Over the course of the past 10+ years, there has been a prevalent shift slowly occurring within our industry that seems to be near its final stage with no reversal in sight…..the institutionalization of real estate. Unfortunately, this reality at times comes at the expense of the entrepreneurial developer/operator who historically made up the real estate landscape. This isn’t to say that small, local real estate companies aren’t and can’t still be successful, it just means they need to re-think the overall aptitude of their platform and make changes accordingly.
While most real estate sponsors are adept at identifying good investment opportunities, the challenges become significant thereafter. Do they have a strong internal balance sheet for co-investments and lender liquidity requirements? Do they have the larger, LP capital relationships upfront to be awarded the acquisition? Do they have the breadth of resources to not only effectively implement the business plan, but to attract the capital partners in the first place? Do they have institutional-quality asset management and reporting capabilities to build long-term trusted relationships with capital partners once projects are underway?
With a widening gap between capital provider requirements and traditional entrepreneur organizations, the burden falls on the sponsor to assess the weaknesses of their platform and to strategically fill those holes. Rather than “institutional” being a four letter word, sponsors who embrace and adapt to these changes are positioning themselves for greater market success.
By David Kidder, President and Managing Director