What is a Sponsor in Real Estate?

There are several moving pieces in the process of purchasing a real estate property, and in order for a purchase to be successful, those pieces have to function in sync with each other.

The person or group of people responsible for making those pieces move seamlessly is the sponsor.

A sponsor in real estate is a person or group that is in charge of finding, acquiring, and managing the property on behalf of the partnership.

That’s a simple definition of the things that they do. To better understand the job description of a sponsor, I’ll discuss:

• What sponsors are,
• And why sponsors are important.

Let’s start with the first one, what is a sponsor?

What are Sponsors?

In real estate, sponsors are essentially the backbone of the deal. They’re the reason investors get the chance to invest in an apartment building or mobile home park.

Sponsors are the entrepreneur, or partners (also known as general partners,) who will be operating the deal.

Think of them as the manager for a sports team. You may be asking, “What on earth does the manager of a sports team have to do with a sponsor?”

The team manager takes care of all the equipment, keeps the players hydrated, and does all the tasks that help keep the team functioning. They’re the motor that keeps the team running.

Similarly, sponsors are the ones who keep the deal going. They find the deal, raise the capital, put the financing in place, and hire a management company.

They do all the work that keeps the deal alive before, during, and after the purchase.

Before I move on, there is a term commonly used when referring to a sponsor. That term is Co-sponsor. Co-sponsors are not the same as a sponsor.

When someone says “co-sponsor,” it can refer to people who also cosign on the loan. They are not necessarily operating partners, but they do help out in the deal. One way they can help operating partners is getting the loan by signing on the loan.

Co-sponsors are similar to sponsors in the way that co-sponsors also have relatively high net worth and liquidity.

So a sponsor is like the team manager. They carry out a bunch of different duties and are a deciding factor in the success of a deal. That’s what they do. They’re like the engine of a car. But why is that important?

Why Are Sponsors Important?

Why are sponsors important? The short version is because they’re the ones that make everything happen.

If the deal were a sports team, the sponsor is Nike. They endorse the deal and have their name all over every aspect of it.

Without a sponsor present in your deals, who’s going to find the property? Hire the manager? Provide funding in the transaction?

Going back to the team manager comparison, if there were no manager, how would the team survive? There would be no Gatorade, clean practice jerseys, or working equipment.

Sure, the team would eventually start assigning different tasks to players to pick up the slack. But if you were to tell passive investors they have to hire their own property management company, they wouldn’t be too happy.

Sponsors are important because they don’t only find the deal, but they’re also responsible for purchasing it. On top of that, they have to hire a management company to manage the whole thing.

Sponsors are just one of the many aspects of investing in real estate properties. There’s a lot more to learn about how syndication works, what makes a deal worth investing in, and where you should start.

All that seems a bit daunting, especially if you’re new to the world of real estate investing. If you want to take the first step to understanding the ins and outs of real estate, check out ALL my resources for FREE at this link: https://themichaelblank.com/vault