Effectively managing your Limited Partner (LP) relationships is the cornerstone of success in the realm of real estate investing. But as a General Partner (GP), you’re perpetually juggling calls, emails, cash flow, and meetings related to your rental properties, liaising with real estate agents, and dealing with tenant concerns.
In this fast-paced environment, finding time to update your investors on your progress, including the status of mortgage payments and property management strategies, can often be challenging. Unfortunately, not every real estate investor, particularly those just stepping into the dynamic real estate market, has the luxury of a dedicated investor relations team.
Luckily, we at Covercy Real Estate Investment have some insightful tips about why it’s so important to have great relationships with your LPs, your pivotal role in that relationship, and specific points to help you maintain and strengthen it.
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Why is a good investor relationship critical for your fund?
Building a solid investor relationship is critical for your fund’s success, particularly when it comes to long-term Commercial Real Estate (CRE) investing, a type of real estate that attracts many aspiring GPs and fund managers. While you may aspire to become as attractive as KKR or Blackstone in terms of reputation and stability, smaller GPs often encounter problems trying to forge new relationships and raise capital to buy a property or diversify their investment properties.
During the journey of real estate investing, which often involves different ways to invest in real estate, relationships between you and your LPs can (and should) last many years. This long-term connection persists even as roles and firms change, and you transition from a rookie real estate investor to an experienced landlord or property manager.
Therefore, it’s essential to treat these relationships as long-term commitments, finding ways to consistently harness and nurture your investors, particularly in an online real estate world. This strategy can be your key differentiator and a sign of a good investment.
When you start investing, the way you structure your regular LP updates and treat these network connections can significantly impact your reputation and future fundraising efforts. For instance, outlining your investment strategy clearly can help your LPs understand your vision better.
So, consider these connections as your long-lasting relationships, as they can support your standing in the competitive real estate market and your future efforts to secure capital.
Your role and responsibilities of a General Partner
As the general partner of a fund, your responsibilities stretch far and wide. You’ll raise and allocate investor capital, often on an online real estate platform designed to streamline the process. You’ll analyze potential deals, ponder ways to get the best returns, and invest in real estate without excessive risk.
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You’ll be held responsible for the outcomes, as you’ll be the one making the final investment decisions on where the fund’s resource pool will be dispersed, and when. These decisions are critical and have a significant impact on the ability of the fund to generate income.
Compensation comes in various forms, including management fees, carried interest, and capital distributed back from the fund’s deals. Although the ways to generate income are diverse, they all revolve around one central principle: nurturing your Limited Partner (LP) relationships. Essentially, your responsibilities are many, but all are geared towards maintaining the health of these relationships and the overall prosperity of the fund.
Here’s how you do it while perfecting your responsibilities.
How to build and manage relationships with your investors?
Set clear expectations early on
Being in sync with your investors, and making sure you’re on the same frequency or page, is paramount, especially when it comes to owning real estate or making a direct real estate investment.
It’ll help you avoid dealing with confused money looking to pool out too early from your real estate projects, and unwarranted bad reviews due to it. You’ll also need to make sure you clearly communicate your vision, investing methodology, scale, growth plans, and exit strategy. When it comes to direct real estate investment, clear communication can make a significant difference.
Setting these expectations early can save disappointment and frustration for both sides later on. It’s an essential step in maintaining healthy relationships and ensuring the successful execution of your real estate projects.
When an LP puts his money in your hands, he’s not just making a financial transaction or choosing an investment type, he’s making a personal finance decision that’s deeply tied to his faith in you. He’s investing in your fund, but he’s mainly investing in you, your character, vision, and ideas. It’s about more than just real estate values; it’s about you embodying the ways to make money in real estate he believes in.
As a GP, you are looking for strong LPs, the ones who understand your approach to the market and see the value in your strategies. Similarly, strong LPs will choose a strong GP. They’re not just selecting based on return rates, they’re also selecting based on who you are and what you stand for.
Nothing scares an LP more than a GP who’s constantly seeking direction and reassurance. In this world of real estate investing, where a conviction can mean the difference between success and failure, it’s crucial to exude confidence. Show conviction. Always. Let them see that you are as committed to their personal finance goals as they are.
Listen actively to concerns
Your investors want you to succeed, both because their money is on the line, but also because if they chose to work with you – they respect you. Show them respect back by actively listening to their concerns and by encouraging open, clear dialogue. This will help you learn about the risks they’re willing to take, and those they deem futile.
Strategize how you’ll add value
Many GPs can make good ROI for their LPs, but few can get great ROI and add extra value. And while every investor loves money, they value relationships more, as networking in real estate can win you deals. Your LPs know other LPs. If you go the extra mile for them, they’ll help you get your financing done, introduce you to their network – and by doing so, help you build your brand reputation organically.
Consider hiring a professional mediator.
Your LPs will come from diverse backgrounds. They’ll be from different countries and states, might hold different political views, and originate from different cultures. This might cause communication hurdles, and when things don’t go as planned, a professional can help. To maintain relationships, and avoid creating a bad name for yourself, avoid litigation against your LPs, even if things go south. Try hiring a mediator first, or an arbitrator as a last resort.
Communicate wins and challenges frequently.
In business, uncertainty creates hostility; hostility creates conflict; and conflicts result in delays, trouble, and losses. Communication is the most important factor in any relationship, especially in new business partnerships—where doubt is prevalent, and trust is hard to build.
But the truth is, most investors don’t want to know everything going on in your office. So, consolidate your update into a few relevant highlights and lowlights.
Highlights can include a few wins, like new partnerships, exciting deals or noteworthy new customers, recent major deals closed, or key leadership changes. Also, if poor portfolio performance or disappointing exits occur, put that in your lowlights report as well, as transparency is key. With your bad news, appearing strong and presenting alternate strategies is advised.
That said, investor reporting can differ from one company to another, but there’s one thing all LPs look for when hearing updates on their investments: KPI updates.
Present trackable information, like deals closed, ongoing, and initiated, alongside metrics about your portfolio of companies and their current valuations in a visually easy-to-understand manner. It should be presented professionally, but easy to understand.
Stay Connected On Social Media
The world has changed. In 2022, lots of influencing CEOs and VC money roam LinkedIn and Clubhouse. Social media is a prime way to keep in touch and build real, lasting relationships with potential investors.
Connect, comment, and collaborate with experts in your industry. Engage with their posts online and offer up your ideas on topics they’re writing about. Then, try taking those relationships offline and setting up lunch meetings and getting to know them on a personal level so they become more than a contact. It’s not going to change your network size overnight. This process takes time. But a foundation for amazing partnerships will be built if you show them you’re interested in their work and keen to establish a relationship.
It’s also a wonderful space to stand for your ideals, voice your ideas, and create an organic following that will naturally brand you to the right prospects. Build a legacy of sorts leveraging the collective memory pool of the internet. If you don’t have time to do so yourself, you can always hire a virtual assistant/social media marketer/copywriter who can attune to your tone and do it for you. Make sure you’re staying in touch with your followers, gathering new ones, and staying up to date with this new reality of quarterly social trends.
Executing this list will make you stand out as a GP, help you maintain relationships, and ease your fundraising process. We covered why investor relations are important, and your role in the process, and delved into specific ways how to stand out while doing so.
Investing in commercial real estate can be risky. It is not a fit for everyone. While we aim to provide general information to help you better understand CRE investments, we are neither providing any investment advice nor advising for or against any particular investment.