Personally Investing in Syndications
Anybody here ever invested via a real estate syndicator for personal deals? How was your experience? I know syndications get a bad rep for the fees involved and generally being less favorable to LPs, but somewhat appealing for somebody who doesn’t have time to GP their own deals or with few investment opportunities. Would be fairly content with making a 15% IRR to not have to do anything but also be somewhat closer to a deal and the learning that goes along with the process. Just curious if a syndication should be a non starter or if people on here think it has some merits.
Syndication 100% has merit. Just do your due diligence in the syndicator. The deal could be amazing, but if your syndicator is bad, you can lose money. Like anything, buyer beware. Underwrite the deal like you would a loan and underwrite the whole ‘credit’. Underwrite the market, business plan, and the syndicator and their company. Also, my rule of thumb, if they tell you they are going to get a 15% IRR, I also chop it down and say would I be okay with a 10%-12%, because that’s probably where it’ll land. Why?-because to raise money the syndicator has to show high returns, but those returns are super hard to achieve. That’s part of why underwriting the syndicator is so important. It’s all about trust.
Appreciate that response. Thank you for the perspective.
I connected with a family friend who has been syndicating deals/funds since 2012. He focuses mostly on 50 unit multi-family and just raises "family/friends" type money. No management fee, 1% acquisition fee, 7% pref, 75/25 after pref. His money is always first in first out and he is usually the largest investor in the deal/fund. Every deal I have been in has been at least a double net to investor.
Really nice experience but you just have to trust the sponsor.
So have been digging into the docs a little more for a specific deal I’m looking at.
acq fee = 2% of pp
AM fee = 2% of monthly revenue
Construction mgmt fee = 5% of Reno budget (paid at closing)
capital transaction fee = 2% of refi loan or sale
fund acq fee = 2% of Fund contributions into asset owning entity
class d = sponsor 5% ownership of cash flows (can’t tell if they just get this like a promote or if this is their contribution)
I would be invest in a fund that would receive class c shares. Class c gets 8% pref then 80/20 after that. Further the fund has an 88/12 split after a 7% pref.
part of me really wants to do the deal because I believe in the location and would like to have a front row seat to the process. But part of me feels like the fees are heavy.
any thoughts from those that have seen more of these types of deals?
LPs are getting murdered on fees and I would personally pass with a fee structure like that.
Those fees though
There’s a chance they have closer to zero real equity in the deal. If you do a $50mm deal at 75% LTV, that’s $15mil of equity. If they put in 5% of equity, that’s $750k or $1.5mm for 10%.
The acquisition fee is $1 mil. So day one the either have negative $250k of equity (literally zero risk in doing the deal, the LPs are PAYING the sponsors $250k to own 5% of the deal plus promote) or $500k (better but still not great). It’s basically all upside and no downside for the sponsor. I have a hard time getting comfortable with deals like this
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