Investors in multifamily properties are experiencing dramatically increased deal flow. Some investors select their deals based upon the sponsorship of an operator. How can an investor select which deals to analyze? Before analyzing the traditional fundamentals of the deal, the investor should first underwrite the sponsor. But what sponsorship characteristics should the investor focus upon?

1. INTEGRITY.  Does the operator know what it means to be a “partner”? Check with the sponsor’s past investors as to whether the operator was honest, communicative, and fair.  These characteristics are more important than whether each deal was highly profitable.

2. RELEVANT EXPERIENCE.   Years in business, number of properties/units owned and managed, and the academic background and affiliations of the sponsor are nice to know but not as important as RELEVANT experience – has the sponsor had experience in investing in and managing the product type, the class, size, age, style and geographic location of the asset? Track record is only important as a part of the underwriting process.

3. TECHNICAL SKILLS.  Indications of the technical skills of the operator include:

• Specialties of the various employees of the operator who will be assigned to the account
• Professional designations or degrees, i.e., CPM, CAM, CAMT, B.A. Accounting
• Management software and up-to-date applications
• Documented procedural and operational practices

4. DEPTH.  Determine whether critical personnel have been cross-trained for redundancy. Are there people with the some of the same skills both on-site and in back office management who can fill in if necessary? “Borrowing” staff from someone else’s assets raises issues of integrity.

5. RESPONSIVENESS.   Regular and timely financial statements should have sufficient detail, clarity, comparative and explanatory information so that an investor can determine how the asset is performing. Investors expect there to be peaks and valleys in operations. It is important that they hear about them from the operator frequently and with clarity. Investors are frequently under the gun for reports to their investors and lenders and need a fast response.

Ward A. Katz, CPM, CEO of M-fishency, www.m-fishency.com
Blog: www.multifamilypropertyevaluation.com