Getting on a sponsor's update list fourteen months before investing is worth the wait
Some sponsors will add a prospective investor to their quarterly update list without any investment at all. Others will not, and some cannot, depending on how their offerings are structured. It is always worth asking, because the pattern below is a useful one to study. Take fourteen months of quarterly reports on three deals the reader has no money in, plus two new offerings that come around inside that window. Quarters one and two almost always read like marketing. Occupancy up, renovations on schedule, photographs of a clubhouse. That is exactly the point at which someone is most likely to wire 50k into the first offering that appears, because the reports look excellent and there is nothing to measure them against. Quarter three is where the list earns its keep. Say one of the three deals has a loan maturing and the refinance does not happen at the terms that were modeled. A sponsor worth backing says so on page one, in the first paragraph, with the actual new quoted terms and a note that distributions on that deal are suspended for at least two quarters while they hold cash. They also state the plan if the second lender falls through. Quarters four and five test whether they keep reporting on that same deal every time, including the quarter where the answer is still no resolution. When distributions resume in quarter six at a lower number, the test is whether they write down in plain terms that it is lower and why. Meanwhile the offering that looked so good back in month two is often the instructive one. It can be perfectly sound and still have its business plan extended, and an investor with no reporting history has no way to judge whether extensions are normal for that operator. What justifies committing in month fifteen rather than month two is a full cycle of watching someone tell investors something they did not want to hear. The numbers on the later offering need not be better. The hard part is patience, because fourteen months of reading other people's deal reports while doing nothing feels foolish for most of a year. The habit worth keeping is asking for the update list first and the offering second.
