Syndication Companies- feedback on a few I’m analyzing

10 Replies

I’m considering investing in syndication companies and I’m analyzing the 3; can anyone provide specific feedback on any of these? Alternatively, are there any you would recommend?

Passive Investing

Presidium

Praxis Capital

Originally posted by @Kristen Savino :

I’m considering investing in syndication companies and I’m analyzing the 3; can anyone provide specific feedback on any of these? Alternatively, are there any you would recommend?

Passive Investing

Presidium

Praxis Capital

I've always been approached on active purchases to invest in a particular project. Are you suggesting that you buy into these companies and wait for them to find a project?

Never ever invest your money into a syndicated real estate company. Never ever trust someone else with your money. Never believe what someone tells you. Always have control of your money. Never let someone else control your money. 

It is too bad that we don't live in an ideal world. In an ideal world everyone would be highly educated, honest, reliable, dependable and do what they tell you.

The day you give your invest your money into syndicated real estate you need to hope and pray the general partner knows what he (or she) is doing and some general partners are great and some are real scumbags, do jot manage their properties well and they have the right to spend and steal your money in many ways that are illegal, but you will have a very difficult time uncovering, proving and then you will have to fork out attorney fees and court costs. I always found that the general partners were super friendly and easy to get on the phone when you wanted to talk to them about investing your money and after they had your money they never answer the phone and they tell you to wait until they send you their manipulated quaterly (or whatever period) report.

Truse me! I invested into  a syndicated real estate investment for two K-mart shopping centers. The deal sounded great because K-mart had 4 25-year leas options. That is 100 years, But, the major problem was the lease options stated that there would be no rent increases for 100 years. If there are no rent increase then the property's value cannot increas.

But, the rent increase problem was not the major problem. I paid an attorney something like $1,000 to read the Placement Memorandum and the attorney said the deal was great. I paid a so-called Financial Advisor something like $500 to read the Placement Memorandum and he said the deal was great.

I invested exactly $1 million into the investment and was supposed to get back $2.1 million is a certain number of years (can't remember). But, about three years into the deal the general partner, who lives in a multi-million dollar house in Bocaton Florida next door to Jackie Gleason and the owner of Mary Kay Cosmetics, ripped off the general partners by paying himself $28 million for some sort of b.s. fees and management b.s.

Including myself, there was 25 limited partners. We filed a Class Action lawsuit that went on for 5 years. We won $50 million dollars. That comes out to $2 million per investor, but after the attorneys on both sides took out their cut and court fees I received a check in the mail for $39. During the Class Action lawsuit, my personal attorney charged me almost $50,000. I paid my attorney $37,000 of the $50,000 and refused to pay the last $13,000 because my attorney had moved to Africa without telling me and he turned my case over to an attorney I did not know. That attorney is who charged me the additional $13,000 just for billing me and said he would not look at my case until I paid the $13,000. This attorney was a real scumbag. So, I filed for bankruptcy just because I did not want to pay the $13,000.

I have a 25-unit apartment building next door to my office and I live in my office building. A scumbag syndicator purchase the building with investors' money, like yourself. The building was 100% rented when the company purchase the building.

So, this stupid idiot who runs the syndicated real estate company decides he is going to remodel the apartment units. I spoke with him when he purchased the building since I would see him next door to my office every day. I told him that the best way to remodel the units was a few at a time. NO! This bigshot kicks out all 25 tenants at the same time and reduces his rental income from $48,000 to zero. 

He starts to remodel the units and I tell him the sewers under the concrete slab are busted because when we clean any drain our snake cables go directly through the busted pipes and into the dirt. I tell him that I don't want the job. So, I recommend a plumber who can re-pipe all the water pipes and jackhammer all the concrete floors and complete the entire job in about 6 weeks.

This syndicator was a real piece of work. For any job, plumbing is always the very first trade that has to complete their work. Instead of doing the plumbing the syndicator has his painters paint inside every apartment and the entire outside of the building. He spray paints the entire bathrooms including the tile walls and bathtubs with whie paint. He paints the bottom half of outside the building with pitch black and the top floor white.

Then, the syndicator starts the plumbing. Instead of hiring a licensed contractor he uses only illegal Hispanics. Rather than using ABS (plastic) for the drains he installs cast-iron that has a life expectancy for commercial purposes for 15 years.

A city inspector catches the Hispanics working on the job and the city stops the work. Now the serious problems begin. The syndicator has illegals install brand new windows in every unit, but they installed windows with the wrong egress size and every window has to be replaced. The city inspector now wants permits and the inspector requires that the syndicator re-wire every apartment unit.

So, now the syndicator is in a financial jam. He has now committed to about $200,000 worth of work for plumbing alone about $140,000 for electrical work and now every bathroom and kitchen has to be gutted to the 2x4's to install the water, drain and sewer pipes from under the concrete floor to about the 2nd floor. The remodeling alone is worth another $15,000 per unit or $375,000 making the total cost about $715,000 not counting some major problems with termite damage plus he did some crappy work to outside the front of the building.

Don't forget the syndicator has to pay the mortgage for the $7 million he paid for the building and he is not getting the $48,000 per month for rent. So, this is what happened. It took the syndicator 2-1/2 years to complete the project. He kicked his plumbers off the job because and did not pay them even though they were 100% finished with the underground work. The courts will not award a judgement to any unlicensed contractor. The syndicatoe kicked the illegal electricians of the job and did not pay them even though there work was about 80% completed. The syndicator hired 4 different plumbing companies and when each company realized they were not going to get paid for the work they completed they left the jobs and the syndicator hires another contractor for plumbing, electric and whatever until the job was completed. Believe it or not, I was dumb enough to help backfill the sewer trenches and I poured a truckload of concrete for all the floor trenches. My actual cost was $10,400 and I never got paid one penny.

I know my stories are long, but I just want to give you an idea of how general partners for syndicated real estate can be dishonest and ignorant. I am 100% positive there are many great general partners, but it is super difficult to sort out who is good and who is bad.

One more short story. A few years ago, I went to an FIBI (For Investors By Investors) real estate meetup and the panel speaker talked a good game about (can't think of the name right not, but the deal where you buy the property and the real estate company does 100% of the remodeling, renting and management for you). Anyway, I like what this panel speaker has to say. So, I call to make an appointment to meet him and look into investing in Memphis. So, like everyone who wants your money, this guy answers his phone on the first ring and he sets what I thought was an appointment to meet with him. He even gives me his office address. The appoint was not for 10 days and was for something like 11 in the morning.

So, I take my shower, jump in my car and drive to the office address. I walk in and tell the receptionist I have an 11 o'clock appointment. The receptionists (several of them) tell me they don't have a clue who this guy is. I show them the business card I picked up at the meeting and the address is correct. The receptionists tell me the office is a Virtual Office Complex. That explains that! So, I call this guy on the phone and he tells me that the appointment was for a Telephone Conference. ARE YOU SERIOUS? ARE YOU TELLING ME THAT I WANT TO INVEST MY MONEY AND i HAVE TO WAIT 10 DAYS TO TALK TO YOU ON THE PHONE?

If I have to wait 10 days to talk to this guy on the phone then how many days will I have to wait to get information from you in regards to the tens of thousands of dollars I gave to you? Or...do you think you will ever be able to talk to on the phone to this person AFTER he has your money. I think that will be the correct scenario.

Do you still think it is wise to take the risk with any company with your money?

I do have a friend who started a syndicated real estate business about 3 years ago and he did a video on BP. I trust this guy 100% and was thinking about going in with him on at least one deal, but decided to practice what I preach and not allow someone to manage my personal money. I would not take the risk even though I trust him because as the saying goes, "Poop Happens". Last emails he sent were before COVID 19 and I think he went from zero apartment units to about 600 units in 3 years, but I am guessing that the rent moratoriums put him in some bad situations and for all I know he could have gone bust, or he may be making tens of millions of dollars, but I am still not willing to allow someone to manage and control my money.

Originally posted by @Jack Orthman :

Never ever invest your money into a syndicated real estate company. Never ever trust someone else with your money. Never believe what someone tells you. Always have control of your money. Never let someone else control your money. 

It is too bad that we don't live in an ideal world. In an ideal world everyone would be highly educated, honest, reliable, dependable and do what they tell you.

The day you give your invest your money into syndicated real estate you need to hope and pray the general partner knows what he (or she) is doing and some general partners are great and some are real scumbags, do jot manage their properties well and they have the right to spend and steal your money in many ways that are illegal, but you will have a very difficult time uncovering, proving and then you will have to fork out attorney fees and court costs. I always found that the general partners were super friendly and easy to get on the phone when you wanted to talk to them about investing your money and after they had your money they never answer the phone and they tell you to wait until they send you their manipulated quaterly (or whatever period) report.

Truse me! I invested into  a syndicated real estate investment for two K-mart shopping centers. The deal sounded great because K-mart had 4 25-year leas options. That is 100 years, But, the major problem was the lease options stated that there would be no rent increases for 100 years. If there are no rent increase then the property's value cannot increas.

But, the rent increase problem was not the major problem. I paid an attorney something like $1,000 to read the Placement Memorandum and the attorney said the deal was great. I paid a so-called Financial Advisor something like $500 to read the Placement Memorandum and he said the deal was great.

I invested exactly $1 million into the investment and was supposed to get back $2.1 million is a certain number of years (can't remember). But, about three years into the deal the general partner, who lives in a multi-million dollar house in Bocaton Florida next door to Jackie Gleason and the owner of Mary Kay Cosmetics, ripped off the general partners by paying himself $28 million for some sort of b.s. fees and management b.s.

Including myself, there was 25 limited partners. We filed a Class Action lawsuit that went on for 5 years. We won $50 million dollars. That comes out to $2 million per investor, but after the attorneys on both sides took out their cut and court fees I received a check in the mail for $39. During the Class Action lawsuit, my personal attorney charged me almost $50,000. I paid my attorney $37,000 of the $50,000 and refused to pay the last $13,000 because my attorney had moved to Africa without telling me and he turned my case over to an attorney I did not know. That attorney is who charged me the additional $13,000 just for billing me and said he would not look at my case until I paid the $13,000. This attorney was a real scumbag. So, I filed for bankruptcy just because I did not want to pay the $13,000.

I have a 25-unit apartment building next door to my office and I live in my office building. A scumbag syndicator purchase the building with investors' money, like yourself. The building was 100% rented when the company purchase the building.

So, this stupid idiot who runs the syndicated real estate company decides he is going to remodel the apartment units. I spoke with him when he purchased the building since I would see him next door to my office every day. I told him that the best way to remodel the units was a few at a time. NO! This bigshot kicks out all 25 tenants at the same time and reduces his rental income from $48,000 to zero. 

He starts to remodel the units and I tell him the sewers under the concrete slab are busted because when we clean any drain our snake cables go directly through the busted pipes and into the dirt. I tell him that I don't want the job. So, I recommend a plumber who can re-pipe all the water pipes and jackhammer all the concrete floors and complete the entire job in about 6 weeks.

This syndicator was a real piece of work. For any job, plumbing is always the very first trade that has to complete their work. Instead of doing the plumbing the syndicator has his painters paint inside every apartment and the entire outside of the building. He spray paints the entire bathrooms including the tile walls and bathtubs with whie paint. He paints the bottom half of outside the building with pitch black and the top floor white.

Then, the syndicator starts the plumbing. Instead of hiring a licensed contractor he uses only illegal Hispanics. Rather than using ABS (plastic) for the drains he installs cast-iron that has a life expectancy for commercial purposes for 15 years.

A city inspector catches the Hispanics working on the job and the city stops the work. Now the serious problems begin. The syndicator has illegals install brand new windows in every unit, but they installed windows with the wrong egress size and every window has to be replaced. The city inspector now wants permits and the inspector requires that the syndicator re-wire every apartment unit.

So, now the syndicator is in a financial jam. He has now committed to about $200,000 worth of work for plumbing alone about $140,000 for electrical work and now every bathroom and kitchen has to be gutted to the 2x4's to install the water, drain and sewer pipes from under the concrete floor to about the 2nd floor. The remodeling alone is worth another $15,000 per unit or $375,000 making the total cost about $715,000 not counting some major problems with termite damage plus he did some crappy work to outside the front of the building.

Don't forget the syndicator has to pay the mortgage for the $7 million he paid for the building and he is not getting the $48,000 per month for rent. So, this is what happened. It took the syndicator 2-1/2 years to complete the project. He kicked his plumbers off the job because and did not pay them even though they were 100% finished with the underground work. The courts will not award a judgement to any unlicensed contractor. The syndicatoe kicked the illegal electricians of the job and did not pay them even though there work was about 80% completed. The syndicator hired 4 different plumbing companies and when each company realized they were not going to get paid for the work they completed they left the jobs and the syndicator hires another contractor for plumbing, electric and whatever until the job was completed. Believe it or not, I was dumb enough to help backfill the sewer trenches and I poured a truckload of concrete for all the floor trenches. My actual cost was $10,400 and I never got paid one penny.

I know my stories are long, but I just want to give you an idea of how general partners for syndicated real estate can be dishonest and ignorant. I am 100% positive there are many great general partners, but it is super difficult to sort out who is good and who is bad.

One more short story. A few years ago, I went to an FIBI (For Investors By Investors) real estate meetup and the panel speaker talked a good game about (can't think of the name right not, but the deal where you buy the property and the real estate company does 100% of the remodeling, renting and management for you). Anyway, I like what this panel speaker has to say. So, I call to make an appointment to meet him and look into investing in Memphis. So, like everyone who wants your money, this guy answers his phone on the first ring and he sets what I thought was an appointment to meet with him. He even gives me his office address. The appoint was not for 10 days and was for something like 11 in the morning.

So, I take my shower, jump in my car and drive to the office address. I walk in and tell the receptionist I have an 11 o'clock appointment. The receptionists (several of them) tell me they don't have a clue who this guy is. I show them the business card I picked up at the meeting and the address is correct. The receptionists tell me the office is a Virtual Office Complex. That explains that! So, I call this guy on the phone and he tells me that the appointment was for a Telephone Conference. ARE YOU SERIOUS? ARE YOU TELLING ME THAT I WANT TO INVEST MY MONEY AND i HAVE TO WAIT 10 DAYS TO TALK TO YOU ON THE PHONE?

If I have to wait 10 days to talk to this guy on the phone then how many days will I have to wait to get information from you in regards to the tens of thousands of dollars I gave to you? Or...do you think you will ever be able to talk to on the phone to this person AFTER he has your money. I think that will be the correct scenario.

Do you still think it is wise to take the risk with any company with your money?

I do have a friend who started a syndicated real estate business about 3 years ago and he did a video on BP. I trust this guy 100% and was thinking about going in with him on at least one deal, but decided to practice what I preach and not allow someone to manage my personal money. I would not take the risk even though I trust him because as the saying goes, "Poop Happens". Last emails he sent were before COVID 19 and I think he went from zero apartment units to about 600 units in 3 years, but I am guessing that the rent moratoriums put him in some bad situations and for all I know he could have gone bust, or he may be making tens of millions of dollars, but I am still not willing to allow someone to manage and control my money.

Sorry to hear it went that badly. Yours is by no means the first and it won't be the last time people were taken advantage of in syndication. You make a great point that it is more important to know the person rather than knowing the company. People come and go, companies change over time and not all opportunities are alike regadless of what is written in the agreement. 

People need to realize that nobody will care for their interests like they care for it themselves, especially when it comes to money. 

Originally posted by @Jack Orthman :

The day you give your invest your money into syndicated real estate you need to hope and pray the general partner knows what he (or she) is doing 

Shouldn't you find out how competent your sponsor is by looking at their track record and doing a comprehensive quality check PRIOR to investing with them? Anyone investing in syndications should have a well planned and comprehensive checklist to perform proper due diligence on a sponsor. How about also speaking to previous folks who invested in them? Also, taking a close at the financials and how they will cover DSCR, what's the refinance period (this is the risk that scares me the most), amount of leverage, how much skin in the game is being provided by the sponsor, a sensitivity analysis on the worst case scenario that you can live with....along with a stress test (i.e., how long can they stay solvent if things turn to crap and tenants stop paying rent). There are also things like whether or not the sponsor is vertically integrated or will they hire out for all the value-added work and property management. There's also a death by Google search to see if the sponsor and any of the individuals had any negative press.

Close scrutiny of the legal docs is just one very small part of doing proper due diligence on a syndicator and their deal. You can have the smartest lawyers scrutinize the PPM and LLC/LP agreements, but that really doesn't amount to jack squat other than the legal perspective. So many FINANCIAL things to look at... is it a Core investment? Value add? Obviously, your examples were Construction, which are always the riskiest. How does the syndicator's record look during past recessions? I only invest with syndicators that didn't lose money during the GFC. How much debt are they taking on? Is it I/O? What's the maturity date? How much time is there between the scheduled exit and the refinance date? How will they secure financing if Bank's suddenly don't want to refinance because we are in a recession? Will the refinance lead to a full return of principal so that remaining distributions are pure gravy? I'm only comfortable with deals that borrow up to 70%. I'll go as high as 75% if it's an incredible sponsor with a very good track record.

Hope and prayer can only help, but I think making an informed decision is much more important.

@Kristen Savino, sorry, didn't mean to hijack this thread too much. Of the three you listed, I know that Praxis Capital is well regarded, though they generally have less skin in the game than I prefer. But that's only the first step. I would do a complete due diligence check on the actual deal before investing with them.

I invested in my syndicated real estate for two K-Mart shopping centers just before the internet. As stated in my posts, the deal was highly-recommended by my CPA. Don't forget that I am the owner of a plumbing and construction business with 60 employees and I don't personally have the luxury of time. I did make the effort to pay an attorney $1,000 to read the Placement Memorandum and I paid some company that advertised he was a financial advisor. The general partner was in Boca Raton Florida and the two K-Mart shopping centers were in Florida and Chicago.

Again, back in the 1980's we did not have the internet and there was not much we could do. I did not try to contact any of their current or past clients because I personally did not have the time and I don't believe any syndicator would reveal their client's personal information, anyway. Not going to lie, but most people in this world rely on the advice and opinions from the people they know and if it was sensible to do more research about the syndicator then that is what I paid the attorney and financial advisor for. I am only a plumbing contractor and not a private investigator.

As for people today, let me give you the name of a very bad syndicator and you tell me what dirt you can dig up on this company. I spent several hours on the internet doing research, paid for one of those private sites that supposedly dig up crap on people and businesses, checked the BBB, Yelp, Ripoff.com, Mantra, Google reviews and several other reporting websites and did not find one bad thing about this company. I know for a fact that this company burned contractors and vendors for no less than $1 million and maybe several million dollars.

The name of the company is Apex Property Management and Turnstone Capital in Gardena California. You will find a few bad reviews about their property management and I personally wrote one bad review about the way they operate their syndicating and that is all you will find and I searched California and Texas where they do business and Delaware where they files their LLC's.