refinancing a syndicated deal to hold long-term

[Mike Carr]

Question about refinancing a syndicated deal.

Goal: I want to start syndicating self storage facilities. The long-term goal is to refinance the syndicated deals around the 5 year mark to pay back the principal invested and hold the facilities long-term. Once the refinance is complete and the principal is paid back, the percentage of ownership would change. 

Example: The Limited Partners will get an 8% preferred return plus a 70/30 split with the LP's getting 70% and I (general partner would get 30%). Once the principal is paid back at the refinance, the preferred return would end and I would now get 70% and the limited partners would get 30% (they have the option of getting bought out if they no longer wish to stay in the deal).  Every deal is different so this is just an example.

Question: I have been reading more and more about how most commercial loans require the borrower to have a net worth of what the loan amount is. During the refinance do any loan requirements change? If the limited partners want to be bought out and the refinance will leave just me as the owner...how much will the banks look at my net worth as part of the approval? Even if all investors stay in at the 30%, how will that effect the approval process?

Thanks for any help. 

[John Nachtigall]

Just to give you an example of how far off your expectations are.    There is a self storage fund up for syndication on the CrowdStreet platform at the moment, 10 Federal Self Storage.

• Sponsor has done 175 million in previous self storage transactions
• They are contributing 2.5% of the capital
• 8% preferred return...yearly.
• 70/30 (investor/sponsor) for all remaining monies....forever both operating income and selling of properties.
• They have a proprietary set of technologies to convert the acquisitions over to more efficient running.   And they have done 1 as a proof of concept already.  So they have technical expertise also.  

Why would I, as an accredited investor, give you any money

• You have no track record
• You are contributing no capital
• After I get my capital back to take the lion's share of all the returns.   
• You gave no indication you have ever run a self storage.

I would suggest (not in a mean way) that you do not understand the "capital stack" and  how to "respect the money".   I have not seen a single syndication deal where the sponsor takes more than the investor at any stage in the deal.   I have only seen 2 deals (out of more than 100) where they split 50/50 and that is only after the 1st 20+% of returns.

Simply put, no one is giving you capital so you can own 70% of a property with no skin in the game.  Finding a deal is not as valuable as having the money and there returns need to reflect that.   You are trying to treat them like lenders without paying interest.  

I would suggest you look at syndication deals in this area (self-storage) or even better contact experienced sydicators to invest in or work with them to lean how it actually works.