How To Vet The Track Record of Multifamily Sponsors?

Most investors are aware that you need to vet the sponsorship team of an investment project and not just the property itself. However, many are confused by how they can do this in an accurate and systematic manner. Today, we will discuss three ways that you can confidently vet the general partners for your next passive investment.

Have they increased NOI on the current deals per their business plan?

The first thing that most sponsorship teams point to when asked about their track record is the results of their full cycle deals. While this is important information (and in fact is the next question on our list), we do not believe it is the most important. Rather, ask the sponsorship team about their track record of increasing the NOI on their projects as projected. Many teams have had good results on their full cycle deals over the past several years due to compressing cap rates in ideal market conditions. However, in more challenging markets the only way to increase a property's value is to force appreciation through pushing the NOI.

Have the done any full cycle deals and what were the results?

While we believe success in increasing NOI is the most important item, full cycle deals are another way to assess the capabilities of a sponsorship team. Full cycle deals not only prove that the sponsors have returned money to their investors as promised but also speak to their overall experience level since it typically takes several years to complete the first full cycle deal.

Ask for references from their current investors

This might be the most useful piece of information on the list. In the same way that we ask for references for so many other things in our life (restaurants, contractors, doctors, etc.), asking for references is a solid way to get some feedback based on real world experience with the sponsorship team. One pro tip is to ask a sponsor for a few references and then after a week has gone by ask for a second set of references. That way, you can speak with more typical investors in their deals and not just their few raving fans.