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Any of you syndicate deals?
 

Nobama88's picture
RE
(King Kong, 1,676
 
Points)
 on 7/20/12 at 1:00am
syndicate deals.jpg

I am looking to get into syndicating real estate deals. Do any of you currently do this?

I would be curious to get some of your input and advice on starting to syndicate deals
.
How do you typically structure your partnership and fee (% acquisition cost, % of profit for management)? How do you finance most your deals (cash or bank loan)? What are your typical requirements from investors (minimum cash to invest)? How did you get into syndicating deals? What do most investors tend to want to see out of you, what are their objections and issues? etc.

Thanks

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prospie's picture

I feel like this is similar

(King Kong, 1,678
 
Points)
 on 7/19/12 at 7:02pm

I feel like this is similar to going over to the Private Equity forum and asking, "Has anyone here ever bought a company? I'd like to organize some investors and buy a company."

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Nobama88's picture

Yeah, it's not really

RE
(King Kong, 1,676
 
Points)
 on 7/19/12 at 7:18pm

Yeah, it's not really anything like that. There are a thousand threads on PE and starting your own shop.

There are zero here.

I know how to find deals. I have people that would be willing to invest. I know the structure tends to be a % of the acquisition cost (3 or 4%) or a flat fee, 1% of gross for a management fee, and a split in equity.

I wanted to hear someone elses experience doing this, what structure they found to be best, and where they may have gone really wrong or right while setting investors up or in properties they bought.

Thanks for the input though.

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Relinquis's picture

at the first firm I worked

RE
(Neanderthal, 2,186
 
Points)
 on 7/19/12 at 9:32pm

at the first firm I worked for we used to syndicate a lot of the equity in most of our deals to LPs/co-investors. we'd underwrite the entire equity and try to syndicate up to 85% of the equity before closing and hold whatever we didn't syndicate within 6 months as our own exposure.

it was generally a GP/LP structure, so the co-investors/LPs were all passive and had the same rights (very few rights, committed for 5 years with 2 one year extensions at our option). We generally didn't want more than 15 co-investors in a single deal. The assets were held in bankruptcy remote SPVs, with 75-85% LTV loan packages (usually including mezzanine). We charged a 1% of equity management fee and a 20% carried interest. We also charged a placement fee of 2-3% of equity syndicated depending on the amount invested and what we could get away with. All lawyer fees, due diligence costs, etc... were charged to the SPV. I don't think you could get away with as many fees and having as many investors in a single deal nowadays as very few firms want to use their balance sheets in this manner. without the balance sheet to secure the deals, you need one (or max 2) key investors that are willing to be there at the term sheet / LOI (Letter of Intent) stage (extremely difficult to do). They'll want to come in at par.

Some large investment banks used to do bridge equity syndications on real estate as a business line during the boom years. Lehman Brothers was big in this on both sides of the Atlantic and used their balance sheet to warehouse the deals.

relinquis... Killing the GMAT this December; Over/Under set at: 725 GMATs.

MrRealEstate's picture

Nobama88: I have people that

 
Points)
 on 7/19/12 at 11:04pm
Nobama88:

I have people that would be willing to invest.

I think this is a very good question. But just curious - how have you convinced, or do you expect to convince people to invest in a deal without knowing how to structure one? I may be assuming a lot here, but I would think that if you had some deal experience (even secondhand), you would know various structures and would have a preference that you have seen work. Generally this experience is what gives investors confidence in investing with you. Either you are one heck of a salesperson or I'm not seeing the whole picture (likely).

Also - IMO this is where lawyers come in handy.

RE_Banker's picture

My question is how big are

PE
(Gorilla, 513
 
Points)
 on 7/20/12 at 8:24am

My question is how big are the deals and how sophisticated are the investors?

Relinquis's picture

RE_Banker: My question is how

RE
(Neanderthal, 2,186
 
Points)
 on 7/20/12 at 10:53am
RE_Banker:

My question is how big are the deals and how sophisticated are the investors?

Also, do you have an asset/property management platform/team or will you be outsourcing that function to a third party?

relinquis... Killing the GMAT this December; Over/Under set at: 725 GMATs.

WSOusername's picture

Heard good things about this.

 
Points)
 on 7/20/12 at 11:18am

Heard good things about this. http://www.amazon.com/Principles-Estate-Syndicatio...

GBS

inspiredanalyst's picture

usually depends on the cap

(Chimp, 3
 
Points)
 on 7/20/12 at 11:27am

usually depends on the cap structure and investment strategy of the syndicator. type of properties like commercial, residential, condos, apartments and how many units in each are vital to answering your question.
ive seen deals in the pipeline ranging from 10 million in equity to anywhere around 50 million. investors can come in many forms, from big banks like jpmorgan, wells fargo, citicorp, mass mutual. i almost never see individual investors, those are usually the GPs. they are also wrapped in funds where a corporate fund can have as many as 15 different investors.

Relinquis's picture

Deals sizes can range from a

RE
(Neanderthal, 2,186
 
Points)
 on 7/20/12 at 12:51pm

Deals sizes can range from a $5mm strip mall in the middle of nowhere or Lehman Brother's $2.3+ billion bridge equity on Archstone-Smith.

These days anything more than $150-200MM in equity will probably end up being more like a club deal than an equity syndication as there aren't many firms that can bridge / warehouse those amounts and have certainty that they can place the equity with investors or have the ability to keep the exposure.

Investors are anything from grannies investing their retirement savings to family offices and real estate arms of pension funds/insurance companies. In the boom years some hedge fund took similar positions, but they generaly stay out of that space given the illiquidity and lack of rights/security. They're much more active on the debt side of things.

relinquis... Killing the GMAT this December; Over/Under set at: 725 GMATs.

Nobama88's picture

Oh no no. I am not looking

RE
(King Kong, 1,676
 
Points)
 on 7/20/12 at 1:49pm

Oh no no. I am not looking at a huge fund here or anything. This is more to supplement my current work.

I have a handful of investors who are willing to invest $50K - $500K on a property at any given time with me syndicating. The investors range from veterans of real estate to a couple twenty somethings with too much money on their hands. Property price range would probably only be up to $15MM-$20MM at most. Most of the deals I find would be in apartments and multi-tenant commercial. I would be collecting fees, as well as investing my own money into some of these.

Property management, CPA, Bookkeeper are in place already.

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nhlfan's picture

If you've got those things in

ER
(Monkey, 52
 
Points)
 on 7/20/12 at 2:13pm

If you've got those things in place, you really shouldn't be asking on this forum for help. This just isn't your best source for information.

There are different ways to structure fees. Here's an example from a deal I worked on a while back:

2.5, 5, or 10% acquisition fee, depending on whether the property is developed, partially developed, or undeveloped.

25% of operating income above 8% return on investor equity

50% of gain on disposal of property

5% of any expenditures on upgrades, renovations, etc.

Relinquis's picture

Cool. So basically you'll be

RE
(Neanderthal, 2,186
 
Points)
 on 7/20/12 at 9:17pm

Cool. So basically you'll be the asset manager and will source the assets for a few people you know. I've seen many deals like this.

A GP/LP structure seems the most appropriate as you'll be able to have it as a stand alone venture (bankruptcy remote), will define the roles (i.e. Vis a vis property management, sale & refinance decisions etc), rights (how long the commitment is for, decision making re sale & refinance) and should be tax transparent (consult your lawyer). Make sure your company as a GP (or managing member) is an LLC or something and that understand under what conditions you can be personallu liable for things like guarantees under loans, etc. Your lawyer will clarify that.

In terms of practicalities of getting a deal done, it can get as simple or complicated as you like. You'll want to have your equity lined up as early as possible (always takes longer than you think.) Your biggest challenge will be getting your equity to commit to backing your offer. Without a cornerstone investor most sellers won't give you exclusivity for due diligence, etc...

The least important detail at this stage is the level of fees you charge.

We can talk in general terms all you want, but without specific questions the advise won't be useful.

relinquis... Killing the GMAT this December; Over/Under set at: 725 GMATs.

ste384kee's picture

There are a thousand threads

 
Points)
 on 7/21/12 at 3:16pm

There are a thousand threads on PE and starting your own shop. You should try one,

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