In the context of real estate partnerships, a sponsor is an individual or company in charge of finding, acquiring, and managing the real estate property on behalf of the partnership. In the context of a Delaware Statutory Trust (DST), the sponsor is the entity that has created the DST and solicited investors.
The Sponsor of a DST will typically act as Signatory Trustee for the DST as well as maintain control over the Master Tenant.
When it comes to real estate funds, the sponsor puts the passive in passive real estate investing. The sponsor is why real estate investors do not have to worry about managing properties or obtaining financing.
Sponsors can put together their deals and promote them, or they may work with a platform/marketplace that seeks out sponsors/deals. The difference between going direct to a sponsor vs. a platform is that the latter provides some independent verification.
Platforms perform various due diligence on their sponsors before deciding to list any of their deals. Platforms and sponsors may also form a relationship that is based on the sponsor’s track record. When going to a sponsor directly, there is more heavy lifting for the investor since they’ll need to do all of the necessary due diligence.
In addition to the responsibilities mentioned above, the sponsor will arrange financing for a deal. Specifically, with DSTs, there is only one borrower since DST investors do not secure any financing for the deal. This makes putting together financing much simpler than a tenants-in-common deal structure, where individual investors must obtain or be approved for financing.
Sponsors are also called GPs or general partners. Besides direct investors in the deal, the sponsor may have other investors involved in the GP side of the deal. Sponsors put in a small amount of their capital for each deal. To continue putting together more deals, the sponsor may need to raise capital for each deal’s GP. This is where additional GP investors come in — these investors supplement the sponsor’s capital so that a deal can move forward.
The sponsor will see the deal through from start to finish. This includes creating the deal and terminating it through a sale or dissolution (i.e., bankruptcy).
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