New to Real Estate · Member since 2018 · 13 posts · 4 votes
Hi BP, I'm looking to connect with some folks that have experience with, or are interested in, investing in syndications. Specifically, I'm hoping to discuss where others are finding syndication deals to invest in, what strategies and geographies you are investing in, and how you go about qualifying/interviewing sponsors and general partners. For some background, I am a non-accredited investor and I've invested in two syndications through a crowdfunding platform, but I'm looking to up my game by enhancing my qualification process and find more opportunities to invest in.
As a side note, if anyone is part of the Left Field Investors platform, I'd also be interested in hearing about your experience with that. It appears to be geared toward the exact topics I'm hoping to discuss with others. However, it is a paid platform so I think it would helpful to hear others' opinions before joining. Thanks!
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
@John Prorok
I strongly recommend left field investors
I am a GP but also part of their group and will say the people, content and education you get others charge 100x more than what they charge which is super cheap imho.
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
@John Prorok
I strongly recommend left field investors
I am a GP but also part of their group and will say the people, content and education you get others charge 100x more than what they charge which is super cheap imho.
New to Real Estate · Member since 2018 · 13 posts · 4 votes
2y
Thanks @Chris Seveney, I appreciate the feedback. I found LFI a few months ago and just recently started listening to their podcast and watching recordings of their interviews with GPs. From my perspective, even the free content is highly valuable so I figured being a part of the infield would be valuable as well, but it's good to hear that confirmed first-hand.
As a GP, do you invest in others' syndications? If so, have you noticed any trends with syndicated funds? Are there any markets or asset classes that seem to be in vogue right now?
Hi BP, I'm looking to connect with some folks that have experience with, or are interested in, investing in syndications. Specifically, I'm hoping to discuss where others are finding syndication deals to invest in, what strategies and geographies you are investing in, and how you go about qualifying/interviewing sponsors and general partners. For some background, I am a non-accredited investor and I've invested in two syndications through a crowdfunding platform, but I'm looking to up my game by enhancing my qualification process and find more opportunities to invest in.
John, I have a significant amount of my portfolio in these types of passive investments. And I'll add that crowdfunding deals are essentially the same things as old-school syndicates, except that they make use of newer parts of the law which allow them to market over the Internet (rather than having to know someone).
A good place to start would be on a website like Crowdstreet.com. You can view a lot of deals there across different asset types and strategies and start to come up with a customized due-diligence process for yourself. You can also find referrals to passive investments by networking with individuals and investment clubs (and with so many offerings available, there's generally no need to pay to get access).
For vetting a syndication, different investors do it differently because every investor comes from a different financial situation and has different goals and risk tolerance. For me, I'm a very conservative investor and may look through a hundred deals a month, and at the end of the year only invest in 4-5. So things that are a red flag for me may be fine for someone more aggressive. Here's how I do my due diligence:
1) Portfolio matching: (takes 30 seconds per deal)
a) Have an educated opinion on where I think we are in the real estate cycles (financial and physical market cycles)
b) Then and only then do I pick the strategies, capital stack, and specialized asset subclasses that make sense for that opinion. For example, I am a little concerned about some aspects of the business cycle recovery and a potential for a double-dip so I lean toward the safest part of capital stack which is debt (or low-debt equity). I won't go with the riskiest opportunistic strategies, and will stick to core and core plus mostly with some value-added. I won't be investing in the riskiest/most supportable asset subclasses such as hotels, and tilt my portfolio the ones that have historically been more stable such as multifamily and single-family housing. I also don't want refinancing risk, so any deals with only 3 to 5 year debt are out for me. For someone that's not as conservative, or a different view on the cycle, they might have a different opinion than me on all of this.
2) Sponsor quality check: (takes about 45 minutes per deal)
I believe that a great sponsor can take an average looking deal and make it great, and that in mediocre sponsor can take a fantastic looking deal and make it bad (especially if there is a severe recession). So I start with the sponsor first. Again, others might disagree.
a) Track Record: Get the entire track record for the strategy. As easy as this sounds, it's not simple and usually like pulling teeth. Many times they will claim it's wonderful and then try to hide their worst deals by only showing completed deals. Make sure to get unexited deals. Or if they are doing value-added multifamily, they will show you their hotel experience. That doesn't cut it for me. I want a specialist that's an expert, and not a jack of all trades and master of none. Also, in a mainstream asset class like value-added multifamily, I see no reason to take a risk on a sponsor that doesn't have full real estate cycle experience or that lost anything more than a small amount of money (and prefer no money lost). Again, other might feel differently here.
b) Skin in the game: as a conservative investor, I understand that the dirty secret of industries that the waterfall compensation is in the line with me and incentivizes sponsors to take more risk. So I require skin in the game (average is 5% to 15%) to offset this. Contrary to popular belief, this is not set because I believe it will give me a higher return. I believe it tends to give me a slightly lower return, because the sponsor is going to be more careful, and if there is a severe downturn will prevent me from taking catastrophic losses. Someone that is more aggressive, may want lesser even though skin in the game. Also, if the sponsor is new, I am fine with less skin in the game as long as it is significant to their net worth. On the other hand if they are a sponsor that is experienced in stopping a skin in the game, that's a huge red flag for me.
c) how open to scrutiny are they? I always discuss investments with others in an investor club because other people might think of things that I might miss. And even though virtually every sponsor agreement allows me to share investment information with others who might be advising me on it (especially when club members are bound by an NDA), I still ask the sponsor if I can share it, because it's a test. Most are fine with that, but a few will have problems with it and claim there are legal issues, etc.. That's a red flag for me.
d) death by Google: I Google everything I can about the sponsor. I check the SEC, FINRA, ratings websites for inside information on the principals in the company. I also look for lawsuits and see what happened in them. Many times it's an easy red flag. Sometimes it's ambiguous, but even then, why should I bother with the company that has numerous unresolved lawsuits, versus another company that is virtually the same but has none. Again, others might feel differently here.
3) property level due diligence: (takes seconds to weeks per deal): here is where I drill in with the low-level details.
a) pro forma popping: I examine all the assumptions, and see if they are overoptimistic or not. I look at every single item in the pro forma and imagine that it is complete BS, and see if I can challenge it. If there's a hole, it may be a red flag.
b) sensitivity analysis: I examine all the assumptions, and make sure I can live with the worst case scenarios.
c) "Stall and see": if they are getting money over multiple years, and there is no penalty for investing later, I would usually wait so I get some real performance data, versus having to look at theoretical pro forma information.
d) Recession stress test: I will not invest in anything, until I subject it to recession level stress and see if I can live with the result. And I take the worst recession I can find in the recent past. Sometimes there is only great recession data, and that recession was pretty mild on some asset classes, versus previous recessions. So I will usually 1.5x or 2.0x the stress. If the deal collapses and I would lose everything, I'm out. Others might be fine with taking risk, but least by doing this a person can get an idea of what might go wrong.
e) Legal document analysis: it will usually take a few days to go through the legal document properly, as almost inevitably there are tons of gotchas that either have to be explained, or mitigated with a side letter.
That is the very short summary of what I do. If you want more information, p.m. me and I can give you a lot more details.
Thanks @Chris Seveney, I appreciate the feedback. I found LFI a few months ago and just recently started listening to their podcast and watching recordings of their interviews with GPs. From my perspective, even the free content is highly valuable so I figured being a part of the infield would be valuable as well, but it's good to hear that confirmed first-hand.
As a GP, do you invest in others' syndications? If so, have you noticed any trends with syndicated funds? Are there any markets or asset classes that seem to be in vogue right now?
Thanks again!
Yes I invest in other syndications with my IRA money (as I cannot use it for my funds). Right now I focus 100% on the sponsor more than the deal. There is going to be a lot of money lost in the next 3-5 years because of who investors "got in bed with" as they were all high on chasing returns. I do not chase returns and am very happy getting singles and doubles etc with my money. I do not need to hit home runs.
We will be seeing a lot of people who made a lot of money the past five years lose a good portion if not all of that money they made.
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
2y
@John Prorok, not being accredited certainly makes it slightly harder to find, but barely. There are still a good number of 506(b) offerings out there. Each sponsor will be unique as to whether they will still accept non-accredited people, although the SEC's rules allow them to accept up to 25 "sophisticated" investors within each offering.
Ways to find 506(b) deals: - Podcasts: the guest or host will be talking about creating passive income, mailbox money, etc. They may talk about their company and how conservative they are. But you won't hear them talk about "invest in deal x, which is forecast to return a 20% net IRR". But they will say: our past deals have returned 24% net to our investors, or outline their overall business plan, etc.
- Educational content: when you see "download our guide for understanding private placements" or "how to underwrite real apartment buildings" or "replace your W2 in 4 years - step by step guide". This will often lead to a syndicator, and that syndicator may very well be 506(b). Again, they are getting leads through knowledge content, with the goal of converting those leads into investors.
- BiggerPockets: Similar to above. Click on the signatures of people posting here, and you will likely find a fair number of syndicators.
- Ask your friends/coworkers/financial advisor. Most people use their own network, and as you are seeing, between crowd funding platforms, and other marketing channels that are now open to all syndicators, you are likely hard pressed to come up empty if you ask around in your network.
As for LFI, I am not a member but have dealt with @Jim Pfeifer, Chad and team. Great group of gentleman leading that group. I have spoken with several members of the group and all speak very highly of the group overall.
@John Prorok, not being accredited certainly makes it slightly harder to find, but barely. There are still a good number of 506(b) offerings out there. Each sponsor will be unique as to whether they will still accept non-accredited people, although the SEC's rules allow them to accept up to 25 "sophisticated" investors within each offering.
Ways to find 506(b) deals: - Podcasts: the guest or host will be talking about creating passive income, mailbox money, etc. They may talk about their company and how conservative they are. But you won't hear them talk about "invest in deal x, which is forecast to return a 20% net IRR". But they will say: our past deals have returned 24% net to our investors, or outline their overall business plan, etc.
- Educational content: when you see "download our guide for understanding private placements" or "how to underwrite real apartment buildings" or "replace your W2 in 4 years - step by step guide". This will often lead to a syndicator, and that syndicator may very well be 506(b). Again, they are getting leads through knowledge content, with the goal of converting those leads into investors.
- BiggerPockets: Similar to above. Click on the signatures of people posting here, and you will likely find a fair number of syndicators.
- Ask your friends/coworkers/financial advisor. Most people use their own network, and as you are seeing, between crowd funding platforms, and other marketing channels that are now open to all syndicators, you are likely hard pressed to come up empty if you ask around in your network.
As for LFI, I am not a member but have dealt with @Jim Pfeifer, Chad and team. Great group of gentleman leading that group. I have spoken with several members of the group and all speak very highly of the group overall.
There are hundreds of regulation a+ offerings out there that allow for non accredited investors. Many have very low minimums of $5K+. some even $100.
Most people have never even heard of regulation a+ as an investment offering.
"We will be seeing a lot of people who made a lot of money the past five years lose a good portion if not all of that money they made."
I'm curious about why you think this is true. Is it because of the people or because of the asset cycle? In other words, will those people lose because they (inexperienced syndicators and over-eager/impatient investors) are chasing risk in an environment that is more conducive to being risk-off? Or is it because there is too much money chasing too few good deals?
I'd lean toward it being the former, but would appreciate any insight you have that leads you to believe this will be the case.
"We will be seeing a lot of people who made a lot of money the past five years lose a good portion if not all of that money they made."
I'm curious about why you think this is true. Is it because of the people or because of the asset cycle? In other words, will those people lose because they (inexperienced syndicators and over-eager/impatient investors) are chasing risk in an environment that is more conducive to being risk-off? Or is it because there is too much money chasing too few good deals?
I'd lean toward it being the former, but would appreciate any insight you have that leads you to believe this will be the case.
Because there were a significant number of operators who had no business being in the business and had variable debt financing which has reset. They also were using ultra aggressive proforma numbers thinking that the covid rent increases and appreciation numbers would continue.
Just do some searching on firms which have stopped distributions, you will see there are many of them. I can name about a dozen off the top of my head.
Yes many also were chasing risk/had no clue how to evaluate risk. When I would look at a deal and ask the sponsor what happens if your absorption numbers after updating the units was off by 30 days what would that do to the proforma and when I got a BS /deer in headlights answer, I knew they had no clue what they were doing.
Investor · Passiveadvantage.com · Member since 2019 · 164 posts · 91 votes
2y
John,
Your asking the right questions and you are correct and having a bit of trepidation right now based on the current market conditions. I've invested in over 25 Limited partner deals and I would say less than 5% of the deals I see today, if that, are even worth considering in this current market. That's just my opinion as a conservative investor. Ian provided excellent info and hes a great resource as well as his group.
There are other resources out there that help you with your education process if you look, as well as vetting syndicated deals and what to look for. If I were you at this juncture I would focus on building up my cash reserves and keeping it in the risk free 4 to 5% interest rate accounts and build this cash fund for opportunities over the next 6 to 18 months. Separately I would focus your time on education and making sure you're comfortable with what you were looking at in deals and had a bedtime appropriately.
