Q&A: Real Estate Syndication

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Hey guys - this group was very helpful to me 10 years ago when it was 2008 and I graduated and was looking to be an analyst from a non-target school in Texas. I started as an an investment analyst for a REPE fund. Fast forward - I found my niche in real estate syndication and have now: 1. Successfully raised capital for 27 private real estate offerings (12 fund offerings and 15 single asset offerings), which 7 have since gone public. 3. Personally raised ~$600 million of investor capital for real estate investments over the last 8 years. 4. Instrumental in successfully issuing debt on the Tel Aviv Stock Exchange, raising roughly $180 million to realize equity investor's double digit annual returns on multiple commercial real estate developments. I am glad to give back and try to help my up and coming monkeys. So ask away - I'll answer just about anything, and will reply as time permits.

Comments (27)

 
Most Helpful
Jul 17, 2019 - 4:16pm

Neat background. Seems you've had some great success.

For those of us looking to peel off and do our own thing for the first time, how to you recommend tackling the fundraising process for a single asset deal? What are some words of advice for one attempting to execute on their first deal with no personal track record but a strong execution track record at their firm? How do you structure the syndication with respect to promote, fees, etc... Overall approach/legal/admin considerations would be greatly appreciated.

 
Jul 23, 2019 - 2:29pm

GuyBalls,

The question about fees is a deeper question than perhaps we can fully answer here - however in general you should be less expensive than market. Market today is an 8% pref with a 70/30 split over the promote. There are a number of other fees you can charge including acquisition, disposition, asset management, development, debt placement, property management, construction, etc.

On your first deal I would suggest making it very known to your community what your intentions are, and have 3-5 deep pocketed relationships who believe in you and would potentially write an equity check. They will drive the fee structure more than this conversation will - trust me.

 
Jul 23, 2019 - 3:33pm

" What are some words of advice for one attempting to execute on their first deal with no personal track record but a strong execution track record at their firm? "

  • Find a compelling story with strong economic tailwinds and know more about it than anyone else.

  • Example - a large firm has plans to relocate to a bedroom community of a large city, but it is not common knowledge. You (or someone you know - I recommend having a partner with really good CRE experience on your first deal) have approached every owner of every apartment complex in the area and found someone willing to sell at a price below market and replacement cost. You contacted the relocating company and have a signed agreement to turn 1/4th of the complex into corporate housing at 75% over market rents.

if you have never done a deal do not try to raise a fund

 
Jul 17, 2019 - 4:26pm

Hey- thanks for doing this. Very cool background.

A few questions that come to mind:

  1. Can you give a brief overview of your career? How did you go from UG in Texas -> Analyst -> Your own syndication? What happened between Analyst to now?

  2. How was your experience with raising capital? I have heard a lot of mixed things about this aspect. Did you feel the need to go back for an MRED/ MBA?

  3. What are your next goals? Are you happy in your niche or do you want to increase scale/ scope?

  4. How did you get connected with the Tel Aviv Stock Exchange? I've always had an unusual interest in bond offerings there (for no real reason).

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” - Nassim Taleb
 
Jul 23, 2019 - 2:38pm

Malta,

Can you give a brief overview of your career? How did you go from UG in Texas -> Analyst -> Your own syndication? What happened between Analyst to now?

  • After my analyst background I worked for two sponsors who were raising capital through financial advisors. I started as a phone monkey for a few years, transitioning to an outside sales role. Next, I ran the capital markets group for a large family office developer.
  • Moving from a pure sales role to sitting on the investment committee of a very experienced real estate group was by far the best learning experience I could have ever had.

How was your experience with raising capital? I have heard a lot of mixed things about this aspect. Did you feel the need to go back for an MRED/ MBA?

  • I am not sure what mixed things you have heard about raising capital? Being perceived as an expert in your field is imperative. Education helps, but there are things experience teaches you that are not covered in higher education.

What are your next goals? Are you happy in your niche or do you want to increase scale/ scope?

  • The goal to to own as much real estate as possible, without having a deal go sideways.

How did you get connected with the Tel Aviv Stock Exchange? I've always had an unusual interest in bond offerings there (for no real reason).

 
Jul 17, 2019 - 7:08pm

Thank you for doing this - couple of questions:

For a fund offering, how many years of experience does an emerging manager need before they are taken seriously by LPs? 10-15 years?

Can you opine on the start-up costs for a fund? My best guess has been $1M-$2M to pay all the legal fees that will be reimbursed at the first equity closing.

Is there any appetite in the marketplace for equity partners to co-invest at the sponsor level to cover start-up costs? If so, how much equity do managers typically give up in exchange?

 
Jul 23, 2019 - 2:51pm

For a fund offering, how many years of experience does an emerging manager need before they are taken seriously by LPs? 10-15 years?

  • There are different types of LPs. If you have personal relationships with large fund managers and impress them, 10 years+. If you have 3 friends with $25M+ net worth, all you need is an idea, confidence and a good pitch deck.

Can you opine on the start-up costs for a fund? My best guess has been $1M-$2M to pay all the legal fees that will be reimbursed at the first equity closing.

  • There are more real estate costs than there are legal costs. Legal is ~$50k, and all in costs to set it up and move forward are less than $200k.

Is there any appetite in the marketplace for equity partners to co-invest at the sponsor level to cover start-up costs? If so, how much equity do managers typically give up in exchange?

  • Yes. Every deal is different and there is no typical scenario.
 
Jul 18, 2019 - 12:01pm

Was there an asset class you felt most comfortable with first that you focused your initial fund on?
Mentioned above, but how long did you work for an employer before branching out on your own?
What percent of your LP's were/are connections that you had prior to your career in real estate vs connections that you made after years in the industry? I know many syndicators often rely on their personal network for a first fund before developing a more capital intensive network.

 
Jul 23, 2019 - 2:58pm

Was there an asset class you felt most comfortable with first that you focused your initial fund on?

  • Multifamily and industrial are the best asset classes today - IF you buy right. But then anything you buy right is a good investment...

Mentioned above, but how long did you work for an employer before branching out on your own?

  • I moved firms every 2-3 years, always taking bigger roles and increasing my skill set.

What percent of your LP's were/are connections that you had prior to your career in real estate vs connections that you made after years in the industry? I know many syndicators often rely on their personal network for a first fund before developing a more capital intensive network.

  • I have zero LP connections from prior to my career. My life would have been much easier if I could have called my dads UHNW friends - I highly recommend that path if you can take it.
 
Jul 18, 2019 - 12:28pm

So, how do you feel about the Tel Aviv Stock Exchange? I've come across some RE companies that are funded through the Israeli bond market and they sketched me out as they're I/O for the first like 2 years and then hyper amortize for 3 years. The thought is that in year 3 you have to refinance a portfolio cash flow based loan because the assets can't support the amortizing payments. Just seems really risky, especially if you have a negative economic outlook.

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