Real Estate Broker · Chicago, IL · Member since 2016 · 37 posts · 11 votes
BP
Why is it so difficult to find a sponsor? What are sponsors looking for in a commercial deal? For an example, I'm looking to do my first commercial syndication deal but I need a sponsor. The deal is a 5 unit strip with one municipal tenant and 4 AAA/NNN 10+ yr contracts. It's has a 6% cap rate.
Is it something else besides the numbers in the deal? Is it a certain personality trait in the newbie?
Attorney · Saint Augustine, FL · Member since 2016 · 242 posts · 234 votes
6y
@Alina Trigub is right. You have to go to networking or training events and develop relationships with others who have the experience you need in the asset classes you are buying. No-one will put their credit on the line until they know you and have looked at the deal to see if it makes sense for you and them.
Specialist · Plano, TX · Member since 2020 · 2k+ posts · 861 votes
6y
Hi Shannon,
I also wonder what sponsors look for in a commercial deal. I am interested to see what others have to say and hopefully we learn more about sponsors. Good luck to you on your first commercial syndication deal.
Investor · Front Royal, VA · Member since 2013 · 586 posts · 418 votes
6y
@Shannon Hogan i'm confused. You're having trouble with the lender requiring a sponsor? You're likely having a hard time because a lender isn't going to invest in the deal unless there is someone with experience on the team. Think of it this way, a lender is the biggest investor in the deal. They will require that their money is safe with someone who has done this before. Try finding someone with experience and asking them to team up with you.
Why is it so difficult to find a sponsor? What are sponsors looking for in a commercial deal? For an example, I'm looking to do my first commercial syndication deal but I need a sponsor. The deal is a 5 unit strip with one municipal tenant and 4 AAA/NNN 10+ yr contracts. It's has a 6% cap rate.
Is it something else besides the numbers in the deal? Is it a certain personality trait in the newbie?
The first step is expertise. You need to be thoroughly educated and am expert at what you’re doing. I’m not sure what you were looking for. if you want to syndicate the deal you are the sponsor. Are you asking about a loan guarantor?
Real Estate Broker · Chicago, IL · Member since 2016 · 37 posts · 11 votes
6y
@Marlen Weber I mostly want to gain experience. Everyone says the same thing that they want you to bring experience to the table otherwise how can they trust you. In my case I am a broker so I’m bringing the deal to the table. I am only interested in the broker fees for myself but I have high net worth investors who want to participate but they lack experience as well
Real Estate Broker · Chicago, IL · Member since 2016 · 37 posts · 11 votes
6y
@Lucas Miller My question Lucas is how do I get somebody experience to partner with me and I have no experience. I have already located a deal. I also have a group of high net worth investors but they do not have experience either.
Real Estate Broker · Chicago, IL · Member since 2016 · 37 posts · 11 votes
6y
@Greg Dickerson Greg I have never participated in a syndication deal before so I am not an expert. I am a broker and I have a deal and a group of investors. We are looking for a sponsor.
@Greg Dickerson Greg I have never participated in a syndication deal before so I am not an expert. I am a broker and I have a deal and a group of investors. We are looking for a sponsor.
That makes sense. Shoot me a DM and we can discuss.
Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
6y
I would invest in another deal first. Be upfront about wanting to learn, but invest capital passively first. OR do small deals cash only, small loans, etc.
Why is it so difficult to find a sponsor? What are sponsors looking for in a commercial deal? For an example, I'm looking to do my first commercial syndication deal but I need a sponsor. The deal is a 5 unit strip with one municipal tenant and 4 AAA/NNN 10+ yr contracts. It's has a 6% cap rate.
Is it something else besides the numbers in the deal? Is it a certain personality trait in the newbie?
Hi Shannon,
You will probably be better off with a co-sponsor who is an experienced sponsor in the asset class you are buying.
Ask your broker, your attorneys, and your CPA if they know of any one who might do this (after looking at your deal and your numbers)
Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
6y
Shannon,
I'd encourage you to 1) post under BP Marketplace on what/who you're looking for and 2)Start looking for Dallas operators yourself. You can do it here on BP or by going to local Dallas TX events. It all comes down to networking and establishing/building the relationships with the right people.
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
6y
Shannon what kind of real estate do you sell and specialize in?
As an example my specialty is retail. I review about 1,000 properties a week nationally. I pretty much eat, sleep, breathe it.
It doesn't seem by your posting you have much experience and neither do the investors who might want to place money with you. Are they accredited investors? This could turn into a mess really quick. What are they expecting for preferred return and syndications structure, hold times, split of cash flow, back end promote split, sponsor fee going in, etc.?
If you have a 6.0 cap rate on a brand new product the debt for retail strip center is usually around 4.35% fixed to about 5% currently depending on asset quality and location. You would only have a 100 to 165 basis point spread between debt and cap rate for possible return before any rental increases and mortgage paydown.
Hard to make that deal work as a syndicator unless the investors are taking almost nothing for yield.
In Illinois you can lose your shirt on retail. Some counties there the property taxes are enormous and can bankrupt and shutter businesses. That is why a lot of product is on sale there as property owners are trying to invest in other states where growth is occurring but property taxes are more reasonable. In NNN or NN typically the tenant does pay for property taxes with a retail center reimbursed through CAM but that overall cam can put them out of business when it makes their overall operational costs to high.
Example a 5 million retail center in certain parts of Illinois could have 100,000 or more in property taxes annually! That same center in GA could be 40k in property taxes and in Texas can be 60k as an example. So property taxes not the only metric but important to consider and evaluate. Some counties in Illinois taxes are not as bad so want to do research. If you are bringing capital but little to no experience than not much to offer really for a syndicator to get excited about.
Think of It this way. A syndicator is doing deals already with a track record and investors giving them capital. Now another new potential syndicator comes along and they want a piece of the pie and want to be trained up and the investors as well are not experienced accredited already invested in deals. That is a TON of heavy lifting for the experienced syndicator. There really Is not much value to them to accept a proposition especially on a moderate 6 cap property. ( An exception might be if one of your accredited investors is a WHALE. So instead of a passive investor worth 2 million looking to do 1 deal putting in 100k they can keep funding deal after deal and are worth 50,100 million or more.) That might be valuable to an experienced syndicator for the potential relationship. If it's a group of (one and done) investors that need training to understand the space than not so much.
There are books and websites if you want to learn. My fried Gary Rappaport has a good one on retail syndicating called Investing in Retail Properties. I am writing a book on retail but mine will not go real in depth for syndication as it is more geared toward the investor and evaluating properties.
Additionally you can look at the Value Hound Academy to learn how to put packages together and training etc.
Not making specific endorsements just giving information. Learn and take action at your own risk. No legal advice given.
Attorney · Saint Augustine, FL · Member since 2016 · 242 posts · 234 votes
6y
@Alina Trigub is right. You have to go to networking or training events and develop relationships with others who have the experience you need in the asset classes you are buying. No-one will put their credit on the line until they know you and have looked at the deal to see if it makes sense for you and them.
Attorney · Los Angeles, CA · Member since 2016 · 284 posts · 314 votes
6y
You can either 1) go through a syndication coaching program or, 2) I'm happy to ask some of my clients whether they'd be interested in doing a deal with you so that you can gain experience.
Why is it so difficult to find a sponsor? What are sponsors looking for in a commercial deal? For an example, I'm looking to do my first commercial syndication deal but I need a sponsor. The deal is a 5 unit strip with one municipal tenant and 4 AAA/NNN 10+ yr contracts. It's has a 6% cap rate.
Is it something else besides the numbers in the deal? Is it a certain personality trait in the newbie?
Education is important, because it'll help you learn how to determine if there is a good business case to buying a particular piece of property. This may or may not be a good deal based on what you've presented. You'll need to learn to sort through good deals for bad ones.
I'd recommend you meet sponsors at in-person events. Ultimate Partnering is a great event in Boston every year that focuses on exactly this. If you can bring capital to the deal with HNW investors that will help a lot as well.
