Putting together first syndication deal on a 50 unit- any advice?

Question

Hey BP,

Im putting together my first syndication deal on a 50 unit. I've previously had one 7 unit multifamily property but no experience in the syndication world. I've got a small group of investors and a great team around me, Lawyer, CPA, and a Property Manager who I completely trust. I would love to hear if anyone has experiences with their first syndication that they would like to share, any advice, or pitfalls in general to avoid.

Thanks!

Colin

Joel Owens · Answer

For the 50 unit you need to define the current condition. Is it vacant, value add, or fully stabilized? You could possibly still increase NOI even if full occupancy if rents are below market and expenses are inflated.

How you structure a syndicate and when returns will be paid out on the property will have to do with what the current cash flow is.

Totally vacant or ground up development the investors typically are not getting paid anything for years. The cash flow comes once stabilized and those types of products tend to have the highest IRR and equity growth on the back end because they carry the most risk.

Value add there might be some cash flow coming in so if preferred return was 8% maybe the first year payout is 4%, then 6%, year 3 then 10% to try and catch up the 8% pref. So some cash flow and equity growth with IRR.

Fully stabilized already means mainly a preferred return right out of the gate paid in full year 1 and then with rental increases and some cost savings some equity gain on the back end but IRR tends to be lower upon exit.

So you need to know what your investors are expecting and get them to commit the capital. As a sponsor there has to be enough in it for you with fee going in, fee going out on sale, asset management fee, and back end promote with equity upside split. Make sure your investors are accredited as using non-accredited you have to keep more documentation and the investors tend to take more work to understand the investments.

Lot's of other stuff.

Good luck.

Todd Dexheimer · Answer

1. Set expectations up so that you can meet and exceed them

2. Communicate constantly and set communication expectations up from the start. If you plan on giving only quarterly reviews, then tell them that. It is ok to give more frequent reviews/communication, not not less.

3. Be conservative from the start

4. Raise enough money and then some. It is best to over raise

Mike Taravella · Answer

Hey Account Closed has an amazing syndication deal analyzer and web tutorials that allow you to quickly analyze deals.

It easily presents the numbers with summary tabs and scenario tabs so you can quickly show your potential investors the numbers. As a CPA it truly is a remarkable excel.

If you need any help feel free to message me!

Chris Collins · Answer

Great job Account Closed ! Can't wait to hear how it turns out.

1st question: Are you investing in your market? Or out of state?

2nd question: Have you talked to a lender? I don't know your team of course, but do you have the net liquidity and post-closing liquidity covered? If no, you need to get that lined up with KP's and then model any compensation into your analysis so you don't end up with thin margins after adding them in.

That's my only advice at the moment without knowing much about the deal or your plan to structure it.

Also, your 'lawyer' is most likely different than an 'SEC Attorney' which you will definitely need to draw up your PPM ($10-15k). So be aware of the difference.  Local attorney deals with contracts and such, SEC attorney deals with the PPM and how you structure your payouts and what you're promising your investors.

Also, have your prop mgr assist with the due diligence.

Go get 'em!

Alina Trigub · Answer

Account Closed Congratulations on taking your first syndication deal! You've got a ton of great advice here. Happy to share the names of syndication attorney, and/or lender recommendations.

Also, there's a lot of admin stuff that needs to happen. I hope you have a VA or any admin really to assist you!  Not sure how many investors you have, so I'll speak in general terms. The best way to contact them is through some sort of marketing tool. I.e., mailchimp. Keeping track of investors and experts via CRM tool is helpful. Bottom line: try to get/stay organized from the get go. You will also need an accounting and property management software. Alternatively if your SME's are using such, then ask them to grant you access to your account once it is fully operational.

If you'd like to speak further, feel free to reach out directly.

Best!

Ivan Barratt · Answer

Account Closed remember to underwrite payroll in addition to management fees on 50 units! I learned that one the hard way.  A great PM at 7 units may be a lousy PM at 50. It's a vastly different ball game at that altitude.

All the best man!

Account Closed · Answer

@Joel Owens its almost fully occupied but we are doing some value add to increase the rents and bring then to at market levels.

@Chris Collins Im investing out of state, in Florida. Also what is the abbreviation KP, a loan guarantor?

Kyle McCall · Answer

Congrats @Chris Collins. Look forward to hearing the updates on it.

Putting together first syndication deal on a 50 unit- any advice?

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