Finding private placements / multifamily equity partnerships

24 Replies

What's the best way to find these sorts of deals? Something akin to costar or loopnet but for partnering. I'm not interested in realtyshares.com, fundrise.com or the like. I would prefer direct ownership, but a partnership. Since this question will come up, let's assume I have $150k to invest. Thx, J

@Jay S. investment sponsors are somewhat elusive by design.  I guess that's why they call them "private placements"...because they're private!  While most firms would love to shout from the mountaintops about their offerings, it isn't permitted by the securities laws.  There is change afoot, however, with the JOBS Act provisions that allow these private offerings to be advertised if specific rules are followed but so far there has been limited use of those rules.

Instead, sponsors rely on word-of-mouth from their existing investors.  If you subscribe to GlobeSt and MHN online you can get daily emails that contain news about what's going on in the Multifamily industry and many articles talk about who is buying what. Most of those buyers are syndicating in some way whether it be via single-property offerings or multiple-asset funds.

The very best way is to ask someone already investing with a sponsor, because sponsor selection is key.  A bad sponsor can cause a good deal to go south and a good sponsor can make the best of a deal that is struggling.  It really comes down to the sponsor's track record so you need to do your due diligence.  Finding a sponsor is the easy part, vetting them is where the real work begins.

Medium praxis capital logo cmyk stacked 900pxBrian Burke, Praxis Capital, Inc. | [email protected] | http://www.PraxCap.com | Podcast Guest on Show #152

Thanks for all the feedback. I'll follow up individually. :)

Cheers,

J

@Jay S. ,

@Brian Burke gave you some very good advice. I would start by thinking about two things. 1. What type of investments do you want to do. 2. What markets are you interested in.

If you prefer let's say the Single Family Residential asset class more than Self Storage, that in itself will begin to week out some potential partners. Then lets say that you know the Denver area is booming and you expect it to continue, you may want to try to contact some lenders, brokers, and local RE Investment Club leaders and ask them who are the 20% that is giving them the 80% of their business, or who they would want to partner up with themselves.

For example out group focuses on Multifamily Investments in the Central Texas (Austin - San Antonio Corridor & Pittsburgh - where we started). If you don't like the thought of investing in apartments or those regions in particular, then we may just not be a good fit based on those two simple questions.

Just because you don't want to invest through a crowd funding portal doesn't mean that you can't window shop who the operators are doing the deals. With a quick google of the sponsor you can probably find out their office number and talk to them about a possible direct investment. I wouldn't discredit entirely working through a crowdfunding portal they do a lot of due diligence on the sponsor and deal that you may not want or know to do yourself.

Certainly each group will also have different barriers of entry as far as who they want to invest with them, but I think first if figuring out what is your preferred investment vehicle - Asset Class (Multi, SFR, Retail, etc) and markets that you yourself would like to invest in and go from there.

Any other questions feel free to ask.

Jay... have you ever thought of getting involved in a joint venture deal with someone that does these types of deals?  If it were me that's what I would do.  If you don't want to be so hands on there are always people looking for project funding in this area and you could simply be a private debt investor and get a return on your money.  There are a bunch of ways to go about it you just need to find the one that work best for you.

Ozzy Smith, American Dream Investments | [email protected] | (937)572‑7931 | http://www.americandreaminvestments.org | OH Agent # 2015001585

I'm curious about your comment "I would prefer direct ownership" in regards to why you won't use realtymogul, etc. It's true that your investment is through a separately formed LLC, but outside of control rights (which you won't have much of if you're a small % owner) you wouldn't have much more "direct" ownership if you invested in a partnership.

Hi @Jim Groves - My thinking (and I could be wrong) is that with direct ownership in the form of an equity partnership, if I own 15% of the LLC, I'm getting 15% of the net cash flow disbursement and have a 15% vote on the property - and yes I agree, that a 15% owner can easily be outvoted. However, the syndicator receives a small equity share (plus may put up their own money as well) as well as a one-time finders fee, but it would still be transparent about how much of the property they own and in what manner they are compensated. Yes, I know there's such thing as a "promote" but let's keep it simple... I would also have a very clear idea of what is being paid out in maintenance and management of the property. The books and the tax returns are mine to scrutinize.

In contrast, I'd say that the vast majority of the deals I've seen on a realtyshares.com type website are debt offerings. I'm told that I can invest say a minimum of $5,000 and given a projected IRR or cash-on-cash return for my money. It is not a buy-and-hold proposition. Even in the cases where it's an equity offering, there's a finite hold period (2-5 years) and I'm never told what the property is actually making. I may have a projected rate of return of for instance 10% over 5 years but how does that compare with the NOI even after money is put aside for CapEx and the debt service is paid? I'm willing to wager that the syndicator is doing much better than 10% IRR per year over that 5 years, yet I'll never know.

J

@Jay S. I agree with @Juan Maldonado 

1) You want to find your sweet spot for deals. This would include, what asset class you want to invest in, dollars you want to invest, what type of partnership you want, and what type of returns your looking for.

2) Find a market you want to invest in, and become an expert. Call brokers, lenders, managers, and find a local RE Club or Group. 

3) Use BiggerPockets as much as you can.

I focus on properties 100 units or more, southeast & midwest. I also wanted to thank @Joe Fairless for putting my name out there. Any questions you have please don't hesitate to ask.

Medium screen shot 2015 08 11 at 5.23.17 pmJohn Cohen, JC Property Group Inc | 5162683500 | http://www.jcpropertygroupinc.com

If you're interested in TX-based assets and can make it here enough times to network wth local leads, I'd highly recommend Lifestyles Unlimited's MF program.    Their track record of leads winning awards at the national level year after year speaks for itself, and their lead investor guidelines provide a fair deal structure for both leads and passives.

I'm just a satisfied customer who has invested mid six figures across 7 deals over the last year and a half.    I've also looked at many non-Lifestyles deals, which has made me appreciate the Lifestyles lead guidelines that much more.   In fact, I just made my first non-LU MF investment today, but it was a small one.

Hi Jay, please feel free to reach out if fractional ownership of a pool of SFRs is something you might be interested to consider - we have a fund up and running with these now and are doing very well.

Originally posted by @Jay S. :

Hi @Jim Groves - My thinking (and I could be wrong) is that with direct ownership in the form of an equity partnership, if I own 15% of the LLC, I'm getting 15% of the net cash flow disbursement and have a 15% vote on the property - and yes I agree, that a 15% owner can easily be outvoted. However, the syndicator receives a small equity share (plus may put up their own money as well) as well as a one-time finders fee, but it would still be transparent about how much of the property they own and in what manner they are compensated. Yes, I know there's such thing as a "promote" but let's keep it simple... I would also have a very clear idea of what is being paid out in maintenance and management of the property. The books and the tax returns are mine to scrutinize.

In contrast, I'd say that the vast majority of the deals I've seen on a realtyshares.com type website are debt offerings. I'm told that I can invest say a minimum of $5,000 and given a projected IRR or cash-on-cash return for my money. It is not a buy-and-hold proposition. Even in the cases where it's an equity offering, there's a finite hold period (2-5 years) and I'm never told what the property is actually making. I may have a projected rate of return of for instance 10% over 5 years but how does that compare with the NOI even after money is put aside for CapEx and the debt service is paid? I'm willing to wager that the syndicator is doing much better than 10% IRR per year over that 5 years, yet I'll never know.

J

The first paragraph is correct, if you're buying 15% of the LLC you're getting a 15% interest in cash flows (except for promote, fees, etc). You also get the voting rights too.

The second paragraph (in regards to crowdfunding) isn't really correct. On equity deals, you should be--I emphasize "should be" because I can't speak for all platforms--ongoing reporting that shows all of the cash in flows and out flows, including fees. Fees in particular must be disclosed because it transparency is critical in this business. Platforms that don't disclose this properly won't be in business very long. The key aspect is the voting rights--it's not designed to permit voting rights for individual investors. The master LLC makes decisions on your behalf.

As far as the holding period is concerned, that's all a matter of your preference.  Most partnerships I've seen are in the 5-7 year range.  My guess is that a crowdfunded deal tends to be shorter because the business plan has already been achieved and most retail investors do not wish to tie up their money longer than 5 years.

@Jay S. ,  you bring up a really good point that none of the current crowdfunding marketplaces offer true buy and hold investments. I would love to see that myself. 

 There's a site that does it on the residential side: home union.com.   They aren't true crowdfunding, because the investor has to purchase the whole home, or finance a mortgage for it. But it is buy-and-hold. 

 Some of the triple net lease private equity funds out there are buy-and-hold strategy funds, and might work for you.

Medium oneIan Ippolito, The Real Estate Crowdfunding Review | http://www.therealestatecrowdfundingreview.com/

Jay, I'm new to BiggerPockets but not new to syndication.  I'm working on my third private placement, and would be happy to share that opportunity with you and network.  Let me know if you are interested in connecting.  

Holly

917.975.0143

@Jay S. I think you have good investment goals and some criteria that you are trying to fill in order to put your money to work for you. Unfortunately, by their "private" nature there are not any repositories of information on private placements. Thus it is not easy to: A) Find a large number of deals in which you can invest, B) Compare investment criteria among deals such as risk/return, fees, splits, projected returns, C) Find investment track records for syndicators, the key person that has the most control over your investment.

That leaves you in a position where you have a few options: 1) trust the opaque due diligence process of a crowdfunding site and invest there in a (rare) equity offering 2) Do your research to find a reputable syndicator that works in your preferred property type and in the areas you want to invest, look at their documents and ask to talk with their prior investors so you are comfortable putting them in charge of your money, or 3) invest in public securities,  they are liquid and they take no particular effort, bit your returns will reflect that. 

Medium 4cdivisionst logoBrian Moore MBA, Division Street Capital, LLC | [email protected] | IL Agent # 475.164723

@Jay S. You might be interested in joining our LA meetup, @Jeff Greenberg is organizing and might be able to help. There is one other that has a wide variety of syndicated investments but I forgot his name. I see him in almost all meetups.

@Manolo D. Thanks for the shout out. @Jay S. as previously stated there is no one place to find syndicatiors.  You have found BP and that is one place.  Networking with other investors will help you find  out who are the good ones.

A good syndicator is transparent and provides access to the operating documents.  I don't know of any syndicators that provide much in the way of voting rights.  Even through I want to hear what the investors want to say, but in the end the syndicator make the decisions and is ultimately responsible.

I hope to see you at our meetup on the 23rd.

https://www.biggerpockets.com/forums/521/topics/264027-meetup-in-west-la-santa-monica

Medium sig  3 Jeff Greenberg MBA, Synergetic Investment Group, LLC | [email protected] | 805.372.1799 | http://www.synergeticig.com | Podcast Guest on Show #115

The Meet up sounds like a good idea (I was originally thinking meetup.com). I'm in Mar Vista so it's an easy to jaunt to Pico. Thanks again all.

J

This post has been removed.

@Account Closed your post doesn't add much to the discussion and is quite possibly a paid solicitation (a big no no in the forums outside of the Marketplace). A big red flag is that this is your first post and the fact that your profession as a Virtual Assistant doesn't give us much confidence that you are here to help the OP. 

If this person you "know" actually provides the service that can help the OP,  perhaps you could describe the program in more detail so everyone will  benefit from the discussion. Also, don't use the business name here as you may get flagged.

Medium 4cdivisionst logoBrian Moore MBA, Division Street Capital, LLC | [email protected] | IL Agent # 475.164723

Apologies, if this is coming over as a solicitation, I was trying to help. I will try to remove the post to not cause upset.

Im not sure how to remove the post, can anyone help please?