For many single-family and multifamily offices, there is a desire to invest directly into real estate opportunities rather than a fund or a managed account. The ability to do the proper due diligence for each family office varies based upon the internal resources and experience that the office has available. With the constant requests from real estate companies wanting a family office to invest with them, it is essential for the family office to be able to screen any opportunities efficiently before spending additional time.
Although there may be a few other items you’ll want to add to your list, the following are the initial points to check off when determining if it makes sense to continue the due diligence process. These are the same five items that real estate investment banking firms and institutions look at before investing or taking on any mandates from clients.
1. Sponsor Experience
The first area that needs to be considered is the joint venture partner’s experience. Does the sponsor have experience in similar types of deals, property types and geographic markets of the asset that the JV partner is asking for the family office to consider?
As the family office will be looking to its JV partner for expertise on the day-to-day operations of the real estate opportunity, members must have complete confidence in the JV partner. This includes confidence in their ability to not only manage the project during the good times but also understand what to do when things don’t turn out as projected or the market changes direction.
2. JV Partner’s Strength
Does the JV partner have a strong business balance sheet and does the principal have a strong personal balance sheet to complete the suggested project and to weather any storms? How many projects does the JV partner have in the works? Is the JV partner spreading themselves too thin or do they have the capacity to see each of the projects that the family office is involved in to fruition? The last thing the family office wants is to have its plan fail because the JV partner…