Guide to GP/Operator Due Diligence

Many folks tout the passive nature of limited partnership investing, and to an extent this is true. It’s part of the reason we started investing as well. Though, to do it consistently well, you have to invest with the right people. Doing thorough due diligence on the operator of the deal should be the number one priority of any investment you’re considering, and I wouldn’t call that process passive.

Our entire business model depends on choosing great operators to invest with and bringing their respective deals to our investor network. The below article should give some high level insight into how we vet our operating partners and provide you with a starting point in your discussions with other operators. Our vetting process has evolved significantly over the years, becoming more comprehensive and nuanced with each new partnership.

Of course, if you’d like to see the select deals we bring to our investor network (typically only 2-4 per year, chosen with extreme care), you can sign up here. We are also happy to discuss our due diligence process in greater depth than what we can provide here. If we put everything we did on here, no one would ever finish the article. 

To identify solid operators, the first crucial step is to network with a variety of individuals and firms. You can do this through various avenues:

1. Conferences and Industry Events

2. Online Platforms and Communities.

3. Referrals from Trusted Sources- You can even ask us. 

You will want to get on their mailing list, and start looking at deals. See what type of content they put out. Is it useful, educational, and helpful? Or is it salesy? See how their return profiles stack up against one another, and what kind of deals they do.

Once you've begun to build a network, the next critical phase is conducting thorough due diligence. This goes far beyond simply reviewing offering documents and requires a deep dive into the operator's background, experience, and capabilities. 

Here are key areas to focus on:

1. Track Record and Experience: Scrutinize the operator's past performance. Analyze the success (and failures) of their previous projects, paying close attention to factors like returns generated, timelines met, and how they navigated challenges. Inquire about their experience in the specific asset class and market they are proposing for the current deal. Don't just look at the headline numbers; delve into the details of each project. It’s okay, and normal, for investment shops to have a bad deal or 2. Not every deal is a homerun, but look into how it was handled. 

Not only should you look at deals the investment firm has sold, but also how the current portfolio is doing. We could write an entire article about how timelines, NOI growth vs market rent growth, and luck vs. skill play into a track record. Dissect it! 

2. Team and Expertise: Evaluate the strength and depth of the operator's team. Understand the roles and responsibilities of key individuals and their relevant expertise.

3. Financial Stability and Resources: Investigate the operator's financial health and access to capital. Do they have the resources to weather potential economic downturns or unforeseen challenges during the project lifecycle? A financially sound operator is more likely to see the project through to completion successfully.

4. References and Reputation: Speak with previous investors and partners of the operator. Inquire about their experiences, both positive and negative. A strong reputation built on integrity and transparency is invaluable. Don't hesitate to ask tough questions and seek detailed feedback.

This is only a high level outlook on some of the due diligence we do here at Shining Rock Equity. Our business model is centered around doing due diligence on operators and their respective deals. Only if it meets our criteria do we bring it to our investor network. After it’s all said and done, only 1-4 opportunities make it to our investors each year. 

Want to learn more?

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