List of Lender Denials for Inexperienced Multifamily Syndicators

35 Replies

Many of the people here on BP are inexperienced when it comes to multifamily syndication. I thought it would be a good idea to begin a list of reasons that a lender may deny someone a loan due to their inexperience. 

Here are the main two: 

Objection 1) 

Denial Reason: No experience managing an asset with a large number of units

Ways to Overcome: Hire an experienced property management company with a solid track record in the asset class you are seeking. In addition, you will need to bring someone on your team with experience not only managing the units but also managing the financials/asset once you close. No lender is going to lend you money if you have never managed a large multi-million dollar budget before.

Objection 2) 

Denial Reason: Low net worth and liquidity

Ways to Overcome: The answer here is simple...find someone with the proper net worth and liquidity to allow you to close the deal. This one may seem like an uphill battle when trying to find the right person. However, when you start networking and attending events you will be able to find these people. In exchange for their high net worth and liquidity, you will need to give them some equity. The equity you give will be totally worth it because you wouldn't be able to take down the deal without them. 

Calling all experienced syndicators! Please list additional denial reasons here for others to learn.

Just curious don't you think that one of the riskest ventures would be to put up your good name and credit or cash for a total begineer in the space.. I would Not recommend this or do this in a 1000 years.. 

why would anyone want to go through someone's learning curve and there is one.. when you have a bunch of qualified expeirnced operators to choose from.. 

I get it that folks have to start somewhere and it can be tough but it should be tough.. with the risk involved to the investor.

@Ivan Barratt   @biranburke   curious on your guys take..  are credentials and credit for sale like this common in your guys world.. at least for someone beginning ?

Seems to me you would ( if the deal was good enough) take it on and make the person who brought it a non controlling partner why would you risk your good name and credit like this..  am I not getting it  ?

@Mike Dymski   curious as someone who i believe invests in syndication and looks at a lot of sponsors and deals is this a common way to launch would you consider it.. and if so how would you structure it ??? 

@Jay Hinrichs we are talking about larger deals where Fannie and Freddie produce non-recourse loans. Even so, I would definitely need to have a prior existing relationship with someone prior to signing on a loan for them. I would also need to vet the asset and underwriting. I have turned down several deals because the underwriting didn't match my risk tolerances. 

Also, if someone brings you a deal then it would not be the best option to "take it on" without them since they are bringing the deal to you. Now, I don't think it would be a bad idea for an inexperienced syndicator to bring a solid deal to a experienced syndicator to take the deal down together so the inexperienced syndicator gains knowledge/experience. We all had to start somewhere and I am all about helping others get into this space because there is room for everyone in this space, especially as we can partner together.

Originally posted by @Dan Handford :

@Jay Hinrichs we are talking about larger deals where Fannie and Freddie produce non-recourse loans. Even so, I would definitely need to have a prior existing relationship with someone prior to signing on a loan for them. I would also need to vet the asset and underwriting. I have turned down several deals because the underwriting didn't match my risk tolerances. 

Also, if someone brings you a deal then it would not be the best option to "take it on" without them since they are bringing the deal to you. Now, I don't think it would be a bad idea for an inexperienced syndicator to bring a solid deal to a experienced syndicator to take the deal down together so the inexperienced syndicator gains knowledge/experience. We all had to start somewhere and I am all about helping others get into this space because there is room for everyone in this space, especially as we can partner together.

so basically they are acting as a bird dog or a broker.. is that not what commercial brokers do.. ???  how would an inexperienced person be better at finding deals than a very good commercial broker ??  at least as it relates to you .  

Just seems to me to be an in ordinary amount of risk for those in the space.. why do they need this ??? and why take that risk on ..

And all I hear is that deals are VERY tough to find not the opposite like there are deals everywhere.. and what are the chances someone brand new falls into a great deal that is worth doing.. ??  

Just asking... I know BP is all about helping the newbie  :)

@Jay Hinrichs I have found that some inexperienced syndicators are findings deals and they are not using commercial brokers. New syndicators, out of state from me, can be very helpful in finding these deals since they have boots on the ground every day in their market. 

It's hard to be everywhere when trying to find these deals. Yes, the deals are tough to find now and that more the reason to have more people looking for deals. When a deal is presented you can underwrite it as usual to make sure it is a good deal. You may go through several before finding a solid deal to move forward. 

I am more than happy to help when someone else does the hard work of finding a deal that ends up being a solid one.

The inexperienced syndicator is not necessarily "better" at finding deals but you can't be everywhere finding deals. Two heads are better than one....or 100 heads are better than one. It all depends on how fast you want to grow your portfolio.

got it so your intent is to create a large bird dog network with the carrot hey we will bring you in as a partner.

My worst deals have been bringing in minor partners into a deal.. they all of a sudden change their tune.

IE its all them you really did not do anything but provide the MONEY... LOL.. like anyone would do this for them.

I would never put them on title . or give anyone like this control or ownership in any manner.. a fee based arrangement

sure I can see that.. but short of that my experience over the decades is this leads to litigation with minor partner..

I would be very cautious how you set these up.. just sayin.... and again from everytime I tried to be the good guy and bring the little guy in who found the deal and made them a partner it never ended well.. so now I don't do it and would never do it.. That's what brokers are for..

@Jay Hinrichs I see that you're a broker yourself so I can see where you come from on this point. 

I am not stating that you shouldn't use a broker to find the deals. But, as you already know, this is a relationship business and you can't have a relationship with all the brokers in the country that could send you deals. However, if other people (inexperienced syndicators) can build solid relationships with local brokers so they start getting deal flow then it will help you long term to build your portfolio if these deals are solid deals. 

I agree that not everyone is a good partner but, again, this is a relationship business.

Originally posted by @Dan Handford :

@Jay Hinrichs I see that you're a broker yourself so I can see where you come from on this point. 

I am not stating that you shouldn't use a broker to find the deals. But, as you already know, this is a relationship business and you can't have a relationship with all the brokers in the country that could send you deals. However, if other people (inexperienced syndicators) can build solid relationships with local brokers so they start getting deal flow then it will help you long term to build your portfolio if these deals are solid deals. 

I agree that not everyone is a good partner but, again, this is a relationship business.

NOTE: This post is about listing lender denials and how to overcome them. Let's keep it on point so it could be a valuable resource to others.

I am a broker yes but have not sold anything to the public in 14 years LOL... so not trying to feather my nest at all.. but yes carry on..  

Awareness is the first step. I would rather partner with someone to knows they need to improve than have a blind spot.

@Bjorn Ahlblad Actually that's a great analogy since the more experienced surgeons actually take the inexperienced ones and teach them hands on how to perform surgeries. Great example!

Hey @Jay Hinrichs . I have two real estate offerings in my inbox from more experienced sponsors who are working with less experienced co-sponsors who found the deal but don't have the experience or investor database yet to take down the deal themselves. Many of these "inexperienced" co-sponsors are professionals and/or have a fair amount of prior real estate success in SFR or small MF and they are just scaling up with larger properties. This is also common in the MF investor clubs and coaching programs...it's a stepping stone.

There are some investors (like myself) who are open to co-signing non-recourse loans to help sponsors meet Fannie and Freddie net worth and liquidity requirements.  There is compensation for doing this (equity participation) and some of us enjoy working with aspirational people.  I am honored to be currently working with a young sponsor (with a speech impediment) who has a deal under contract and is raising capital...talk about courage.  He switched gears this week from Fannie/Freddie financing to bank/bridge financing and may no longer need a co-signor but we will see how it plays out.

Originally posted by @Jay Hinrichs :

Just curious don't you think that one of the riskest ventures would be to put up your good name and credit or cash for a total begineer in the space.. I would Not recommend this or do this in a 1000 years.. 

why would anyone want to go through someone's learning curve and there is one.. when you have a bunch of qualified expeirnced operators to choose from.. 

I get it that folks have to start somewhere and it can be tough but it should be tough.. with the risk involved to the investor.

@Ivan Barratt   @biranburke   curious on your guys take..  are credentials and credit for sale like this common in your guys world.. at least for someone beginning ?

Seems to me you would ( if the deal was good enough) take it on and make the person who brought it a non controlling partner why would you risk your good name and credit like this..  am I not getting it  ?

 You raise a valid point.  However, consider this; there are people who do beat the bushes and come up with, for argument sake, a "great deal".  If the numbers bear out you would not invest in such a opportunity because the person is a "newbie"?  The numbers are the numbers supposedly.  And like all investments, your return should be linked to the risk you are taking.  Also, the way you position the buy-in "non controlling partner why would you risk your good name and credit like this." who says that the person would be a non-controlling partner in structuring the deal.

Originally posted by @Dan Handford :

@Jay Hinrichs I see that you're a broker yourself so I can see where you come from on this point. 

I am not stating that you shouldn't use a broker to find the deals. But, as you already know, this is a relationship business and you can't have a relationship with all the brokers in the country that could send you deals. However, if other people (inexperienced syndicators) can build solid relationships with local brokers so they start getting deal flow then it will help you long term to build your portfolio if these deals are solid deals. 

I agree that not everyone is a good partner but, again, this is a relationship business.

NOTE: This post is about listing lender denials and how to overcome them. Let's keep it on point so it could be a valuable resource to others.

 Well stated.  How many people partnered with someone they know and it fell apart.  As we know in this business the most important thing is the contract.  The correctly worded contract will overcome a great deal of problems.

Originally posted by @Torre Cannavo :

Jay Hinrichs would there be any good reason in your opinion for a seasoned syndicator to bring in an inexperienced one in this way?

 However the newbie did it the newbie found a great deal.  Would you turn down a great deal because the person presenting the deal is new or this is their first one?

Originally posted by @Calvin Lipscomb :

If the numbers bear out you would not invest in such a opportunity because the person is a "newbie"?  The numbers are the numbers supposedly.  And like all investments, your return should be linked to the risk you are taking.

I agree the numbers should make or break the deal regardless of the experience of the syndicator. I would also require something beyond the numbers regardless of the experience of the syndicator and that is a thorough vetting of the syndicator's background and character. I want to know I'm dealing with someone who is honest.

Originally posted by @Account Closed :
Originally posted by @Calvin Lipscomb:

If the numbers bear out you would not invest in such a opportunity because the person is a "newbie"?  The numbers are the numbers supposedly.  And like all investments, your return should be linked to the risk you are taking.

I agree the numbers should make or break the deal regardless of the experience of the syndicator. I would also require something beyond the numbers regardless of the experience of the syndicator and that is a thorough vetting of the syndicator's background and character. I want to know I'm dealing with someone who is honest.

 Your standard of a vetting process is not dependent on a person being a newbie or a seasoned vet.  

Hey Calvin.  The sponsor makes or breaks the deal, not the proforma on a sheet of paper.  A bad sponsor can easily mismanage a good deal.  There a lots of good deals but not the same can be said for people.  Invest in people first...the deal is secondary.

Originally posted by @Mike Dymski :

Hey @Jay Hinrichs. I have two real estate offerings in my inbox from more experienced sponsors who are working with less experienced co-sponsors who found the deal but don't have the experience or investor database yet to take down the deal themselves. Many of these "inexperienced" co-sponsors are professionals and/or have a fair amount of prior real estate success in SFR or small MF and they are just scaling up with larger properties. This is also common in the MF investor clubs and coaching programs...it's a stepping stone.

There are some investors (like myself) who are open to co-signing non-recourse loans to help sponsors meet Fannie and Freddie net worth and liquidity requirements.  There is compensation for doing this (equity participation) and some of us enjoy working with aspirational people.  I am honored to be currently working with a young sponsor (with a speech impediment) who has a deal under contract and is raising capital...talk about courage.  He switched gears this week from Fannie/Freddie financing to bank/bridge financing and may no longer need a co-signor but we will see how it plays out.

Hey that's cool I had a long conversation with the same individual hopefully it was helpful to him and glad you guys are working on something  He seemed pretty sharp to me..  

Originally posted by @Calvin Lipscomb :

Your standard of a vetting process is not dependent on a person being a newbie or a seasoned vet.  

Bernie Madoff is an example of a seasoned vet who was able to hoodwink a lot of people, including the U.S. Government (SEC). Although several people questioned his performance numbers, it was not until the 2008 financial tide went out that people learned he really was swimming naked.

http://www.businessinsider.com/2008/12/flashback-2001-barrons-questioned-madoffs-returns