Any of you syndicate deals?

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

Comments (17)

Jul 19, 2012

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."

Jul 19, 2012

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.

Jul 19, 2012
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.

Jul 19, 2012

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.

Jul 20, 2012

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

Jul 20, 2012
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?

Jul 20, 2012

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.

Jul 20, 2012

GBS

Jul 20, 2012

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.

Jul 20, 2012

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.

Jul 6, 2016

Depends on risk profile and how much you are willing to go back end. I'm generally of the mindset that i'd rather take more back end split than fees, so to that end, we take very few fees on acquisition and none on Asset Management but could take more than 50% of the back end. Obviously you have to really believe in the deal to take that kind of risk, cus if you don't hit pro forma you don't get paid, but we're fine with that.

That being said if you're trying to do some down the fairway light value add or core multi fam deals, I'd say given the deal size you've outlined here, up to a 2% aquisiton fee and maybe the same on a disposition would be reasonable. Can't help you with asset management fee though. And prob standard 8 pref 80/20 .... again this is really why i hate taking a bunch of fees cus you get crushed on the back end.

Jul 20, 2012

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.

Jul 6, 2016
abalodi:

Hello I happen to be very well connected with many syndicate deals including IPOs, secondarys, and preferreds. Let me know if this is of any interest and if I can be a resource to any of you. If so, please send me a private message and we discuss things further.

Thanks

STFU.

Jul 6, 2016

I happen to be very well connected with your mom. Any WSO users who want details about abolodi's mom, please PM me for details.

Jul 20, 2012

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.

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Jul 21, 2012
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