The Sponsors That Make Sense for Programmatic Capital Programs

Programmatic capital has a lot of advantages for sponsors. Instead of cultivating new sources for each deal, sponsors can rely on a pool of money from a single investor and focus on real estate operations.

But what sponsors are ideal fits for a programmatic program? Peter Houghton, managing director of Dekel Capital, thinks they work best for certain types of companies.

“It’s that middle ground,” Houghton says. “You’re not doing the high-net-worth syndicates anymore. You’re trying to move up so that you have more predictability. The goal is that you want predictability of availability to capital.”

Programmatic capital may represent an opportunity for a couple of different types of companies. One is a firm that at one time had a big, commingled fund. Now, maybe that company has trouble raising a fund because of consolidation in the industry or because they took some hits due performance in the late 2000s.

“When you have a gatekeeper consultant, who’s basically running the numbers on you and you don’t pass muster, you’re probably not going to be a fund manager anymore,” Houghton says.

Another type of company that might be ripe for a programmatic platform is one that is outgrowing its high-net-worth investors. “For whatever reason, they’re getting tired of managing 300 to 500 investors,” Houghton says. “Maybe they had some liquidity challenges with those investors.”

It’s possible that crowdsourcing could have also disrupted those investment relationships. “Maybe those investors aren’t going through traditional channels, and maybe those companies went through a crowdsourcing channel and found mixed results with that,” Houghton says.

A company considering programmatic capital is probably investing $500 million to $1 billion a year across different product types.

“What you’re trying to do is create deep, long-term relationships,” Houghton says. “I found a lot of the high-net-worth relationships are very superficial and not repeatable.”

Programmatic capital can provide investors with an extension of their teams. After The Global Financial Crisis, Houghton says an entire category of investors wanted their partners to feel like an extension of their in-house operations and give them a local presence in the markets in which they choose to operate.

“What you’re really doing is creating this very tight relationship with the investors, serving as the right hand to their internal capabilities,” Houghton says. “Often, this type of investor is very well versed in real estate and will have a lot of value to bring to you in terms of lender relationships, product knowledge and best practices.”

This type of investor is also going to want input. The sponsor needs to listen.

“You need to accept that this is a partnership,” Houghton says. “They’re not just giving you money, and then you talk to them again when the property is sold. So entering into it as a partnership is extremely important.”