To all my syndicators out there- what have your experiences been? Ever use a broker dealer to help you raise capital? Are they worth it? Give me the good, bad and ugly!
A friend of mine has his securities 7 license and does do raises for DST's and other ventures.
I do not know how the fees vary but I have seen 5% fee of the capital stack charged before. The company getting the funds pays the fees and not the investor.
If you are unknown it will be harder for the broker dealer to raise funds for your company so the cost may be higher. The 5% I have seen on large established companies buying premium properties in well located areas that are larger and have scale.
You could also look at trying to get on some crowdfunding sites to get deals funded.
No legal advice given.
@Chris Tracy The broker-dealer world is very small. Primarily, they only work with folks with whom they have an existing relationship or operators who have a successful track record in very specific niches in which each broker-dealer operates.
For instance, if a broker-dealer specializing in NNN leases in the NE will not be your best bet for MF properties in the South (no matter how good their capital raising prowess).
You must understand what these folks are looking for in detail before even considering going down the capital raising path. Plus, most of the good ones require a higher level of transparency and quality reporting that the average syndicator is unable to do.
@Chris Tracy I've acted as a "fundless" sponsor on a few syndicated deals before. I'd be happy to talk in more detail about what this looks like.
I've found that the service I provide is often less expensive than broker dealers who usually have considerable overhead they need to cover. Honestly a 5% fee to raise capital is crazy, but if the market will accept that then I guess it was a really good deal. I have built up a nice collection of real estate investors with a variety of different appetites in terms of geography, property type, and return profile.
I think there is plenty of business out there for everyone. You have to decide what business model is right for you.
For my commercial real estate I only do syndication's and then regular transactions with clients when it's a fit for me.
Syndication there has to be a big payoff on the back end for me. Working with clients to buy commercial property directly to own they have to follow the steps.
I believe inefficiencies come from lack of focus. In other words you can't take more of the business you do want if you are accepting and spending time on business you don't and hoping it goes somewhere. I do not think 5% is high for a capital raise person if they get you the funds you need for a deal.
If you already have your network then great you can fund internally. Luckily over 15 years in business I have built up a large database of high net worth clients.
@Chris Tracy I'd second what @Joel Owens stated in terms of deciding which model will work best in your case. Depending on a deal size, you can engage with brokers, bring people on GP side to help with cap raise/marketing, engage with HNW individuals or even equity firms if a deal is of a significant enough size for them. All in all, it comes down to your personal preferences, timeline, deal size, and mutual agreement of the parties involved.
@Colin Armstrong what is a fundless sponsor?
@Mark Kuster a fundless sponsor is a firm that has a captive group of investors with specified investment criteria. They are not bound to invest in deals like they would be through a fund structure. It provides both the sponsor and the investors with flexibility that can't be achieved through a fund. It's somewhat similar to syndicating LP equity into various opportunities.
@Chris Tracy so far I've tested realcrowd. I like them and will use them again but they are NOT a broker dealer per se. Further, I'll be opening up FUND I this year and engaging SBRE/Fairway America for broker dealer services.
I've raised nearly 30 million on my own but going the above routes to scale faster and open up new networks of investors. I've got a 110m track record thus far. Not sure if the above would be as effective without the track record.
All the best!
@Ivan Barratt @Omar Khan great points regarding track record required for crowd funding and broker dealers. I think the model you chose at least partly depends on where you are in your career. If just starting out then it's certainly best to bring in a GP with substantial experience. They will not only help you raise capital but also help with your underwriting, due diligence, operations, etc. to ensure the project's success. As you take down larger properties, say 200 or 300 units, you'll likely need a GP (or two) to help satisfy agency debt requirements (experience, net worth, liquidity) and you probably still want that experienced GP by your side. Then as your track record grows, so too does your ability to, and your options for, raising capital.
@Ivan Barratt , good luck with the fund.
so is it safe to say a broker would not work with you if it is your first deal?