{"id":175799,"date":"2024-07-29T13:44:24","date_gmt":"2024-07-29T19:44:24","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=175799"},"modified":"2024-07-29T13:44:26","modified_gmt":"2024-07-29T19:44:26","slug":"my-first-syndication-deal-failed-here-is-why-im-happy-about-it","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/my-first-syndication-deal-failed-here-is-why-im-happy-about-it","title":{"rendered":"My First Big-Time Deal Failed. Here’s Why I’m Happy About It."},"content":{"rendered":"\n

I work and invest in <\/span>Boise, Idaho<\/span><\/a>. You\u2019ve probably heard of that city before, but <\/span>it\u2019s doubtful<\/span> you know much about it. <\/span>The <\/span>important<\/span> thing to know, at least for this purpose, is that our population is booming, and builders <\/span>just<\/span> can\u2019t keep up with the demand for housing.<\/span> <\/span><\/p>\n\n\n\n

As you know, low supply and high demand <\/span>have a direct impact on<\/span> the cost of living.<\/span> So in<\/span> response to this issue, the city of Boise uniformly overhauled most of <\/span>our<\/span> residential zoning code over the last winter.<\/span> <\/span><\/p>\n\n\n\n

For approximately 75% of residential lots, these<\/span> changes increased allowable density by more than 50%. They created new zoning districts and designations that allowed unlimited density as long as <\/span>you could meet setback requirements. They<\/span> created <\/span>ADU<\/span><\/a> regulations that allow <\/span>for<\/span> basically any residential lot to get a rubber-stamped permit.<\/span><\/p>\n\n\n\n

New Zoning Laws Create Opportunities<\/span><\/h2>\n\n\n\n

There<\/span> is so much opportunity for infill and large-scale developments <\/span>with these changes<\/span>. The city is really trying to create more density and housing\u2014partly because they want to <\/span>get<\/span> the cost of living <\/span>down<\/span> a bit, but also<\/span>, <\/span>more housing equals higher tax revenue.<\/span> <\/span><\/p>\n\n\n\n

Based on the new zoning, we found an opportunity to build up to 24 units on two acres in a very desirable part of town. <\/span>One <\/span>of the vital parts<\/span> of this development was that the city required another developer who developed an adjacent lot to bring the sewer line to the edge of this lot, knowing that it would eventually be developed.<\/span> <\/span><\/p>\n\n\n\n

We were able to get the property under contract, with the owner carrying a note and smaller balloon payments spread out <\/span>over the course of<\/span> two years. We met with an attorney to draw up our operating agreement and get our partnership and SEC filing in order. At the same time, we were working with an architect to help <\/span>come up with<\/span> our preliminary layout, maximizing the available space within the new zoning code to create as much density as possible. <\/span><\/p>\n\n\n\n

With these pieces of the puzzle in place, we <\/span>were able to get<\/span> a preliminary meeting with planning and zoning. We sat down with the city planner and our architect, and I was pleasantly surprised at just how eager the city seemed to be to help us make this project work. <\/span><\/p>\n\n\n\n

At the direction of the City Council, planners were supposed to help people make efficient use of the new zoning code and create as much density as possible. <\/span>The planner helped us button up our design and even <\/span>made suggestions for<\/span> how we could limit easements and egress <\/span>in order to<\/span> create more units.<\/span> <\/span><\/p>\n\n\n\n

Based on our progress, one of the larger commercial general contractors in our market gave us a verbal commitment to build out the project. <\/span>The <\/span>owner of the company<\/span> not only gave us direct access to their project manager<\/span>, but<\/span> said they were interested in investing in the project themselves.<\/span> We walked the property with the project manager and got suggestions and feedback from them <\/span>as well<\/span>. <\/span><\/p>\n\n\n\n

The Deal Hits a Roadblock<\/span><\/h2>\n\n\n\n

Now that we had preliminary support from the city and documents filed, we were able to start raising funds. <\/span>We hit up our spheres<\/span>, and we<\/span> talked to existing clients and other developers around town. After a handful of live and recorded webinars, <\/span>we had many investors commit<\/span> to investing in the syndication based on our preliminary numbers, which were quite conservative.<\/span> <\/span><\/p>\n\n\n\n

Everything was going smoothly, and we were about <\/span>10<\/span> days from the close of <\/span>escrow<\/span><\/a>. Out of the blue, we got an email from the city public works engineer stating that the city hadn\u2019t planned for the density that the code allowed and that the sewer in this particular neighborhood couldn\u2019t support the capacity for our project. So rather than building 24 units, the city would only approve one. <\/span><\/p>\n\n\n\n

As you can imagine, that changes the numbers a bit. So we spent a few days going back and forth with the city, offering some potential solutions to this issue, to which <\/span>we were met<\/span> with a \u201cmaybe\u201d on all accounts. Well, maybe it isn\u2019t a comforting answer when you <\/span>are betting<\/span> millions of dollars on an investment. <\/span><\/p>\n\n\n\n

We needed more time to find a possible solution or get a definitive answer about this sewer capacity issue. We went back to the seller and asked for an extension. The only way they would grant it was for us to release all of our earnest money to them, which <\/span>was not going to<\/span> happen when we were walking into such uncertain waters. <\/span><\/p>\n\n\n\n

Therefore, after a couple of months of effort, hundreds of hours of work, and <\/span>something in the range of<\/span> $15,000 spent on architects and lawyers, we had to terminate the contract a few days before closing.<\/span> <\/span><\/p>\n\n\n\n

Why I\u2019m Glad It Didn\u2019t Work Out<\/span><\/h2>\n\n\n\n

That was about six weeks ago. I wasn\u2019t happy that we had to terminate<\/span>, but I<\/span> was relieved and incredibly grateful that we got that information before we closed\u2014and definitely before we took any actual deposits from investors. And what a great lesson: Everything was going well until it wasn\u2019t, and that seemingly small piece of information completely changed everything. <\/span><\/p>\n\n\n\n

So why, do you ask, am I happy that it didn\u2019t work out? So many reasons:<\/span><\/p>\n\n\n\n