Syndicating Equity on Core Deals

Syndicating equity for core deals at the asset level, rather than through a fund structure, is a niche but viable strategy. Here's what you need to know based on the most helpful WSO content and insights:

1. Expected Returns and Fee Structures

• Returns: High single-digit IRRs (7-9%) are typical for core deals with conservative leverage, especially when fixed rent increases and credit tenants are in place. These returns are lower than value-add or opportunistic deals but come with reduced risk.
• Fee Structures: Syndicators often charge:
  • Acquisition Fees: 1-2% of the purchase price.
  • Asset Management Fees: 0.5-1% of equity under management annually.
  • Promote/Carried Interest: 10-20% of profits above a preferred return (often 6-8%).
  • Other Fees: Leasing or property management fees may also be included, depending on the syndicator's involvement.

2. Typical Investors

• UHNW Individuals: These are the primary investors in asset-level syndications. They are attracted to the stability and predictability of core deals, especially when backed by credit tenants.
• Family Offices: Many family offices seek stable, income-generating assets and may participate in these deals.
• Institutional Money: While less common, smaller institutions or boutique investment firms may invest in these deals, especially if the asset is a trophy property in a prime location.
• Foreign Investors: Some international investors, particularly from regions with low-yielding domestic markets, may also be interested in core deals for diversification and stability.

3. Market for Asset-Level Syndications

• Niche Market: While core funds dominate this space, there is a niche market for asset-level syndications. Investors who prefer direct exposure to specific assets, rather than a blind pool of investments, may find this appealing.
• Challenges: The market is smaller because core deals often have lower returns, and many investors prefer the diversification and scale of a fund. However, for trophy assets with strong fundamentals, there is demand.

4. Targeting Investors

• Network of UHNW Individuals: Leverage personal and professional networks to identify individuals seeking stable, long-term investments.
• Family Offices: Build relationships with family office managers who are actively seeking core real estate opportunities.
• Wealth Advisors: Partner with wealth management firms that cater to UHNW clients.
• Institutional Investors: Smaller institutions or niche players may be interested, but they often require a proven track record and institutional-grade reporting.

5. Key Considerations

• Transparency: Core investors are typically conservative and expect detailed, transparent reporting.
• Conservative Assumptions: Avoid overly optimistic projections. Fixed rent increases and credit tenants are attractive, but investors will scrutinize terminal value assumptions.
• Track Record: A strong track record in similar deals is critical to attract investors, especially institutional ones.

In summary, while the market for asset-level syndications in core deals is smaller than for fund-level investments, it exists and can be lucrative if you target the right investors and structure the deal appropriately. Focus on UHNW individuals, family offices, and smaller institutions, and ensure your fee structure and projections align with the conservative nature of core investments.

Sources: https://www.wallstreetoasis.com/forum/real-estate/what-are-your-big-problems-right-now?customgpt=1, Who is buying this stuff? Brokers and PE analyst/associates, BREAKING TIDES EQUITY/AMC - EMAIL LETTER REVEALED, Days of the development tycoon over?