When it comes down to choosing your real estate investment sponsor, there’s no better advice than from an expert in the field with years of experience and plenty of time in the trenches. Today we look at what our own Ivan Barratt, BAM founder and CEO, has to say about vetting a sponsor by looking at background and experience in this issue of the BAM blog…
Ivan himself is a multifamily owner and sydicator who has raised nearly $30 million in equity since 2015. He’s also grown BAM (Barratt Asset Management) to a best-in-class management company. Just recently, BAM also received the prestigious Inc. 5000 designation which includes many national companies and house-hold names across a diverse industry spectrum. These days, Ivan spends the majority of his time on company strategy, acquisitions, and equity finance. He’s uniquely placed to offer an invaluable perspective on what any prospective investor should look for in a sponsor and the right questions to ask.
Research the Sponsor
Now isn’t the time to forego doing your homework. When you’re considering an investment sponsor, be sure to do your own due diligence. Ask for references and then check them out. Talk to the references and ask open-ended questions to find out what they have to say about the potential sponsor. Look at the sponsor’s team and see what they bring to the table, i.e., is it experience and a ton of talent or is the sponsor running a “one-man show” without a team involved? This is also one time that “stalking” is advisable: online stalking that is. Ivan recommends doing some basic online searches about your sponsor. He notes that not finding much background information can be a red flag.
Research the Asset and the Property Management Teams
Ivan strongly recommends researching both the property management team and the asset management team. He notes that some sponsors have an in-house, vertically-integrated property management team and others hire third-party property management groups. Ivan mentions you can lose some control with a third-party group handling day-to-day oversight of the property; while there can be quality property management with either route, you have to research whatever team is managing the property. Don’t be too discouraged to see negative online reviews, as many of these may come from disgruntled residents and you simply cannot make everyone happy while turning a profit. On the other hand, pay attention to the content of any negative reviews; some warning signs are reviews that mention long delays in maintenance, high turnover, and no return calls. When it comes to the asset management team Ivan recommends looking at the team who “manages the managers.” This team manages managers, finance, budgets, and investor relations – so be sure to look at this team as well.
Check the Track Record & Ask About Mistakes
Ivan points out that you need to see a strong track record in the asset class of the deal you’re considering. When a sponsor bounces from one asset class to another, e.g., from luxury housing to student housing to workforce housing, this is concerning. Many sponsors are interested in value-add, which is renovating projects with a goal to increase value and cash flow. Look at their experience: have they done it previously and have they done it successfully? Did they learn from any mistakes? One vital question to ask any potential sponsor is about his or her mistakes. Any sponsor should be able to tell you what s/he has learned along the way from mistakes made in the past. Ivan cautions that a sponsor who feels invincible or like they can’t lose is a very dangerous person to invest with.
Want more tips on multifamily real estate investing? Visit ivanbarratteducation.com