Syndicators: would you co-sponsor a deal with a newbie?

13 Replies

Experienced syndicators please weigh in for me. Have any of you co-sponsored a deal with a new investor? Under what conditions would you consider doing this? Are you looking for a certain percentage of the GP equity? (i.e., you want 50/50 of a 70/30 split). What characteristics would you look for in the newbie you are co-sponsoring with? If they are sourcing the deal, doing the dirty work, and trying to learn on the fly, what makes a co-sponsoring deal attractive, if anything? 

If I like and trust the syndicator I KP on non-recourse deals for first timers.  In this situation my typical Agreement is 10% of the overall deal. 

@Kyle Bryant It is all about what value each of the team members bring.  If you happen to have a deal that needs $7M and the syndicator brings in a large chink of the equity, something in between the 50-60% sounds appropriate.

The syndicator could also invest alongside the LP.

@Diogo Marques , 10% of the equity.  Where they take the 10% is up to them but every time there is a distribution I get 10% of it as I have 10% equity in the acquiring entity.

@Bruce Petersen how active do you generally plan to be in the management or repositioning of the apartment complex? Do you take an active role in rehabbing or repositioning, or do you generally lend credibility to investors and provide guidance for the newbie syndicator?

It would depend on the sponsor and the deal.  What is their track record? What is their business plan?  What is the location?  Etc etc. 

And what are they wanting from me?  Just to leverage my credibility and track record?  Bring equity? Look over their shoulder?  

One of my favorite things about this business is that every deal is a snowflake and you can get creative in how you structure the ownership of the deals.  It would be tough to say until some of the above questions got answered. 

I second what has been said. It depends on the deal, the sponsor and the needs. I'm always willing to do a deal if it works and allows me/my business to properly expand and is in both parties best interest

Originally posted by @Bruce Petersen :

@Diogo Marques , 10% of the equity.  Where they take the 10% is up to them but every time there is a distribution I get 10% of it as I have 10% equity in the acquiring entity.

Bruce, could you please elaborate on this? Say, the overall deal is structured 80/20: 80% of all profits go to the investors and 20% to the sponsors. Is your 10% calculated as 10% of the entire distribution or 10% of the sponsor share? 

E.g.: if the entire distribution is $100K, investors get $80K, sponsors (including you) get $20K, of which your share is $10K or $2K?

Thanks
Nick

The entire thing.  

If there needs to be a preferred return I will work something out with the syndicator to make it work. 

@Kyle Bryant , I am not involved at all though I am always on the other end of the phone and/or willing to walk property and consult from offer to close and even post close consulting.  

I am much to busy to run their deal for them.

@Kyle Bryant you're probably looking at a sliding scale. Here are key components to being a deal sponsor not necessarily in order.

1. Investor data base and ability to raise equity

2. Relationships with lenders, brokers, property management, etc.

3. Net worth

4. Experience in underwriting

5. Experience in operating

6. Experience in RE in general

Obviously there can be more to add to this list but it will all depend on the reasons of why you need a co-sponsor. The more items you need from the list then essentially the more you will have to "pay" with equity. If all you are doing is just bringing a potential deal and expecting to co-sponsor to hold your hand through the whole process then you're looking at a very SMALL piece of the deal. Maybe 1-2% if you find a deal that works for the co-sponsors investment criteria.

At the end of the day everyone has to start somewhere. My advice is to not be greedy and chalk up your first couple deals as education. Aim to provide value and you'll find your way. I'm always fond of the school of though that a small piece of a large pie is better than a large piece of no pie.

Good luck!

@Bruce Petersen That makes sense. Thanks.

@Abel Sng I understand what you're getting at. I've come across a few deals where there was a great vision for the property without the ability to execute on it. In my mind, the co-sponsor would help with raising capital and guiding me in the execution of the vision for the property. But it's good to know where I should set my expectations. I don't want to be greedy, but I do want to get in the game.

Check out the following link, which includes information on loan sponsorship.  As others have mentioned, there are activities that go beyond loan sponsorship but this video aligns with it and what Bruce is discussing above.  If they are raising the capital and qualifying the loan, co-sponsor is not the right word for your role and your compensation would be a small portion of the deal (or an acquisition fee) plus the education.

https://www.youtube.com/watch?v=S6u2dJq8nWE