Real estate sponsors wear many hats and have diverse stakeholders, from tenants to retail investors and others in between. Sponsors search out deals, get them under contract, close the deal, renovate, and lease the properties to tenants. To arrange debt and equity financing, sponsors must also form relationships with lenders, banks, and equity providers such as family offices, private equity groups, and high-net-worth individuals.
Financing As A Necessary Evil
Many sponsors view financing as a necessary evil instead of an integral part of their brand. They often get into real estate because they appreciate the tangible nature of the industry, where they can envision physical spaces and transform buildings to add value. The finished product, a building that tenants enjoy, gives them a sense of purpose. However, disregarding the financing aspect is a mistake.
Investors As Customers
In the minds of real estate sponsors, the quality of the buildings they own is a source of pride, and they enjoy showcasing pictures of their properties to others. Their product is a space that adds value to people’s daily lives. However, they must recognize that their financiers, debt and equity providers, are clients or customers who expect a return on investment. The better the deal, the better the returns will be.
Three out of the last four years have shown that Americans prefer investing in real estate over other investment opportunities, such as the stock market. Real estate sponsors who can provide an investment solution to retail investors, who want to invest in real estate without the hassle, will have an advantage in attracting capital. These investors are just as much the sponsor’s customers as the tenants who rent the properties. The product may differ, but the customer-centric approach must be the same.
Real Estate: A Two-Sided Business
In many ways, real estate sponsorship is a two-sided business. Sponsors take money from investors to purchase and add value to a property and then rent it to tenants. The resulting income from tenants is returned to investors. If done well, everyone benefits:
The tenants are happy with the rental.
The investors are happy with the returns.
The sponsor earns fees and additional equity in the deal.
Repeat business and loyalty from investors are the results.
Gaining a Diverse Investor Base
Many investors, including non-accredited investors, have self-directed IRAs and single 401k accounts with hundreds of thousands of dollars to invest in private real estate deals. This is a massive untapped market for real estate sponsors to diversify their investor base. However, loyalty from these investors must be earned.
Building a Trusted Investment Brand
Attracting investors should be seen by sponsors as a crucial part of their business, on par with gaining tenants for their properties. Building a trusted brand among retail investors, including non-accredited investors, will give the sponsor a competitive advantage. Companies like Invown are here to help sponsors reach retail investors and earn their patronage.
In conclusion, real estate sponsors must recognize the importance of building relationships with investors and treating them as valued customers. Attracting a diverse investor base and building a trusted brand among retail investors will give the sponsor a competitive advantage.