Syndication, what is the #1 question holding back investors?

Question

I was at a conference this past week talking to a a few MF syndicators and discussing various aspects of the business and I wanted to pass this question along to the community. What is the #1 question/reservation your investors have that hold them back from investing in your deals?

Bonus question: What is your biggest pain point right now?

Before I post my feedback I want to gauge the group so I don't create any biased responses.

Bonus question: What is your biggest pain point right now?

Before I post my feedback I want to gauge the group so I don't create any biased responses.

Jeff Greenberg · Answer

That is an interesting question.  As i think about it, those that did not invest had varied reasons that they gave me.  They gave me reasons ranging from not being liguid at the moment, to I don't want to invest in student housing because of the large turnover.  My favorite was the investor that asked if it was OK to have her CPA review the offering. To give a little history, I was buying a property from a seller that bought the property out of foreclosure for 700K.  Two years later I bought it for 1.3 mil at 85% occupancy.  My projections were to sell in 5 years for 2.1-2.3 mil.  Now back to the CPA.  He told the potential invest to stay clear of this investment as there was no way that over a 7 year(sellers 2 and my 5)hold, that the value could be tripled.  So she did not invest, and I just sold the property after a 3 year hold for 2.7 mil.  Now when investors ask if it is OK to have their accountant or CPA look at the deal, I tell them this story and ask them to make sure that they know how to value commercial properties.

Jay Hinrichs · Answer

great question:

here is my thoughts on why folks won't commit to a PPM and or syndication.

1. Sponsor only doing his first few deals.. Never been through a down turn.

2. PPM  50 ways to lose your money disclosures scares the heck out of them can't get past that.

3. NO control of funds. once your in your in and have no real control over your money.. control freaks don't like this.

4. If syndication turtles  ( and they do) many cases complete wipe out..  Risk / Reward.

5. Third party expert  ( this hampers all of us in the business and always will)

6. Lack of transparency.. relying on statements no access to actually checking accounts..

these are just a few of the objections I have heard investors talk about over the years.

Shawn Lowery · Answer

In addition to what was stated, with the caveat that these responses typically came from less seasoned (yet still accredited) investors with limited real estate exposure:

1) They ultimately wanted more control in the decision making process (couldn't accept the LP role)

2) Cash flow wasn't substantial enough (too short term of a focus)

3) Fear

Pain point for me is locating assets with adequate returns for syndication in my regional vicinity (Philly).   Opportunity exists between 5-35 units but larger assets (what I am targeting) are constrained by compressed cap rates.

David Thompson · Answer

Hi Michael,

Good question.  Here's my top 3 rankings.

1) The investor is not accredited and hence does not qualify.

2) The second thing is lack of liquidity or timing.

3) Diversification - they may be over concentrated in an asset class or geography or both.

Ironically, its rarely that they don't like the market, deal or sponsor.

Craig Haskell · Answer

The biggest reason investors don't get involved in real estate syndications is that four letter word "RISK."

Work with investors who like real estate and are entrepreneurial (business owners, lawyers, real estate professionals.)

#2 reason is TRUST. Investors are investing in you, not the deal. Investors need to have the right amount of trust in you before they'll write a check for your deal.

Joel Owens · Answer

I don't try to sell anybody on anything. If they do not want to invest I do not try to make them. Same goes with regular buyers clients purchasing commercial retail properties. It's hard enough when someone WANTS to do something. Trying to push someone along who has no or limited interest or is afraid to make  decision isn't for me.

Michael Le · Answer

To be fair Jeff, the CPA was correct. The property was not tripled in 7 years. It was quadrupled in 5. lol :)

Jeffery Waicak · Answer

my biggest reason is I'm not yet accredited.

I'm not liquid right now, as soon as I have capital, I'm investing it, but am very interested in going into syndication in the next few years.

Michael Sjogren · Answer

@Joel Owens I agree. I am not suggesting that anyone pressure investors. I am asking the question regarding investors that ARE interested, especially first time investors, but have their reservations/fears about getting in the game or tying up their capital over a longer term.

David Thompson · Answer

Ha, thanks Michael !  Or, another reason.... your an investor decides to go "active"...ha.  Excited to hear about your latest deal.  Wish you and David S the best in running that one !

Syndication, what is the #1 question holding back investors?

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