How Have Real Estate Sponsors Changed Their Behaviors During COVID?

Updated: Mar 7, 2021

Real estate syndicators have a certain way of working. Each one has his or her unique approach to putting their deals together, working with investors, and making sure that their properties are well managed and, most importantly, profitable. Under normal circumstances, their approach does not change. Unfortunately, we’re no longer working under “normal” circumstances. Once COVID struck, sponsors began changing their behavior and adjusting the way they operate.

The behavioral changes are totally understandable, as the COVID pandemic has created numerous challenges that syndicators could never have anticipated. The more syndicators I talk to, the more I’m hearing about how they’re now thinking and operating differently than they did pre-COVID, and that includes our own operation as well. So, here’s a look at how we’re now managing our assets and how we’ve changed our thinking and behaviors in response to the COVID pandemic’s impact on our operation.

Conserving Cash

Conserving cash and building up cash reserves has always been an objective in our day-to-day operation, but now it has become a focal point of our business. Before COVID we were putting our energy into renovating units, pushing income and, as an aside, accumulating reserves. Now, accumulating reserves is a focus, and the reasoning is clear: as a syndicator you want to make sure you have enough cash reserves available when a downturn happens, and it’s of particular importance during COVID. You want to make sure that you have enough cash to pay your lender, your utility bills, payroll, and other ongoing expenses.

If there aren’t sufficient amounts of cash reserve, the syndicator will need to come up with a plan to ensure there’s enough cash to pay expenses. Or, if something unexpected happens, the syndicator will be able to tap into those reserves. One question is, “How much is enough for reserves? Is it half-a-million dollars, a million dollars, or a different amount?” There’s no clear-cut answer, but there needs to be a focus on having enough in reserves to pay expenses. This is not a time to have problems paying your lender.