It doesn’t take long after submerging yourself into the real estate syndication industry to realize there are a lot of General Partners. On the surface it might seem like they are all after the same thing - deals and money. Look a little closer and you discover that not all sponsors are created equal. 

Before you invest in a deal, it’s best to vet a sponsor to ensure their investment thesis lines up with your financial goals. It’s also important to screen them in order to make sure they align with your expectations of communication. Let’s take a look at some of the things to think about when vetting a syndication sponsor.

Do others know them? What do they say about them?

The syndication world is small and word travels fast. If you’ve been in this space for a length of time and have been networking then it’s likely people know you. If you have a good reputation or a bad one in the industry, people know it. So go to your local multifamily meetups and ask others if they’ve heard of the sponsor and see what type of reputation they have.

You could also ask the sponsor for a list of their investors and have calls with those investors to see what they think of the sponsor and to see how their experience has been working with them. Word of mouth is not always the only way to do vetting but it is a very powerful strategy to make a more informed decision about working with a sponsor.

Do they have a track record?

Does the sponsor you’re interested in working with have deals in their portfolio? Have they taken them full cycle? It’s important to find out how well those deals performed. Did they have any lessons learned?

Now even if the sponsor has not completed a deal yet, that doesn’t mean you shouldn’t work with them. But it would be a good idea to see who on their team has the experience. It’s even a good idea to dive deeper and find out about that experienced team so that you’re familiar with them and can do your homework on them as well. 

How do they communicate?

When you meet a sponsor that you vibe with, ask them if you can get on their mailing list. This is a good behind the scenes way to see how they communicate with their investors. If they say they are going to email monthly updates, do they do it? Some Sponsors will just email their database when they have a deal and go silent in between. This may be an indication as to how they will communicate with you when you invest into their deals. You want a sponsor who is going to consistently show up and is reliable. 

What do they look for in deals?

All deal sponsors look for different types of deals. You’ll want to find out what they look for so that you can make sure it’s a fit for you. Deal sponsors should be able to tell you the type of asset class, location, unit count, and strategy they are looking for. You wouldn’t want to get on the lists of operators who are looking for short term heavy repositioning if you want more of a stabilized, long term investment. Be sure to ask this question when you’re networking for the operators to work with.

Conclusion

There is a lot to consider when it comes to choosing a sponsor but it is always good to do your homework before investing with someone. It’s okay to take your time and choose operators that you feel comfortable with and that are a good fit for your long term goals.