Who's Running the Deal?
What is a sponsor?
In real estate investing, the sponsor is the company or individual who identifies, acquires, manages, and eventually sells the property. They're responsible for executing the business plan and delivering returns to investors.
Think of the sponsor as the CEO of your investment. They make the day-to-day decisions that ultimately determine whether your investment succeeds or fails.
Why past performance matters
A sponsor's track record is one of the most important factors to consider before investing. Key metrics to evaluate include:
- Default rates: How many of their past deals have failed to meet projections or lost investor capital?
- Average returns: What IRR and equity multiples have they achieved on past deals?
- Time to exit: Do they typically hold properties for the projected timeframe or longer?
Example: Sponsor Track Record
| Deal | Type | Projected IRR | Actual IRR | Hold Period |
|---|---|---|---|---|
| Parkview Apartments | Multifamily | 15% | 17.2% | 5 years |
| Westside Office | Office | 12% | 10.5% | 7 years |
| Riverfront Retail | Retail | 14% | 15.8% | 4 years |
What to look for in a sponsor
Experience across market cycles
Sponsors who have successfully navigated both up and down markets demonstrate resilience and adaptability. Look for sponsors who have been in business for at least 10 years, which means they've likely experienced the 2008 financial crisis or other market downturns.
Number of past deals and realized exits
A sponsor with multiple completed (or "realized") deals has demonstrated the ability to execute full investment cycles. Be cautious of sponsors with many acquisitions but few or no exits—they haven't proven they can successfully sell properties and return capital to investors.
Reputation and reviews
Research what other investors say about the sponsor. Look for reviews, testimonials, and any news articles or legal issues that might raise concerns. Platforms like Pool can help aggregate this information.
Downloadable Checklist
5 Questions to Ask About Any Sponsor:
- How many years have they been in business?
- How many deals have they completed from acquisition to exit?
- What is their average actual vs. projected return?
- Have they experienced any defaults or capital losses?
- Do they co-invest their own capital in deals?
Key Takeaway
"A good sponsor makes the difference between potential and performance."