Apartment Syndication is NOT a Business Model

Multi-Family and Apartment Investing
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Apartment Syndication is NOT a Business Model

Ben Leybovich
Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes

Syndication and apartments, in general, is an opportunistic play. Most things being sold don't make it past the most cursory underwriting.

ow did syndication become a model? A model implies a system, and I think of a system kind of like a conveyer belt: push the button - spit out a widget - push the button - spit out a widget, etc.

Syndication is the exact opposite of this. It's a one-off, here-and-there, once in a while above average opportunity.

How did we get to a place where syndicating $10M assets has become as automated as flipping $150,000 houses?

I am bullish as all get-up on the apartment sector. But, a lot of nonsense is going on...

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Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
8y

The missing piece of the puzzle is relationships. You don’t find the best deals buying marketed properties...yes you can find them but they are few and far between, as you said.

The real deals are the rebounders, where the buyer they picked fails to perform and the deal comes to you after. Or the off-market deals—not the fake off-market crap that is simply using the “off market magnetism” to find a sucker for an overpriced property, but true off-market stuff that only comes to you if you have a proven track record with the broker.

Over time you will develop these relationships but you’ll have to close a few more deals first. Then you’ll see how this not only becomes a business, but how you add significant value to your investors by unlocking access to deals that they couldn’t have found on their own.

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  • Damon Pendleton
    Rental Property Investor · Richmond, VA · Member since 2018 · 46 posts · 90 votes
    8y

    I’m no expert but I always thought it was a wealth building vehicle for the syndicator? 

    0Reply
  • Alina Trigub
    Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
    8y

    @Ben Leybovich As you mentioned "... a model implies a system..." Aren't you the one planning to teach this system in Phoenix in a few days?! Granted not all pieces of any system may be automated, but whatever we can we always try to automate.

    5Reply
  • Brian Adams
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
    8y

    @Ben Leybovich Congrats as I know you recently completed your first syndication.

    I have done many syndications and it is a model and a system - the sponsor finds an opportunity (deal) and you match up investors to invest in the deal.

    And Apartment Syndication is a Business Model.

    10Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    8y
    Originally posted by @Alina Trigub:

    @Ben Leybovich As you mentioned "... a model implies a system..." Aren't you the one planning to teach this system in Phoenix in a few days?! Granted not all pieces of any system may be automated, but whatever we can we always try to automate.

     Alina - you clearly misunderstand what I will be doing in Phoenix. I am teaching the Model, this is true. The Underwriting Model - not a business model.

    Everyone knows that syndication is a model of acquiring RE. My point is that if we underwrite correctly and stay true to our underwriting model, we should quickly realize that those opportunities worth putting our name to are very far between.

    I could go out and flip SFRs. Yes, there are still enough of them to keep me busy. I have found that the elements which make an apartment deal truly syndicatable render the vast majority of deals useless.

    How can I build a business system when it takes me 6 months to find a deal worth putting my name on? I will absolutely do a deal any time I find one, but this doesn't qualify as a business model - opportunistic one-off deal-making at best.

    3Reply
  • Brian BurkePro Member
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    8y

    The missing piece of the puzzle is relationships. You don’t find the best deals buying marketed properties...yes you can find them but they are few and far between, as you said.

    The real deals are the rebounders, where the buyer they picked fails to perform and the deal comes to you after. Or the off-market deals—not the fake off-market crap that is simply using the “off market magnetism” to find a sucker for an overpriced property, but true off-market stuff that only comes to you if you have a proven track record with the broker.

    Over time you will develop these relationships but you’ll have to close a few more deals first. Then you’ll see how this not only becomes a business, but how you add significant value to your investors by unlocking access to deals that they couldn’t have found on their own.

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    18Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    8y
    Originally posted by @Brian Adams:

    @Ben Leybovich Congrats as I know you recently completed your first syndication.

    I have done many syndications and it is a model and a system - the sponsor finds an opportunity (deal) and you match up investors to invest in the deal.

    And Apartment Syndication is a Business Model.

    Brian, I suppose it is a model, just not a high volume model. Perhaps I should have been clearer on this point. I see a "business" as something that is totally systematizable and streamlined. 

    Let me frame it this way:

    I bet you have no idea where your next deal is going to come from. Isn't this true?

    That, right there, that's not a system. That is a one-off opportunistic play that you do whenever the opportunity is there...not often :)

    I was under contract 6 months ago. Fell out. It took me 4.5 months to find a deal I wanted to put my name on, and another 45 days to close. 6 months all in.

    Sure, I can do this again, and I will. But this is a process that has more in common with creating a new flavor of ice cream rather than ownership of an ice cream franchise. One is a one-off that you do a few times with the right opportunities, while the other is a system.

    Syndication is not a system, nor should it be. There aren't that many worthy opportunities.

    2Reply
  • Joseph M.
    Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes
    8y
    @Ben Leybovich Of course every deal structure and deal size is different , but theoretically if one could do a syndication deal every 6 months would it not create a nice income over time as properties are sold / as there are exits ? Also does seem like it could become more systemized as one has a track record syndicating commercial deals and then it should become easier to find deals ? It does seem there are a bunch of syndicators these days I guess since there is so much interest in investing and also the growth of these crowdfunding platforms and the JOBs act seem to have made it easier to market and raise money for deals .
    0Reply
  • Alina Trigub
    Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
    8y

    @Ben Leybovich I think you're missing the point. Your underwriting model is pointless if it doesn't have any implementation in the real world, aka it is not part of a larger engagement, aka business process/model. Why in the world one would pay (however much you charge) just to plug in the numbers?! The under-writing model must be put to a good use. I hope you plan to deliver this message to your students. Just because IRR is Z, Cap Rate is Y, and CoC is X, doesn't meant the deal make sense. It has to play well together with the overall market condition, jobs, population growth, syndicator's plan to have a team, and many more more other pieces of the overall business model to make sense.

    While as you said, it is not a high volume model, one does gain access to more deals through relationships built over time. @Brian Burke I hope your book on the topic is in the works! :) 

    8Reply
  • Natalie Schanne
    Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
    8y
    Ben Leybovich - Apartment syndication is a business. You’re in the business of selling real estate investment opportunities to investors for a fee / % split for as for as long as you can collect enough funding. REITS do this. You can sell any deal to people - obviously some deals will be better than others. Some deals wildly outperform their pro formas because of outside factors like massive market appreciation. Some deals will underperform but probably the whole market will suck by then so you can blame it on the market anyway. So, maybe you should be getting more deals under contract! I met a lot of public REITS selling all their B / C market opportunities and only focusing on like NYC, Washington DC, other 24 hour cities because they knew they could eventually get Saudi investors or whatever at 2-4% cap rates to buy their assets. Some people’s goal is wealth preservation more than appreciation. Some 24 hour cities bought at 4-6% caps have net net outperformed the “10%” cap deals in Kentucky, Tennessee, etc. I’d rather have a property in a high % employment, highly educated area any day of the week because I know at some price I can rent it within 1-2 weeks and maintain a very low vacancy even if employment rate / stock market implodes.
    8Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    8y
    Originally posted by @Brian Burke:

    The missing piece of the puzzle is relationships. You don’t find the best deals buying marketed properties...yes you can find them but they are few and far between, as you said.

    The real deals are the rebounders, where the buyer they picked fails to perform and the deal comes to you after. Or the off-market deals—not the fake off-market crap that is simply using the “off market magnetism” to find a sucker for an overpriced property, but true off-market stuff that only comes to you if you have a proven track record with the broker.

    Over time you will develop these relationships but you’ll have to close a few more deals first. Then you’ll see how this not only becomes a business, but how you add significant value to your investors by unlocking access to deals that they couldn’t have found on their own.

    Haha Don't even start! It's like talking to my father. Dude, I know your **** better than anyone LOL 

    Agreed, off-market is how this works. But, as you so often say - you have no idea where or when the next deal will come from :)

    1Reply
  • Omar Khan
    Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    @Ben Leybovich Comparing a high-volume business (SFRs) with low-volume (syndications) is like comparing a Toyota (I'm a proud owner) with a Mercedes. Both are cars, they are just at different price points and the companies have a different business model.

    Syndication or real estate private equity is a pretty solid business model. @Brian Burke is a good example, so is Sam Zell and other real estate investors. They don't seem to be complaining too much about "only" doing a few deals a year. 

    5Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    8y
    Originally posted by @Alina Trigub:

    @Ben Leybovich I think you're missing the point. Your underwriting model is pointless if it doesn't have any implementation in the real world, aka it is not part of a larger engagement, aka business process/model. Why in the world one would pay (however much you charge) just to plug in the numbers?! The under-writing model must be put to a good use. I hope you plan to deliver this message to your students. Just because IRR is Z, Cap Rate is Y, and CoC is X, doesn't meant the deal make sense. It has to play well together with the overall market condition, jobs, population growth, syndicator's plan to have a team, and many more more other pieces of the overall business model to make sense.

    While as you said, it is not a high volume model, one does gain access to more deals through relationships built over time. @Brian Burke I hope your book on the topic is in the works! :) 

     The underwriting model is to illustrate all of the elements you are speaking of. The thing is - most of the PPMs floated today hardly accommodate your thinking :)

    0Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    8y

    Guys and gals,

    Raising money is the easy part. I raised $3.5M in 3 weeks for Silver Tree and can raise $35M if need be. It's easy for those of us who've taken the time to build relationships.

    The challenge is finding deals that are good enough to put my name on. I would sure as all hell not put my name on 99.9% of the stuff I see floating around.

    I saw a post on FB from a rather famous syndicator a few days ago. He was flaunting a deal that I underwrote and passed on a few weeks ago. I went back to see if I'd missed something - I still wouldn't touch touch the deal at those levels. 

    Now, I know how the numbers were manipulated to make things look good for investors. This doesn't change the facts - no deal there...

    3Reply
  • Alina Trigub
    Rental Property Investor · Glen Rock, NJ · Member since 2015 · 3k+ posts · 2k+ votes
    8y
    "Rome wasn't built in a day", Ben. It takes time and track record to build relationship!

    Originally posted by @Ben Leybovich:
    Originally posted by @Alina Trigub:

    @Ben Leybovich I think you're missing the point. Your underwriting model is pointless if it doesn't have any implementation in the real world, aka it is not part of a larger engagement, aka business process/model. Why in the world one would pay (however much you charge) just to plug in the numbers?! The under-writing model must be put to a good use. I hope you plan to deliver this message to your students. Just because IRR is Z, Cap Rate is Y, and CoC is X, doesn't meant the deal make sense. It has to play well together with the overall market condition, jobs, population growth, syndicator's plan to have a team, and many more more other pieces of the overall business model to make sense.

    While as you said, it is not a high volume model, one does gain access to more deals through relationships built over time. @Brian Burke I hope your book on the topic is in the works! :) 

     The underwriting model is to illustrate all of the elements you are speaking of. The thing is - most of the PPMs floated today hardly accommodate your thinking :)

    0Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    8y
    Originally posted by @Omar Khan:

    @Ben Leybovich Comparing a high-volume business (SFRs) with low-volume (syndications) is like comparing a Toyota (I'm a proud owner) with a Mercedes. Both are cars, they are just at different price points and the companies have a different business model.

    Syndication or real estate private equity is a pretty solid business model. @Brian Burke is a good example, so is Sam Zell and other real estate investors. They don't seem to be complaining too much about "only" doing a few deals a year. 

     OK, but can we compare Toyota to Tesla? hahah - anything worth doing should be done right :)

    0Reply
  • Omar Khan
    Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Ben Leybovich:
    Originally posted by @Omar Khan:

    @Ben Leybovich Comparing a high-volume business (SFRs) with low-volume (syndications) is like comparing a Toyota (I'm a proud owner) with a Mercedes. Both are cars, they are just at different price points and the companies have a different business model.

    Syndication or real estate private equity is a pretty solid business model. @Brian Burke is a good example, so is Sam Zell and other real estate investors. They don't seem to be complaining too much about "only" doing a few deals a year. 

     OK, but can we compare Toyota to Tesla? hahah - anything worth doing should be done right :)

     No way! Your Tesla looks (and is) way cooler than my Corolla. Plus, I have no ludicrous mode :(

    0Reply
  • Sam Grooms
    Investor · Phoenix, AZ · Member since 2017 · 583 posts · 919 votes
    8y

    Oh Benjamin. I see you're causing trouble again. 

    3Reply
  • Mitch Provost
    The Woodlands, TX · Member since 2017 · 45 posts · 31 votes
    8y

    Seems the concept of a business model may not be fully applied here. Many project oriented businesses (non-RE) cannot predict where their next contract will come from, yet they are still very viable and sustaining businesses. Comparing RE (syndication in this frame of reference) with product businesses like ice-cream is more like apples and oranges, but might be more comparable with businesses that execute unique projects that utilize the same systematic processes. They provide the resources and 'systems' (work scope, resource plan, execution plan, risk management, quality, etc.) to execute their business model and make their market by selling it to those in demand. The difference I see with RE is the uncertainty with the supply rather than demand. In this sense, it makes it difficult to market something you don't have until you have it. Nevertheless, it is certainly a business model that brings a supply to meet a demand, despite the uncertainty of where your next supply will come from.

    1Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    8y

    I'm seeing better opportunities in self storage and mobile home park offerings (but still see good MF too).  All asset classes are hot but those classes appear to be a few years behind multifamily...still have lots of mom and pop ownership and properties that have not traded yet.

    4Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    8y
    Originally posted by @Sam Grooms:

    Oh Benjamin. I see you're causing trouble again. 

    Hahaha 

    The markets I do not have a crystal ball for. BiggerPockets, on the other hand, is transparent as transparent gets.

    So, I am bored. I need to have some fun. And I'd like to make some connections with some folks - after all, I am a syndicator.

    I come to BP and start a conversation with a title that is neither 100% correct nor totally false. The truth lies between the lines. Just enough ambiguity to make folks think...

    And there it is - a controversy. 

    Private messages begin coming in with folks unwilling to express support publically but in agreement with the premise between those lines. MIssion accomplished!

    And to top it off, having conducted my market research here comes the next blog article to set this place on fire...and more private messages...:)

    It's sexy to talk about "making relationships". Many people talk about it. Even in this thread. But, how does one actually do this? How does one develop rapport? How does one break through the BS and reach people?

    Oops, I did it again :)

    3Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    8y

    At the end of the day the sponsor has integrity or they DON'T.

    For some syndicating is how they live. They need deal flow and to take cash to make continual fees on the entry each time. I have heard from large funds before they have to deploy capital stacking up or the investors will go elsewhere. There is just an unbelievable amount of money out there now wanting to be placed.

    There will always be risk in any deal I don't care how many times it is underwritten or researched before buying it. 

    Some of my clients have shown me some offerings from syndicators on BP in my home state that I would not touch with a ten foot pole. They were asking my opinion of it. The syndicator is trying to sell a C- to D location and asset as a B and people are buying into it. I know the area and tenant base and when the down cycle happens the pain will start. That stuff people are buying at 7 caps in the peak of the market in questionable areas that are doing OKAY right now because economy is super strong will heavily suffer on the down swing. I saw those same properties for 12 cap at the bottom. I would not buy them at any cap rate. People will make money but it's a game of musical chairs with those areas and on the down turn those will implode like last time.

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  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    8y
    Originally posted by @Joel Owens:

    At the end of the day the sponsor has integrity or they DON'T.

    For some syndicating is how they live. They need deal flow and to take cash to make continual fees on the entry each time. I have heard from large funds before they have to deploy capital stacking up or the investors will go elsewhere. There is just an unbelievable amount of money out there now wanting to be placed.

    There will always be risk in any deal I don't care how many times it is underwritten or researched before buying it. 

    Some of my clients have shown me some offerings from syndicators on BP in my home state that I would not touch with a ten foot pole. They were asking my opinion of it. The syndicator is trying to sell a C- to D location and asset as a B and people are buying into it. I know the area and tenant base and when the down cycle happens the pain will start. That stuff people are buying at 7 caps in the peak of the market in questionable areas that are doing OKAY right now because economy is super strong will heavily suffer on the down swing. I saw those same properties for 12 cap at the bottom. I would not buy them at any cap rate. People will make money but it's a game of musical chairs with those areas and on the down turn those will implode like last time.

    And with this we've finally found someone able and willing to read between the lines. Probably because he doesn't have a dog in this race :)

    Joel - thanks!

    0Reply
  • Ben Leybovich
    OP
    Rental Property Investor · Phoenix/Lima, Arizona/OH · Member since 2012 · 4k+ posts · 4k+ votes
    8y
    Originally posted by @Account Closed:

    Ben is smart and very charismatic.......................................and also a narcissist.

    Lets pray Sam has option B.  Doesnt end well.

    At the end of the day the MAID has integrity or not..............hahaha.   I know one who just got fired for not having any.

     HAHAH Well, everyone is agreement as it relates to my increasingly good looks, so I'll give you that. lol

    As to everything else, there is always a method to the madness :)

    1Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    8y

    Whether it is a system or not - these are just words.  But there is a process.  Today, the deal flow is scarce, so acquisition efforts need larger amounts of time and resources.  We're in an environment where interest rates are creeping up, so I expect that deal flow will be even more constrained in the coming year.

    0Reply
  • Bryan DruryPro Member
    Investor · Owensboro, KY · Member since 2008 · 131 posts · 65 votes
    8y

    @Ben Leybovich I admire your way of thinking,but sometimes I think your are so full of of ********

    2Reply
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