Hello everyone!!
Today, I want to discuss the importance of the Sponsor Underwriting Process. Part I.
Introduction
Sponsor underwriting is a critical aspect of real estate and investment analysis. It involves evaluating a sponsor's capabilities, track record, and financial stability to ensure they can effectively manage and execute a project. This post will explore the sponsor underwriting process, utilizing a structured and practical approach for assessing potential sponsors.
Sponsor Screening Process
The sponsor screening process can be divided into several key steps, each crucial for a thorough evaluation. The following steps outline a practical approach to sponsor underwriting:
Sourcing of the Sponsor
Identify potential sponsors through various channels such as websites, referrals, and industry events (There are about 6,000 Funds and Sponsors in the USA). This step involves casting a wide net to gather a diverse pool of potential sponsors. Online platforms, industry conferences, and networking events are excellent sources for discovering new sponsors. Utilizing referrals from trusted industry contacts can also provide reliable leads. The goal is to compile a comprehensive list of candidates who meet the initial criteria for further evaluation.
Analysis of Public Information
Review publicly available information, including the sponsor’s website, marketing materials, and any available financial reports. This step focuses on gathering and analyzing information that is readily accessible. Sponsors often provide extensive website information, including their mission, vision, portfolio, and testimonials. Analyzing marketing materials can offer insights into their branding and market positioning. Financial reports, if available, provide a snapshot of their financial health. This initial analysis helps filter out sponsors who do not meet basic qualifications.
Initial Contact and Information Request
Contact the sponsor for additional information and clarification on their projects, team, and track record. Establishing direct contact with the sponsor is crucial for obtaining detailed and specific information. This step involves sending formal information requests and setting up meetings or calls to discuss the sponsor's capabilities. Ask targeted questions about their experience, project management processes, and critical team members. This interaction also allows one to gauge the sponsor's communication skills and professionalism.
10 Questions for the First Call |
1) What's the Sponsor's investment thesis? |
2) What's the track record? When did they start it? When did Partners start the RE business? Years of experience? Tenure together? |
3) Internal vs External (In-house service teams vs Outsourcing: AM, PM, IR, Back office, Operations) |
4) Does the Sponsor prefer a single market? A group of markets? |
5) Internal vs External (In-house service teams vs Outsourcing: AM, PM, IR, Back office, Operations) |
6) How did you handle difficult situations in business? Unforeseen problems? |
7) What makes you unique as a Sponsor? |
8) What's the Strategy for the next 5 years? (capital raising plans, including new funds, strategies or business lines) |
9) What's your pipeline for the next 3-12 months? |
10) Please provide an example of the Quarterly Report, Financial Model (underwriting), and the current deck of the Firm. |
