What Is a Real Estate Investment Asset Manager? (Plus, 5 Critical Factors for Evaluating One)

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Imagine a pilot is flying a plane with a faulty navigation system. He wouldn’t know for sure if the plane is heading in the right direction, how fast he is flying, or if the plane is in danger of crashing.

In many ways, this is what investing in real estate without an excellent manager is like.

While real estate is a great way for investors to diversify their portfolios, some investors may not understand how important it is to invest with a strong real estate manager.

A real estate manager, also known as a sponsor, owns or develops commercial property in which people invest. The job of an asset manager in real estate is to acquire or develop commercial properties, manage these properties efficiently and cost-effectively, and determine when to hold onto an asset and when to sell it—all with the goal of generating returns for their investors.

When people invest in real estate, they are basically giving the sponsor their money and trusting them to use it wisely. In this sense, a reliable manager is as essential to real estate investment as a trustworthy navigation system is to a pilot. When done right, asset managers’ services can help investors profit from real estate investments. When done poorly, they can lead to missing the mark and falling short of wealth-building goals.

Because asset managers play such an important role in real estate investments, vetting them properly before investing your hard-earned money with one is crucial.

5 Critical Factors to Consider When Evaluating a Real Estate Asset Manager

1. Experience level

Few customers would choose to be a passenger on a pilot’s first flight. Similarly, wise investors avoid investing with inexperienced real estate asset managers.

Seasoned asset managers who have navigated commercial properties successfully through the economy’s ups and downs are more likely to continue that success no matter where we are in the economic cycle. What’s more, investors can leverage their sponsor’s expertise to scale up the number and size of their investments and increase their opportunities to grow wealth.

Look for investment platforms that present experienced asset managers who have sponsored many profitable commercial real estate deals.

2. Expertise in the property type in which they’re investing

Real estate investment covers a wide variety of properties: office buildings, industrial warehouses, apartment communities, retail stores, malls, restaurants, and many more. Each category is affected by different variables, which means the way assets in each category are managed varies, as well.

For example, e-commerce has created many challenges for mall owners, including how to entice customers who have grown used to shopping online for goods to visit their shopping centers. A sponsor who specializes in owning and operating malls knows that providing experiences like outdoor yoga classes or escape rooms will drive in business.

Investors who seek out asset managers with concentrated expertise in the property type in which they are investing can increase their likelihood for higher returns and minimize their risk.

3. Understanding of the market

Real estate is a very local industry. Just as different types of properties are influenced by a variety of factors, so are properties in different geographic markets.

For example, Houston’s economy is largely driven by the oil and gas industry, New York by the financial markets, and Miami by tourism. When these drivers are doing well, so does the real estate in those markets.

Sponsors that focus their investments in a specific geographic market develop a deep understanding of how these drivers influence real estate. They know where and how to invest capital to generate returns in these markets, and they know which properties to avoid.

Choose sponsors with a track record of success in a particular region who can steer investor capital toward the best properties in that region and away from potentially lesser-performing investments.

4. Working in the best interest of investors

Some asset managers are primarily concerned about generating profits for their company rather than delivering returns to their investors. They institute policies and make decisions based on what will benefit their business the most—not necessarily what is best for their investors.

On the other hand, many asset managers are interested in more than just closing the deal and collecting fees. They understand that investors are central to their success, and their operating procedures reflect this understanding.

When evaluating real estate asset managers, look for those whose policies put investors first in terms of the riskiness of the deal and the way profits are distributed. The goal is to choose a sponsor that demonstrates they are making good decisions for their investors and for the property—not just for their company.

5. Character

 There’s a peace of mind that comes with investing money with people and companies that display good character. Honesty, integrity, and transparency matter in both personal and business dealings, and real estate asset managers are no exception.

Sponsors whose investors praise their character are a good bet for other investors who are evaluating real estate asset managers. So are managers that openly provide requested information about the properties they are sponsoring.

Choosing an asset manager that is true to their word, is open, and shows integrity starts investors off on the right foot in their real estate investments.

The Bottom Line

Asset management can make or break a real estate investment. Evaluating sponsors on their level of experience, expertise in a specific type of real estate and geographic market, history of working in the best interest of investors, and overall character sets the stage for a long and profitable real estate investment relationship.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.