New York City, NY · Member since 2015 · 23 posts · 9 votes
I am an NJ based RE investor and so far have been investing in buy and hold in Newark NJ ( Resi/multifam/apt) and have built a local portfolio. In 2020, my goal is to invest in ~5 OOS multifamily syndication deals in attractive sub-markets with credible/experienced RE syndicators. I am interested in investing in Class B/C value add syndication transactions but have not short-listed submarkets yet. Would love your thoughts on the following:
1. Your Syndicator criteria - What do you look at to feel comfortable with the RE Syndicator if you dont know them personally
2. Min Syndication structure and deal critieria - Are there broad deal and syndication criteria that is a baseline.
3. Any other suggestions you might have as I start this
We analyze self-storage, mobile home park, and multifamily operators/syndicators and deals every week and we have a list of 26 items we look at. Very extensive and conservative. Happy to share it with you. Feel free to PM me.
We analyze self-storage, mobile home park, and multifamily operators/syndicators and deals every week and we have a list of 26 items we look at. Very extensive and conservative. Happy to share it with you. Feel free to PM me.
My syndicator criteria - they have significant experience in the asset class, they're trustworthy straight-shooters,
Syndication structures - From a numbers standpoint, I look for double digit cash on cash and mid to high teens IRRs. The numbers only tell part of the story though. I'm going to look into the business plan and see if the projections are actually conservative or not. I'll look at the comps and see if they make sense. I'll also look for potential conflicts of interest. Read the PPM thoroughly and understand what happens if things go wrong.
Other suggestions - look at lots of deals! Build relationships with sponsors. As both a syndicator and a syndication investor, I think this business is best looked at as a long term strategy. At the end of the day, you're signing up to be in business with the person for 5 years or more. It's more pleasant if you like them.
Thank you @Taylor L. Great advice, espcially on building relationships with sponsors and reviewing the PPM and business plans. This is the long game.
All - any additional thoughts/suggestions on syndication investments. Esp mistakes you made?
I sat on the sidelines for too long. Fortunately I haven't lost money on a deal yet. In multifamily I think the biggest mistakes come down to buying too high, underestimating repairs, and overestimating potential upside in rents.
Welcome to BP! You should listen to @Paul Moore advise as it is always invaluable. Aside from that, networking is the key. You should do it online and offline. There're tons of REI meetups in the City and NJ. We host in both places as well. Feel free to join us. More details under my profile as we're not allowed to advertise in this section. Feel free to reach out if you need more help.
Thanks @Alina Trigub. Will definitely check out details on your REI meeting. and thank you so much for linking to the articles.
I have been to several different REIs and there is significant participant, quality and focus diversity. At present looking to be very focused on OOS multi families and seasoned syndicators so want to go to focused REIs. So far the one I enjoyed the most was the NJ Multifamily Foundation meetup (Jason Yarusi) and would love to check out similar ones in NY or NJ.
While my personal focus is on syndications as well, sometimes I offer topics that may be relevant to other areas of REI. Next one is going to be good for everyone.
Thanks @Alina Trigub. Will definitely check out details on your REI meeting. and thank you so much for linking to the articles.
I have been to several different REIs and there is significant participant, quality and focus diversity. At present looking to be very focused on OOS multi families and seasoned syndicators so want to go to focused REIs. So far the one I enjoyed the most was the NJ Multifamily Foundation meetup (Jason Yarusi) and would love to check out similar ones in NY or NJ.
@Shefali Rai great questions! I'm not sure where you are in your research, but biggerpockets is definitely a great resource on this subject.
1. Sponsor Criteria - Experience: I want to understand the sponsor's background in real estate investing and business. I want to see there's a partner who has invested through an entire real estate cycle. - Education: This isn't a requirement but, I like to know what education the sponsors have. - Team/Process: I want to understand the process behind asset selection and who is on the team. Who put together the legal documents and who currently represents the sponsors. Property manager, back of the house, etc. etc. - Communication: I would like the sponsor to be reasonably available. - Liability: I want the Sponsor to be able to show they have invested in some of their deals. - Track Record: I want to see the Sponsor has a track record of good real estate investments. - Investment Strategy: Do I agree with their investment model? - Face-to-Face Meeting: If you can, I would try to arrange an in person meeting. - Likability: I want to like the person I'm working with.
2. Deal Structure - This is somewhat of a personal question based on what your income needs are. I like to see the following items in a deal structure. - Cash-flow: I want the asset to be cash-flowing. - Preferred Return: I want there to be a preferred return in the deal. I want the sponsor to get paid after the investors. - Conservative Underwriting: I want to see that a deal has provided allowances for tenant vacancy, repairs, etc. I understand the worst case scenario isn't presented in projections, but I want to know the asset won't flop or totally fail. - Fee Structure: I take all fees into account. There are numerous ways for fee structures to be designed. Some companies will have acquisition fees, refinance fees, asset management fees, and others. I would ask for a detailed review of fees and an illustration that projects what your investment may look like when the fund refinances or sells. Most companies should be able to show a projection what your investment may look like after 7 years (keep in mind you may not be comparing apples to apples if one sponsor is less conservative in their projections than the other).
3. Other Advice: - Education: You've already started by asking questions here! Search the forums and read books. One older, but good book that I like is called "Principles of Real Estate Syndication" by Samuel K. Freshman - Worst Investment: I want to hear about the worst investment a sponsor made and hopefully, they'll tell you what lessons were learned.
@Shefali Rai already great advice on this thread. I would echo what @Haydn Zeis shared and would suggest a few additional items: Trust and Transparency.
Keep in mind that the most critical variable in your experience as an investor will be the PEOPLE you are investing in, not just the DEALS you are investing in. As you connect with sponsors that resonate with you, take the time to develop a relationship with them. Trusting the sponsor will be paramount to you sleeping at night, and I can't stress that enough. It does no good to place capital with a sponsor who has a project with an attractive pro forma to find out later they can't be trusted. Making sense of the deal and understanding their track record is important, of course, but I believe you should develop TRUST before you invest. Developing that trust with someone you don't know may seem like a challenge, but if you approach it correctly, you should be able to achieve a pretty solid foundation of trust.
The best way is to talk to others who have had an experience investing with the sponsor already. Simply ask the sponsor if they would be open to connecting you to a handful of investors who have known and invested with them for a long time. There is nothing that replaces a live conversation with someone who has already built that trust with the sponsor over time. Some items to touch on while you talk to prior investors:
How has the overall experience been? How accessible is the sponsor? If you have a concern, are you able to talk to them? Do they return your calls? Are they transparent? Even when they run into a problem?
Also, one of the most often overlooked components of a syndication is the reporting. When you find a sponsor you like, do yourself a favor and get clear on what your experience will be like AFTER you have invested.
Does the sponsor have a communication plan? How often will you receive progress reports? How are they delivered? What will the reports cover? How often will you see financials? When will you receive tax documents? How often will you receive distributions? In the sponsor's history, have the reporting and distributions been on time?
Your overall experience investing in a syndication involves much more than the yield you could achieve. If you take the time to share some phone calls with a handful of prior investors, you should get a pretty good handle on what your experience is going to be like.
The purpose of investing in a syndication is to leverage the sponsor's time, expertise, and ability to source great deals, but if the experience is going to cause you to lose sleep at night, any return you might make simply will not be worth it.
I am looking for a real estate or self-storage investment/syndication that will produce a tax loss this year. Let's assume I invest $100,000 in a syndication that also uses loans to fund the investments. I am looking for a rough estimate of what my first-year tax loss would be. I realize it depends on my factors. Just looking for a guestimate. Thanks
@Shefali Rai - I have personally invested in over 30 syndicated deals with a number of sponsors in different markets with varying asset types.
Rule #1: No such thing as a good deal with a bad sponsor. Your due diligence on sponsor the front end is huge. All other rules point back to rule #1.
We love what we are currently seeing with MHP’s as well as a few deals that pull together multiple smaller apartments.
The value adds here are unique as you can still find true off market mom and pop assets that are very poorly managed. They are also not being chased by institutional capital nearly as much as larger apartments in top tier markets.
I love discussing syndications with folks. If you would like to discuss further feel free to shoot me a DM.