Seduced by Syndication

15 Replies

I’m dangerously curious about sponsors and how they become that. What value do they bring aside from perhaps finding the deal and having some skin in the game also? Are they expected to have the ability to put all systems in place? What kind of real estate background would make an investor say “Yea! I’ll park my money with you!” Or is this essentially a Billy Mays type that goes around with a prospectus pitching “Have I got a deal for you!”?

@Jorge De Jesus Track Record + Track Record + a side of Track Record = Track Record

Not that past performance guarantees future returns, it doesn’t. But commercial multifamily can be a cruel mistress that delivers some bumps and bruises along the way. Better those “learning experiences” don’t happen with your money.

Let’s say I ascribe to only THAT. I have a track record so I’m going to go out there and everyone is going to want to work with me. But...how did I start? Did I manage my own successfully? Was I a rockstar property manager? Did I work acquisitions for McDonalds?

Most sponsors start with singles and smaller multis and work their way up to larger communities or they partner with experienced sponsors.  You can't raise seven and eight figure down payments without a track record and credibility and can't qualify for large loans without meeting the net worth and liquidity requirements or having co-signors who do.  It's not like selling Sham Wows.

That’s what I was looking for, just wanted to know if it was a record in management or experience in acquisition. Or both. Thanks guys

Syndication sponsors add a wide range of value. On one extreme you have the ones that have done a couple of SFR rentals and now want to syndicate their first multifamily deal because they want to grow big. Arguably this profile adds no value to the investor. Of course this sponsor asserts that they found the deal so that adds value. Sadly, there is a high probability that they wouldn't know a "deal" if it bit them in the face, much less be properly prepared to manage it and successfully execute the business plan (if they even have one).

On the other end of the spectrum there are those of us that have bought and sold hundreds of properties and even thousands of units, have survived market cycles, have advanced forecasting and modeling tools, have the financial strength and experience to qualify for the debt, and have the time and team to find opportunities and properly manage them.  And then there is the ability to not only write, but execute a business plan and a proven track record of having done so repeatedly.  Sponsors in this category also have a broad base of investors already so they won’t have a false start (inability to raise the capital), have extensive broker and seller relationships, quality deal flow and an operational footprint in their markets.  Those things add a ton af value for the passive investor that wants to invest their money in real estate but lacks all of those things just mentioned. 

@Jorge De Jesus @Andrew Johnson is right. If you have not done it a few times then I would not really want to do anything but watch.

Not you say you can’t get a few suckers out there. So if your good with people it’s worth a shot.

@Jorge De Jesus It's still track record. Have you put your own money into and successfully operated and then sold (for a nice ROI) an asset of the same magnitude. Wholesaling? Don't care. Own three duplexes, don't care. Been a PM for 10 SFRs, don't care. Been successful enough to personally own a 27-unit apartment complex and are going to put $200K of their own money into this new 80-unit apartment syndication? I care.

Now would I care ask much if it was a 200-unit apartment building?  No.  The track record doesn’t align, scale doesn’t match.  I don’t want the syndicator “learning to scale” with my money.

And ideally this track record would involve prior syndications with successful exits returning capital to investors.

I read your response a couple of times, I think I could see a path from little to a lot. Makes sense. Not only experience in the exit, but partnerships along the way.

@Jorge De Jesus Are you asking from the perspective of vetting syndicators that you would like to invest with, or from the perspective of how YOU can become that syndicator that people will park their money with.

In the first case @Mike Dymski @Andrew Johnson and @Brian Burke spelled it out 1000%

From the other perspective, @Mike Dymski brought out an important point, that as a sponsor looking to gain that track record and credibility you may consider partnering with another sponsor, and going through one or two deals from beginning to end, in all aspects. Most sponsors can't be bothered with this, but if you ask a hundred you might find one that will take you along for the ride...Good Luck!

@Jorge De Jesus lots of great responses here already. How you begin really depends on where you want to end up.  For me it was starting a management co and doing small deals on my own with private money.  3rd party management kept the cash flow consistent as I built and scaled the biz from there. Today I own and manage over 2,000 units (mostly bigger apartment assets via our syndication platform) and will look to double that in the next 12-24 months.

For me, the journey to 20,000 started with one duplex.

All the best!

@Jorge De Jesus - as a syndicator, you have a few jobs. One is to find and purchase a good deal. This includes deal negotiation, due diligence, obtain financing, and pushing through the nonsense that inevitably comes along with real estate transactions. 

Now that is start but the real returns are after you purchase the property. Operations is where the money is made if you bought at the right price. Several people outsource this responsibility, but it is still crucial to hit your budgets and projected turnarounds. 

This will position the property best for sale. Usually you have a time frame for the property. Execute on the strategy in order to fetch the highest exit possible. Market conditions obviously play into this but on a micro level you still have control of the property specific metrics. 

In syndication, the real estate aspect is only part of the experience required. A lot of people here on BP seem to only focus on that (not saying that's a bad thing, this is after all a real estate forum) but there's more to it. In any syndication, an investor is investing in the sponsor just as much as (or even more than) they are investing in the property itself. Now, as others have mentioned, track record can be (and often is) part of that. I've also seen other people bringing in family members on a deal, or investing out-of-market with their friends. In all of those cases, it's a personal relationship and trust that is most important. 

I say all that to say, any way you can build that trust is a good approach. Whether it's doing fundraising for a nonprofit, or simply telling everyone you come into contact with that this is what you're doing (the proverbial "elevator pitch"), or even being involved in the management of deals with an established sponsor (that's the road I'm taking personally), there are many ways to get to that point. 

@Jorge De Jesus

The true sponsor is one that "lends" the syndicator his balance sheet to help the syndicator qualify for the loan, in exchange for a % of the equity in the deal.

The sponsor better be sure the syndicator is qualified and knows what he is doing.  The syndicator needs the sponsor to qualify for the loan. It could be a match made in heaven, or one made in hell.

Both parties better do their due diligence on the other.  I would rather invest with a great syndicator and an okay deal that a lousy syndicator with  great deal.

Gino

@Gino Barbaro
What then are the qualities or qualifications a syndicator MUST have be it personally, financially or track record?

@Jorge De Jesus all of the above. Put yourself in your potential investors' shoes. How much would you invest with you with your current experience, skill set, and balance sheet? $5k? $50k? $100k? Be honest with yourself. What would it take for you to invest that much money with someone?

The great thing is that all the qualifications needed isn't set in stone and are able to be gained but can take time. MF is not a race like SFH, it's a marathon.

Also, there is a huge difference between "hacking a 4-plex" and a 100+ unit syndication. Each will require a different level of "qualifications."

Good luck and as long as you take action you'll make it!

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