Syndicators
Does anyone have insight as to how some of the leading syndicators (Cardone, Rise, etc.) have built out their investor networks? Do all of them do so via CRM's that are updated over time based primarily on cold calling and local network events?
As much as we love to rip on their fee structures and incentive alignment, it's pretty impressive these groups operate basically like discretionary funds in that they are able to raise the full slug of GP/LP capital on a deal from a single raise memo. I'm curious why other institutional-quality, but smaller developers without captive LP capital do not choose to pursue this route to capitalize their projects.
It's really not that impressive...dumb money is easy to raise esp after you've gotten lucky on 1 or 2 deals and can tout that to retail/unsophisticated investors and it's even easier using methods like affinity scams. I recently came across a start up syndicator IRL. A friend of mine went to some investing conference comprised of people of his ethnicity hoping to learn how to invest. This start up syndicator attended as well to pitch his "fund." It's a pretty smart tactic. The conference is made up of naive white collar professionals who want to learn how to invest and this syndicator conveniently has the solution. It also helps that he is the same ethnicity as those at the conference so the attendees will trust him more. I asked my buddy set up a meeting between the 3 of us and I ripped the syndicator a new one because his "InVeStMeNt StRaTeGy," fee structure, and lack of skin in the game was so dogshit that it was essentially a scam.
There's a lot of dumb money out there. The hard part is having an actual investment strategy or defensible operation that can't be easily replicated. The reason why other reputable shops don't do this is probably because 1.) I imagine it would be a nightmare dealing with 50 investors 2.) There are probably certain restrictions on raising capital from unaccredited investors and 3.) If these operators/GP's lose money from Blackstone, optically it doesn't look that bad. Blackstone is a sophisticated institutional investor. If they make a bad investment, everyone can agree that they took a risk and it didn't pan out, but imagine losing millions of dollars of life savings from a bunch of retail investors. If these syndicators lose enough money from retail investors and it gets big enough, I wouldn't be surprised if the DoJ/SEC gets involved and starts investigating.
I think as a forum we should really stop praising these syndicators. When you raise capital from the life savings of unsophisticated retail investors, acquire assets at a ridiculous basis and project 20% rent increases, fee the shit out of the retail investors, and have 0 skin in the game, you are essentially a scam. These are get rich quick tactics that are borderline fraud.
What we should really be praising are operators who have developed a real operation/strategy with high barriers to entry and are able to provide competitive risk adjusted returns to investors. If you have a strategy/operation that can do this, capital will come to you at favorable terms too. If your strategy relies on raising the biggest fund to make money, you're doing it wrong.
Also as with all bubble, these funds were only doing well in record low interest rate environments. Now they are all crashing and burning. Why anyone would want to replicate their model after reading about all the foreclosures is beyond me
Agree with all of this. What the scummy syndicators have done is also made it even harder for normal operators to raise money with legitimate deals as these mom and pops have gotten so burned the past couple years they are now out of the investing market (along with their friends).
VP - Would really like to connect with you, but can't find a way to send you a PM. Can you please reach out? Thx
The affinity marketing piece is not discussed enough - don’t know how the less reputable syndicators sleep at night taking money from everyone in their communities.
I have broken the news to a handful of people that the syndicator they have known for years/decades through their religion, ethnic community, or professional network is not only in the process of losing all their money but has yet to communicate anything is even wrong. Can see the cognitive dissonance in real time. Some of these people will not only lose all their equity but get hit with a tax burden due to successive 1031s with these syndicators.
But Twitter real estate disagrees LOL
I'm not praising the syndicators, just remarking how the structure of the capital they raise (leaving aside comment on the quality of the individual deal) is pretty interesting given the current capital-restricted environment for fundraising. I think it's an interesting idea to marry institutional quality sponsors with retail investors to understand the challenges and pitfalls associated with raising that kind of money. This thread was started to just explore how that process works in general.
There's a reason there's regulation that restricts non-accredited investors from certain investments.
Rise took their "track record" from 2020/2021 and basically used all that momentum (and still is) to keep the train moving. Before 2020, everybody wanted to be a GP because people made a boatload of money and could leave their "W2" jobs and retire. Now that being a GP is too much work for these new entrants, feeder funds have become the new thing to help people "retire". I can throw money at Rise, clip a fee off of my friend and family's money, and I can let Rise do all the hands-on management while I sit back and do nothing. If all goes well, I make a promote as well.
Cardone built out his network by being in your face on every social media platform and creating this emotional connection from his conferences. If you can make people feel a certain way, and get them to believe your actions are life-changing, the sky's the limit. It's all a psychological play on those who may feel "stuck" in life and that there is a way out of your "supposedly" terrible life. You get all these people in a room and they feel euphoric and that they can do something great (which they can, but it is exaggerated to the extremes).
The rat race to retirement. Retire in 3-5 Years through real estate. Create generational wealth in multifamily syndication. Create the passive income you need to retire. The list goes on, and on.
If you are just targeting retail LP investors who don't know jack crap, you could create your own set of problems. I think a lot of retail LPs were not scrutinizing deals done by GPs in the past run-up which is also why a lot of syndicators are underwater. Too much belief in the jockey without a fundamental understanding of real estate, finance, risk, investing, the macro, etc.
Hot off the press, these deals would be funded in hours even minutes sometimes. Nobody was questioning it, seems a bit dangerous don't you think? This creates a feeling of FOMO amongst retail investors as well.
Agreed with a lot of the comments here about bad actor syndicators, even if their interests are from a good place.
I think the main tricks to watch out for are 1) High Fees, 2) crazy assumptions on rent growth, expense cutting, and exit cap, 3) GP equity in the deal, and 4) If the GP team has actual real estate experience. On the last point I went to a conference recently and one of the guys I met who was the main GP on a $35M deal was a police officer for the last 30 years. My brother in Christ just because you read RDPD and have a BP account doesn’t mean you know real estate. /end rant.
On our deals, we are extra conscious of these points: The GPs always have at least 51% of the equity stack, we only charge Acq and AM fees, and one of our GPs has in house PM.
I’m not saying we do everything correctly and we are infallible, just offering another perspective of syndication structure aside from that of Rise, Cardone, etc.
Happy to DM to chat more if anyone wants.
I'll add another perspective here. I used to despise syndicators until we became one. The truth is Rise, Tides, Nitya (our forum resident Swapnil), and others benefit from limited regulation and taking advantage of retail investors. Our case was a bit different, our goal was to raise family office money but our deals were too small for them. Truth be told we had no intention of going to retail investors. Raising $200K a piece is not fun, its incredibly time consuming, and its like pulling teeth. Regardless we were left with no options. However, our fees are basically what they would have been for any major LP/firm we would have raised equity from. We're even doing some deals where we have recourse debt that we are guaranteeing. We're putting about 15-20% of the capital in each deal. All the major LPs and FOs we went to like our deals and fee structures, but they just simply were trying to place larger equity slugs and we were not prepared to take on larger deals. Syndications made sense.
The RealDeal and WSJ have to post articles about failing companies, bankruptcies, foreclosures, because it draws readers. Theres alot of under the radar syndicators out there that are doing fine. They're not flamboyant in their marketing styles or trying to sell books/courses.
Question for you (and others) - you took $200k minimum checks, how does that minimum compare vs. the Tides, Rise, Nitya, etc. minimums? $200k per person is a hefty check size, restricts your deal to HNW individuals which is a good thing.
I think many of the others did $50k-$100k minimums. Cardone has a Reg A fund that can take non-accredited and minimums are like $5K.
Yes for the most part we speak to higher net worth individuals. We can only speak to accredited. We learned that accredited investors that want to do small minimums tend to be a real pain. They constantly call and email us. We're always busy talking to them because theyre worried about their $50K investment. Whereas the $200K investors oddly enough dont pester us. However, its much harder to get those investors. I can line up 100 investors at $50k a piece but I'll barely have anytime to do asset management, accounting, because I'll be jammed up in investor relations all day long. People think syndicator fees are high and thats sometimes true, but a big reason is dealing with hundreds if not thousands of retail investors requires multiple people in reporting and IR functions, these are salaries you need to pay. This is not something as simple as filing a Form D and starting to raise money, even 506C offerings cost upfront money and then it gets expensive to scale. Syndications is not that scalable vs. dealing with one pension fund thats going to cut you a $50M check. I can talk to that fund for an hour each day and I'll be okay vs. spending 8 hours a day talking to retail investors and explaining what loss to lease or concessions are.
You mentioned that there a lot of “under the radar syndicators doing well out there.”
The names of the not so good ones seem to have been mentioned but do you (or anyone) have names of any ones you know to be good?
Obviously you should do your own diligence but some names that come to mind are Covenant Capital, Hamilton Zanze, Federal Capital Partners, FPA Multifamily, Atlas Real Estate Partners, Quad Property Group and Eastham Capital.
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