Having only sourced equity from single-source LP's, I'd like to hear from those of you who have had success in raising capital from retail investors. What's been working for you and how has the changing market affected your ability to raise capital?
I'd like to tap into these investors with the long-term strategy of creating a fund. I'm in the very early stages, but my plan is to work all the popular marketing angles (blogging, podcasts, social media marketing). I've heard other of other sponsors having a lot of success with podcasting, but I've also heard from others that this is quickly losing its effectiveness. In the words of one of the most successful podcasters I've met, "every jabroni thinks he can start a podcast now and be successful."
So I'd love to hear what's been working with you and if you could share your capital raising progression story that would be interesting to know as well.
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Every jabroni thinks he can be a syndicator now and be successful.
Considering all the syndicators who are in trouble, or allegedly in trouble, I'm curious to see if there's much runway there given cap & interest rates. On the other hand, Rise keeps buying up vintage in suburban markets, so it seems like is still out there
Trust me, I'm in agreement with you. The market for these investors has slimmed down significantly due to deals going south and new acquisitions being unappealing on a risk-return basis, but I don't think the market will ever go away. It's not like these deals will suddenly be exclusive to institutional groups.
I know it's probably the most difficult environment today to be chasing capital from the retail investor space, but it's also an opportunity to build relationships so that when things do clear you're well-equipped to make those acquisitions.
yeah for sure. I meant to say how much syndicator runway there is at the moment, as I don't see how syndication somehow disappears... especially when the next bull cycle happens or when there's pretty accessible equity (whenever that is)
What's the difference between a syndicator and any private developer raising money?
Are all private developers who try to put up 5-15% of equity and get friends and family to backfill a syndicator? Are larger developers that get checks from institutional LPs who raise money from HNW individuals syndicators? Or is it more raising from sub $1mm NW crowd and directly targeting them and offering terrible deals where they put in sub 5% of equity and want absurd fees that make them a syndicator?
Everyone on this site hates on syndicators- 99% of all shops start off as 'syndicators' raising money deal by deal. Access to retail capital is easier than ever, and if you are smart and leverage tech, getting in front of accredited investors isn't hard. The hard part is making every cog in the machine turn at the same time, find a deal (actually a good one), tie it up, put up earnest money, raise capital, qualify for a loan (tricky), close on the deal --- all within the closing period on your PSA or you risk losing your deposit.
This. Nothing wrong with being a syndicator. Too be fair, an experienced sponsor can't just walk into the office of CALPERS and get a $50m check. You have to start somewhere. Getting capital is not easy even if you have a killer deal.
Thanks, this is helpful since syndicators have now been synonymous with scammers and people who put up little equity for crazy fees. I know many older syndicators that started in the 80s who are very smart and wealthy.
Well said about what it all takes to get a deal done. I remember every one of those components being extremely difficult for my first deal. Did it get easier on the second acquisition? Sure, but not by much.
I would like to hear more about leveraging tech to get in front of accredited investors. What methods are you seeing that are effective?
There is a huge difference between what you describe and what is being discussed, though.
Yes, most people start out by syndicating money. But they do it for small-ish deals, from friends and family or their network, and gradually build up by being successful into larger deals with institutional LPs. That isn't what this decade's flavor of "retail syndicators" are doing, through - they're making borderline fraudulent claims on social media, raising many millions of dollars, and not actually executing on a business plan, just squeezing out fees and moving on.
I've syndicated out equity to friends and family, so not exactly the kind of "retail syndication" you are discussing, and it was a nightmare. We raised a couple hundred thousand dollars to buy a small building, and ended up losing our shirts (and about half of everyone's equity).
No one person gave me anything they couldn't afford to lose, and I put in multiples more of my own money than anyone I knew did, so from that perspective it wasn't like I ruined any relationships or lost friends; no one thought I had taken advantage of them. But there is definitely a tension, and especially when your buddy or father is filing their taxes and wants to know why they need an extension on their returns because you can't get K-1s out in time for an April 15 filing, you tend to hear about it nonstop.
Your problem is not with syndications. It's with poor underwriting and execution as you said in your earlier post. Doesn't matter whether you're raising money from retail investors or pension funds. You have to be realistic in your business plan. For every one crappy syndicator I know 10 decent ones. And yes they're raising capital through online marketing.
I'm a syndicator as well focused on retail investors. It's not fun. I got about $7m worth of commitments and can't find a deal. I'm not going to force a deal and ruin my reputation for some short term fees.
This cycle as much as it sucks was needed. The crappy syndicators doing floating rate loans on 3 cap multifamily will die out and the smart ones will survive.
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