Home > News > Definition > What is a sponsor in real estate and how the promote works?
Before moving on to know how sponsor promotes work, it is essential to know what a sponsor means in real estate. When considering partnerships in real estate, a sponsor can be defined as a company or individual that is in charge of managing all aspects of the real estate property of the partnership. The sponsor is responsible for finding a relevant property, acquiring it and conducting all those activities that help in enhancing the value of the property. For this reason, the sponsor gets a higher share of profits or returns from the deal.
The Sponsor Promote
An essential term in defining a sponsor in the private equity deal is the ‘promote’. This can be considered as the share of the profit that goes into the favor or the sponsor over and above the predetermined return. It can also be considered as the “carried interest”.
How the Sponsor Promote works?
In a real estate deal a sponsor invests his own capital along with the equity co-investors. The returns up to a certain limit are equally divided among the partners including the sponsor. However, the returns above the preferred return can be taken by the sponsor. This money that is paid to the sponsor over and above his/her contributed capital is the Promote.
What does the Sponsor do, to get the Promote?
It is natural to think about what makes the sponsor so special in a real estate deal that makes him earn the Promote. There is no denying the fact that despite being an equity partnership, the sponsor earns more than the investors. What are the things that make a sponsor take more of the share?
The investors rely on the sponsor for many things like the following:
- Identify, find and source various assets
- Discover and underwrite the hidden value
- Track, negotiate and get deals for the partnership
- Develop the plans for the business
- Negotiate on the sale and purchase agreements
- Get secure financing
- Close the deals
- Manage the assets
- Find and lease property to new tenants
- Renew the existing leases with tenants
- Manage the expenditures of the projects
- Dispose the assets and deliver the returns on investment
What makes the sponsor the “deal captain” in a real estate project is evident from this list. The entire work is handled by the sponsor. The investors simply put in their money while the sponsor puts in his money as well as his efforts. This is the reason; he gets a greater share of the revenue and profits earned.
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