Graduate to syndication ?

Question

How hard is it to enter the syndication route ?  I want to learn and dive into apartment investing.  Currently I’m capable of managing single family homes in one city.  To grow into the region and larger apartment buildings I believe syndication is the resource to learn.  I’m

motivated and willing to learn.  I understand it would be a long term process and long term game.  I would be a great “boots on the ground” person and want to learn as much as possible.  Can anyone relate to the position I am in ?

Chris Levarek · Answer

@Jason Orr Three ways are the most common into syndication.

• Pay for a Mentorship, to gain access to network, help and partnerships. Comes at a price tag.
• Actively invest, scaling up size of property with each deal. Learn as you go.
• Passively invest in a syndication, request to learn from group and soak up as much as possible along the way. A mentorship with an roi so to speak.

The more uncommon is the route you mentioned. Can you find some mentor for free or be boots on the ground with a 50+ or 100+ unit? Not very easily, yet if this is the route you choose, get into as many big fish circles as possible and talk about what you want to do. Be hungry and never give up because most will, which is why this route is not as common.

Also get clear on why you want to get into syndication. It is a business, brand and job. It is not passive and if it is, you are doing a disservice to your investors and partners in most cases. :)

John Casmon · Answer

Syndications come with a host of elements that have nothing to do with real estate. The responsibility of managing other people's money should be made with careful thought and consideration. It sounds like you are interested in scaling into multifamily and see syndication as a strategy to make it happen. Consider hiring a mentor or investing with a group as @Chris Levarek stated.

You may also want to consider a partnership to ease you into multifamily and working with passive investors.

Brock Mogensen · Answer

Being a GP in a syndication is a great way to scale quick.  That being said, it is not easy to break into the GP world of syndications.  My suggestion is to become an expert in one piece of the process (underwriting, finding deals, raising money, asset management, etc.) and then partner with other GP's that are strong in the other pieces.  Syndication deals are a team sport.  It is ideal to have at least 2-3 people on the GP team..in my opinion.  I followed this process and was able to get into the GP syndication side within one year of "getting into" real estate.  The piece I chose to become an expert in was underwriting.  I then found partners (through BP) that were stronger on the experience and capital raising side.  Fast forward 2 years and we syndicated 7 deals. Happy to expand further on this subject, just shoot me a message.

Evan Polaski · Answer

@Jason Orr: being based in Cincinnati, the 4 largest MF groups in the area are NOT syndicators and never were.  One individual owns something like 10k units directly.  In the last three years, this individual has made $150mm of charitable commitments to various local groups.  Granted he is now in his late 70s, but he never raised capital from investors, he grew organically and made prudent investment decisions. He also held on, paid down debt on his assets to always have capital available for the next deal.

And as John mentions, going down the syndication route requires more work.  Just like investing your own capital, you still have to find deals and run those deals.  You also have to do a lot more marketing to find investors, continually communicate with those investors, when you have an active opportunity you will spend a lot of time shuffling papers and making sure docs are properly executed and complete.  You have compliance hurdles to watch out for and more.  You then also have distributions to those investors, at some periodic interval.

Finally, and this is not unique to syndications, but bigger deals require a stronger personal balance sheet and liquidity to secure loans.  Typically, given all of the legal costs to setup, it only makes sense to syndicate deals worth about 10mm or more.  A $10mm asset, will likely have a 7.5mm loan (more or less) and that 7.5mm loan will typically require the loan guarantor to have a 7.5mm net worth and 750k of liquid assets.  I mention this because, when you grow organically, your net worth and liquidity are likely growing with your asset size.  When you syndicate and "jump" levels your financials do not align with loan requirements.

All these hurdles are clearly possible to overcome, but I get the sense that most people that want to "get started" in syndications are not familiar with the intricacies.  And even hiring a mentor may only help with ideas to overcome some of those hurdles but not all.

Colton Hahn · Answer

I think the natural progression of real estate investors is getting property then 4 then 10 then none, then fully into syndications from my experience talking with our investors. I think you should do as much reading as you can on the topic of syndication, there is so much to learn!

Find out if it is truly what you want and start contacting syndicators and asking some tough questions about where they target, why they target it, what their projections are, how they came to those numbers, and everything in between.

Best of luck Jason!

Jake Wiley · Answer

@Jason Orr. You got some great advice from the group here, @John Casmon, @Chris Levarek,@Colton Hahn, @Evan Polaski, @Brock Mogensen, @Bryan Hancock.   There's not really much to add along those lines.

However, I start with the question, what is it that you think you'd get out of a syndication or being a sponsor?    Assuming, for most it's about bigger deals, more economic potential, etc.    If that's the case, I'd encourage you to dive into the economics vs. the obligations of being a sponsor to make sure that realities align with your vision.  There are a lot of amazing syndicators on this site that could chime in too.     For many, I think the answer might be surprising.

Bryan Hancock · Answer

"Graduating to syndication" is a bit misleading.  Syndications are the mechanism to form partnerships, which is generally done with an operating agreement, offering circular (PPM for certain types of exemptions), and subscription agreement; the latter of which is often a joinder for the other legal documents.

What you probably care about more is being a sponsor for larger real estate projects.  Note that these need-not be apartment complexes.  Anything requiring large swaths of capital uses syndicated capital including early-stage startups.  The "syndication" is generally sharing investment opportunities past the "lead investor" who is the biggest check writer or writing entity that is passive.

If you're seeking an apprenticeship to learn to be a lead sponsor ask yourself what someone who would mentor you would gain to benefit from this arrangement.  Can you raise capital AND participate materially as an active partner?  Can you contribute your own capital?  Do you offer some sort of top-notch consulting expertise that would benefit certain types of partnerships like construction expertise, finding niche loans, etc.?  Do you have a big balance sheet to rent and kiss notes?

Being a sponsor for these types of projects is the top of the real estate mountain.  Think of getting there in terms of stages to navigate as you gain experience that you can sell to attract capital on your own and add values to LPs on your own.  Rome wasn't built in a day.

Don Konipol · Answer

@Jason Orr

We syndicate real estate deals because we earn fees by being the “sponsor”.  Some fees are upfront at the time the deal closes, some are ongoing, and some only arise once the property is sold (sometimes refinanced).

Further, some of these fees are fixed, while some are contingent upon the investors first earning a certain threshold of return on their investment.  These type fees are usually a percentage of some profitability calculation.

There are times syndications are in great demand, and other times they’re a “hard sell”.  But the number one determinant of whether an attempted syndication “sells” successfully to investors is the track record and previous experience and strength of the sponsor ( note this may not be true of the so called “crowdfunded” syndications sold to small non accredited investors in sizes as low as $50). The number two determinant is the perceived risk.  The projected ROI is at best number 3, and is so often over projected, mis calculated, and based on tenuous assumptions that it needs to be recalculated by someone familiar with “forensic” accounting procedures to be believed at all.

Ryan Sarka · Answer

@Jason Orr I would highly recommend JV'ing on a couple smaller multifamily deals prior to getting into a syndication. Doing this will allow you to be "hands on" asset managing your and your partner(s) money, working with a 3rd party manager, comparing actuals vs your proforma, working with contractors, etc. I would also LP on a deal or two and get on a bunch of GPs mailing lists to learn from other people doing it.

Syndications and being a GP is a lot more, work, time and effort then many make it sound. Its also a BIG commitment to all of your investors not to lose their money and hopefully make them what they are expecting based on your initial offering. If your dead set on getting into syndications figure out what segment (boots on the ground, underwriting, capital raising, deal sourcing, etc) you are strongest on and find a GP team you can join and add value to.

Good Luck!

Mike Lawrence · Answer

Jason,

My wife and I are on a similar journey looking to transition into the multifamily arena. We are in the education phase right now. A great book to read to gain some incredibly valuable knowledge and insights is "Best Ever Apartment Syndication Book" by Joe Fairless. He does a fantastic job breaking down what it takes to become an apartment syndicator and everything involved with finding and closing deals. It is definitely something that comes with a massive responsibility because you are dealing with millions of investor capital, and it is your duty to preserve, protect, and grow that investor capital as a syndicator. Our approach that we have decided on is:

1. Get educated - read books, take courses, listen to Podcasts, learn everything we can

2. Network - connect with local multifamily investors, join FB groups, Meetups, Multifamily investor groups

3. Find a Mentor - someone who will guide you through the process, potentially partner with you, you may invest in a mentor to speed up the process or network to find someone who will take you under their wing for free.

4. Add Value to Mentor - find ways you can add value, you mentioned "boots on the ground", however you can help

5. Partner on deals w/Mentor - you won't have the credibility or experience to do your own deals at first, but you can leverage the credibility and experience of a mentor to close deals. Even if you get a small piece of the equity, it could still be a huge upside if it's a big deal. As you gain experience and are able to bring more value or start building your own network, team, etc. you will eventually gain the experience to be the lead on a deal.

Good Luck!!!

Graduate to syndication ?

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