Key Takeaways
- Several factors can guide commercial real estate general partners in determining when to engage a fund administrator, including operational complexity, growth objectives, investor expectations, and time constraints.
- Engaging a fund administration provider early in the investment entity’s lifecycle can yield substantial benefits, especially related to early-stage marketing and risk mitigation.
- An experienced fund administrator can provide expertise, best practices, and alleviate the time burden associated with fund and syndication operations.
In the world of commercial real estate (CRE), managing an investment firm, commercial real estate fund, or syndication can be a complex endeavor. As a general partner (GP), navigating a web of financial transactions, investor relationships, and capital providers requires a tremendous time commitment and a broad skillset. One strategic decision that GPs often contemplate is when to enlist the support of a fund administrator to provide expertise and alleviate the time burden. This is a complicated decision that hinges on various factors, but in our experience, clients tend to focus on a few key points.
Key Considerations for Engaging a Fund Administrator
While there isn’t a one-size-fits-all answer to the question of timing, several factors can guide GPs in determining when to engage a fund administrator:
Operational Complexity
As a commercial real estate investment firm grows, so does the complexity of its operations. Many of our clients succeeded in growing their business to the point where managing the portfolio and the back office operations became impractical. For GPs who are managing a growing commercial real estate portfolio or find themselves navigating intricate financial structures, it may be time to offload administrative tasks to a specialized provider.
Scale and Growth Trajectory
We have worked with plenty of commercial real estate funds and syndication groups that started out raising smaller amounts from limited partners (LPs). Many of these GPs had ambitions of scaling the business, and they realized the value of partnering with a fund administration provider to ensure operations were managed according to best practices. As time has progressed and as success has taken hold, these clients have come to appreciate the operational practices that we put in place to allow for seamless growth.
Investor Expectations
In today’s environment, equity providers are placing capital with multiple vehicles across private equity asset classes. At the same time, equity investors are expecting greater transparency, accuracy, and efficiency in fund management. Access to real-time performance metrics and the timely issuance of communications, tax documents, and distributions has become table stakes for many investors. By enlisting the support of a fund administrator, GPs can meet investor expectations, build trust and satisfaction, thereby attracting and retaining capital.
Time and Resource Constraints
Managing administrative tasks in-house can be time-consuming and resource-intensive, and every general partner should take stock of competing responsibilities to determine where they are adding value and where a third-party provider can be more effective. By outsourcing operational responsibilities to a proficient fund administrator, GPs can focus their efforts on the things that typically drive business growth, such as formulating investment strategy and building relationships with capital providers.
Benefits of Early Engagement
While some GPs may hesitate to engage a fund administrator due to perceived costs, early engagement can yield substantial benefits.
Early-Stage Marketing
Many first-time general partners struggle with fundraising, and we have helped many GPs manage fundraising campaigns and marketing initiatives. Overseeing email, social media, and newsletter campaigns is time consuming and requires experience to choose the right tools and craft compelling messaging. Understandably, most GPs do not have the graphic design background necessary to build polished, professional marketing collateral. Similarly, the set up and management of a CRM database can be very time intensive.
Risk Mitigation
Unfortunately, we have seen all types of commercial real estate investment vehicles – blind pool funds, open-end funds, closed-end funds, and syndications – burdened by misguided decisions made early in the vehicle’s lifecycle. The mistakes often relate to accounting processes, marketing messaging, and investor portal setup. General partners, especially first-time fundraisers, can mitigate these risks by consulting with an experienced fund administrator before proceeding with decisions that could have long-lasting consequences.
Final Thoughts on When to Hire a Fund Administrator
In the dynamic landscape of commercial real estate investing, the decision to engage a fund administrator is a strategic one. While the timing may vary depending on individual circumstances, early adoption offers significant advantages in terms of efficiency, risk mitigation, and investor relations. By leveraging the expertise of a seasoned fund administrator, commercial real estate general partners can navigate complexities with confidence, unlocking new opportunities for growth and success.
Lexcraft Advisors is a fund administration provider that serves middle market real estate investment funds and syndications, typically with equity under management between $15 million and $100 million. Our team takes pride in providing general partners with reliable fund administration solutions often reserved for large, global investment firms. To learn more about our services, schedule a complimentary meeting with one of our Managing Partners.