Looking for advice on sydicating apartment building purchases...
Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes
Looking for advice on sydicating apartment building purchases...
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Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
10y@Jerry Kisasonakno this is not a silly question. The term you are looking for is sponsor as opposed to lead investor.
1. A typical cut for bringing all of the expertise and knowledge, as well as finding the deal, getting the loan, conducting the due diligence, asset managing the deal, etc. might be 25-40%. I have seen 50% on construction deals.
2. Many times this is done with no money from the sponsor. It does provide more confidence to potential investors, if the sponsor is investing along side them. The ownership the sponsor would get for his capital would be in addition to the ownership as the sponsor.
There are many ways to cut up the pie. How it is cut up depends on the type of deal, the experience of the sponsor, the potential returns as well as other factors.
11 Replies
- Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes10y
@Jerry Kisasonak, I have syndicated several large deals, 100+ units. Do you have specific questions?
The best advice I can give you is to get connected with a really good securities attorney. The rules on a private offering to investors are not hard to follow, but you need to make sure your investor documents have all the necessary disclosures, etc.
Said another way - don't go cheap on trying to do it yourself.
- Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes10y
As @Brian Adams stated it is not complicated. If you have some specific questions there are a few syndicators that could help you out.
- Investor · Sarasota, FL · Member since 2014 · 54 posts · 14 votes10y
Check out iDisclose.com for offering docs.
- Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes10y
The specific question I have in mind right now is in regards to being a lead investor. Basically, since the other investors/partial owners are very busy in their given professions/occupations, we would like to contribute mostly by locating, contracting, syndicating and managing the project. From my understanding this is essentially the capacity which a lead investor holds.
So the specific questions are:
1. What is reasonable for a lead investor expect to profit percentage-wise from the deal?
2. Is this ever done with the lead investor contributing a much smaller amount of capital versus the other owners in the project?
3. Is this ever done with the lead investing none of their own money, but getting paid purely for assembling the deal and managing it?
I realize these may seem like silly questions for someone more experienced in this arena. This sector of real estate is new to me and I'm, at this point, just trying to identify the opportunies. Any good books you could suggest on this subject?
- Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes10y
@Jerry Kisasonakno this is not a silly question. The term you are looking for is sponsor as opposed to lead investor.
1. A typical cut for bringing all of the expertise and knowledge, as well as finding the deal, getting the loan, conducting the due diligence, asset managing the deal, etc. might be 25-40%. I have seen 50% on construction deals.
2. Many times this is done with no money from the sponsor. It does provide more confidence to potential investors, if the sponsor is investing along side them. The ownership the sponsor would get for his capital would be in addition to the ownership as the sponsor.
There are many ways to cut up the pie. How it is cut up depends on the type of deal, the experience of the sponsor, the potential returns as well as other factors.
- 10yPouyan BroukhimBusiness MemberLos Angeles, CA · Member since 2016 · 64 posts · 19 votes
Get an attorney..that will be the wisest thing you can do. Someone else said it as well, don't do it yourself and make sure your get a professional to set things up to.
Thank you,
- Las Vegas, NV · Member since 2015 · 237 posts · 107 votes10y
Originally posted by @Jerry Kisasonak:
The specific question I have in mind right now is in regards to being a lead investor. Basically, since the other investors/partial owners are very busy in their given professions/occupations, we would like to contribute mostly by locating, contracting, syndicating and managing the project. From my understanding this is essentially the capacity which a lead investor holds.
So the specific questions are:
1. What is reasonable for a lead investor expect to profit percentage-wise from the deal?
2. Is this ever done with the lead investor contributing a much smaller amount of capital versus the other owners in the project?
3. Is this ever done with the lead investing none of their own money, but getting paid purely for assembling the deal and managing it?
I realize these may seem like silly questions for someone more experienced in this arena. This sector of real estate is new to me and I'm, at this point, just trying to identify the opportunies. Any good books you could suggest on this subject?
Hey Jerry,
Can you clarify some things? You might not be actually wanting to "syndicate" as much as just partner with investors. The first question is, do you plan on soliciting investments from large numbers of people? And if so, are you planning on forming a continuously operating entity? Or just a partnership for an individual project?
Essentially if you are only looking to partner with investors on 1 project, and will never want to sell any shares of the company after it is formed, you can just set up an LLC as a partnership and have ownership percentages broken down according to capital contributions, with yourself as the managing member with a certain percentage of ownership for which you will manage the LLC and its project.On the other hand if you are planning on starting a continuously operating company, meaning that you will buy and sell multiple properties, and/or work on several projects, with the intention of growing the company and offering shares to additional investors, then you will need to either register with the SEC, or find an exemption (most likely regulation D) from registration requirements.
As always, I am not a practicing attorney and, you should seek the advice of one if/when you pursue this option.
Adam
- Las Vegas, NV · Member since 2015 · 237 posts · 107 votes10y
Originally posted by @Steve G.:
What is the best way to find investors that are interested in partnering with a sponsor?
Hey Steve,
I have no experience in finding a partner for a RE deal, but I have been in sales for practically my entire adult life. I can tell you from my perspective, I would only partner with someone who either had 1) capital that I need for my intended project, or 2) someone who brought substantial experience that I don't have, including a track record of success.
Basically, if you aren't going to bring your money to the table, you better have a great sales presentation on why you are the most knowledgeable person around and how that will increase my ROI. I would also want to see prior completed projects, or some other type of confirmation of your skills/expertise.
Everyone says they have the next big thing, or are the best at something. I need proof, and as the saying goes, it's usually in the pudding. If you got no pudding, then obviously you're not so great.
I know this sounds counterintuitive but it's kind of the same quandary as corporate hiring. You can't get experience without getting hired first, but no one will hire you without experience.
Hope that was helpful
Adam
- Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes10y
@Adam Hershmanas you correctly stated you are not a practicing attorney and, you should seek the advice of one if/when you pursue this option.
It doesn't matter if you are doing one deal with one partner or 100 deals with 100 partners.
The 1946 U.S. Supreme Court case of SEC v. W.J. Howey Co. provides the precedence to determine what a security is. According to the Howey test, an instrument is only a security if it involves an investment of money or other tangible or definable consideration used in a common enterprise with a reasonable expectation of profits to be derived primarily from the entrepreneurial or managerial efforts of others. The form of the security (whether it is a formal certificate or nominal interests in the physical assets employed by the enterprise) is irrelevant. Thus, notes that a furniture store issues to finance a customer’s purchases are not securities, since their purpose is to facilitate the purchase. However, notes issued by a corporation for the general use of the company, where the buyer is primarily interested in the economic gain to be derived from the entrepreneurial or managerial efforts of others, would be a security. The form of the security (whether it is a formal certificate or nominal interests in the physical assets employed by the enterprise) is irrelevant.
What this means is, there are many people forming securities with their money partners, and the sky did not fall down. However, if the deal went bad and the investor lost his money, he would have recourse with the SEC.
As Adam said seek the advice of a practicing SEC attorney and not people that are misinformed. Following the rules protects the investor by making sure that they understand the risks and it provides some protection to the sponsor if things, unfortunately, do go wrong.
- Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes10y
Just to clarify, sponsors of a syndication provide a service to those that, either cannot do the type of deal, cannot get the kind of returns offered, would rather be a passive investor, or perhaps want to become a syndicator, but need some first hand experience and build some credibility.
Passive investment in a syndication is not for everyone. Those that wish to be an active investor and be hands on are probably not going to join in as a passive investor. Just as many people will never jump in too swing a hammer. There are many many many ways to invest in real estate. Everyone should find their path based on time, financial resources, experience and education, and personality and interest. There is no one size fits all, but plenty of options.
In most cases a syndicator must find better deals than most people would settle for. We need to find a deal that will interest our investors. We don't need great sales presentations, but we need to present a deal that protects the investors funds and provides a better risk/reward potential than the other choices that the savvy investor has.
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