay attention to is reviews that talk about the investor relationship, follow up, execution, timely reporting. A negative review on these subject areas could be a red flag. Also look at the asset management team, the group that “manages the managers,” finance, budgets, and investor relations.
Check the Sponsor's Track Record & Ask About Mistakes
When you're looking at a potential sponsor, you want to see their track record, specifically in the asset class you're considering. If they bounce around from luxury to workforce housing and don't stick with one class for long, I'd be concerned. Plenty of sponsors are interested in value-add (renovating projects to increase value and cash flow); in that case, you need to look for experience. Have they done it before and if so, how well? Did they learn from any mistakes? Finally, don't be afraid to ask about mistakes. Any sponsor should be able to tell you what they've learned from past mistakes. A sponsor who feels like they can't lose is a very dangerous person to invest with.