Apartment Syndication is NOT a Business Model
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...
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.
@Ben Leybovich it may be helpful to know what you think a syndication business model actually is if we are to further the purported intent of this thread. The precept "using other people's money" is the root of real estate syndication, which is regulated in such a manner to be a business unto itself. As @Brian Burke mentioned, it becomes akin to that bank/investment firm offering investors opportunities. The twist (for most BP purposes) is that the sponsor finds the deal, which necessarily departs from the role of an adviser diversifying assets over what is available in the market.
The syndication structures/waterfalls I have drafted are a comparatively high cost of capital/equity dividend rate when compared to hard money and certainly institutional financing. The trade off many times is less skin in the game for the sponsor, which naturally frees up capital for other projects.
If deal flow and deploying investor capital are your concerns, the natural converse is in what real estate investment business models are frequent/new acquisitions not an issue?
I understand you are trying to be a bit of a provocateur with this post (good for you). And certainly there are many on this forum and in this discussion that don't need my help in defending syndications, but I have to disagree.
You propose it is not a "business model" or a "process" but you real objections seem to be with the quality of the deals presented. That is somewhat akin to saying restaurants do not have a "business model" because some restaurants serve terrible food.
I agree at this stage in the cycle there is more money searching for deals than "value add" deals available. I see justifications for IRR that rely on 5-7% yearly rent increases. If you concern is that I think a lot of people agree.
But the ability to invest in deals with values that could never be done individually or in small groups still makes syndications a great opportunity. I am a newbie, but I am investing with some of the best sponsors in the county, people with deep knowledge and abilities. As an example, I am invested with Block Real estate in Kansas City. They have 50+ years of roots in that community. They receive tax breaks and perks that someone like me would never get. they have more than a hundred deals worth tens of billions under their belt. Like a pilot fish, I plan on hanging on to that shark as they go about their business.
Everyone gets the same tax breaks / perks. It's a matter of hiring a quality accountant versed in real estate. Even low level real estate investors can afford this.
Simply put..nope, not the same as low level investors
https://www.kansascity.com/news/business/development/article66646002.html
https://www.bizjournals.com/kansascity/feature/ken-block.html
When was the last time the city council and mayor came to a “fix and flip” groundbreaking
They are sharks that have advantages a little fish like me will never have.
I understand you are trying to be a bit of a provocateur with this post (good for you). And certainly there are many on this forum and in this discussion that don't need my help in defending syndications, but I have to disagree.
You propose it is not a "business model" or a "process" but you real objections seem to be with the quality of the deals presented. That is somewhat akin to saying restaurants do not have a "business model" because some restaurants serve terrible food.
I agree at this stage in the cycle there is more money searching for deals than "value add" deals available. I see justifications for IRR that rely on 5-7% yearly rent increases. If you concern is that I think a lot of people agree.
But the ability to invest in deals with values that could never be done individually or in small groups still makes syndications a great opportunity. I am a newbie, but I am investing with some of the best sponsors in the county, people with deep knowledge and abilities. As an example, I am invested with Block Real estate in Kansas City. They have 50+ years of roots in that community. They receive tax breaks and perks that someone like me would never get. they have more than a hundred deals worth tens of billions under their belt. Like a pilot fish, I plan on hanging on to that shark as they go about their business.
Everyone gets the same tax breaks / perks. It's a matter of hiring a quality accountant versed in real estate. Even low level real estate investors can afford this.
Simply put..nope, not the same as low level investors
https://www.kansascity.com/news/business/development/article66646002.html
https://www.bizjournals.com/kansascity/feature/ken-block.html
When was the last time the city council and mayor came to a “fix and flip” groundbreaking
They are sharks that have advantages a little fish like me will never have.
That guy is a shark, but that's a special exception (23 floor apartment deal). The standard syndicatior raising funds for a 200-300 unit apartment, self storage, etc. has the same tax treatment as you or I do, at a larger scale. There are instances where you get a perk from the city officials but it's not the norm.
I understand you are trying to be a bit of a provocateur with this post (good for you). And certainly there are many on this forum and in this discussion that don't need my help in defending syndications, but I have to disagree.
You propose it is not a "business model" or a "process" but you real objections seem to be with the quality of the deals presented. That is somewhat akin to saying restaurants do not have a "business model" because some restaurants serve terrible food.
I agree at this stage in the cycle there is more money searching for deals than "value add" deals available. I see justifications for IRR that rely on 5-7% yearly rent increases. If you concern is that I think a lot of people agree.
But the ability to invest in deals with values that could never be done individually or in small groups still makes syndications a great opportunity. I am a newbie, but I am investing with some of the best sponsors in the county, people with deep knowledge and abilities. As an example, I am invested with Block Real estate in Kansas City. They have 50+ years of roots in that community. They receive tax breaks and perks that someone like me would never get. they have more than a hundred deals worth tens of billions under their belt. Like a pilot fish, I plan on hanging on to that shark as they go about their business.
Everyone gets the same tax breaks / perks. It's a matter of hiring a quality accountant versed in real estate. Even low level real estate investors can afford this.
Simply put..nope, not the same as low level investors
https://www.kansascity.com/news/business/development/article66646002.html
https://www.bizjournals.com/kansascity/feature/ken-block.html
When was the last time the city council and mayor came to a “fix and flip” groundbreaking
They are sharks that have advantages a little fish like me will never have.
That guy is a shark, but that's a special exception (23 floor apartment deal). The standard syndicatior raising funds for a 200-300 unit apartment, self storage, etc. has the same tax treatment as you or I do, at a larger scale. There are instances where you get a perk from the city officials but it's not the norm.
True, which is why I don't invest with the standard syndicator. Luckily thanks to crowdfunding and the JOBS act (which allows advertising) I now have a chance to invest with the sharks, not just the locals. I have 5 investments, I specifically pick people with deep roots in either the community or property type or both. It is a tremendous opportunity that someone like me, a small and insignificant player, to be able to invest with these people. I am happy to admit I could not replicate their results.
I understand you are trying to be a bit of a provocateur with this post (good for you). And certainly there are many on this forum and in this discussion that don't need my help in defending syndications, but I have to disagree.
You propose it is not a "business model" or a "process" but you real objections seem to be with the quality of the deals presented. That is somewhat akin to saying restaurants do not have a "business model" because some restaurants serve terrible food.
I agree at this stage in the cycle there is more money searching for deals than "value add" deals available. I see justifications for IRR that rely on 5-7% yearly rent increases. If you concern is that I think a lot of people agree.
But the ability to invest in deals with values that could never be done individually or in small groups still makes syndications a great opportunity. I am a newbie, but I am investing with some of the best sponsors in the county, people with deep knowledge and abilities. As an example, I am invested with Block Real estate in Kansas City. They have 50+ years of roots in that community. They receive tax breaks and perks that someone like me would never get. they have more than a hundred deals worth tens of billions under their belt. Like a pilot fish, I plan on hanging on to that shark as they go about their business.
Everyone gets the same tax breaks / perks. It's a matter of hiring a quality accountant versed in real estate. Even low level real estate investors can afford this.
Simply put..nope, not the same as low level investors
https://www.kansascity.com/news/business/development/article66646002.html
https://www.bizjournals.com/kansascity/feature/ken-block.html
When was the last time the city council and mayor came to a “fix and flip” groundbreaking
They are sharks that have advantages a little fish like me will never have.
That guy is a shark, but that's a special exception (23 floor apartment deal). The standard syndicatior raising funds for a 200-300 unit apartment, self storage, etc. has the same tax treatment as you or I do, at a larger scale. There are instances where you get a perk from the city officials but it's not the norm.
True, which is why I don't invest with the standard syndicator. Luckily thanks to crowdfunding and the JOBS act (which allows advertising) I now have a chance to invest with the sharks, not just the locals. I have 5 investments, I specifically pick people with deep roots in either the community or property type or both. It is a tremendous opportunity that someone like me, a small and insignificant player, to be able to invest with these people. I am happy to admit I could not replicate their results.
Office deal? I'm not well versed in that asset class nor interested to invest in it. Commercial office space is tricky and is slowly being phased out of existence. Office has had some of the lowest returns among the major real estate asset classes over the last two decades. Sounds like Block knows what they are doing so I wish you the best of luck with it.
Office is among the lowest (down with mortgages and retail) but in absolute terms isn't that far off the others:
https://www.biggerpockets.com/forums/32/topics/559...
I've seen other data where returns from office were in the 6% range.
It's a vehicle to enable others to invest in real estate.
Real estate is cyclical and I don't think the data shows it is being "phased out". It is a media narrative that is not supported by the actual data. For example, CrowdStreet just sent this out email (i was not in this deal). 108% of money back AND they still have ownership....basically BRRRR of an office building. Looks like a good deal to me
Rhodium Capital Advisors - 100 Franklin Drive: this office property in Somerset, NJ, which exited the marketplace in November 2017, was recently refinanced resulting in 102% of originally invested capital distributed to investors. This distribution, combined with cash flow distributions, translates to 108% of original invested capital distributed to investors to date with investors still maintaining their current ownership shares in the offering.
Real estate is cyclical and I don't think the data shows it is being "phased out". It is a media narrative that is not supported by the actual data. For example, CrowdStreet just sent this out email (i was not in this deal). 108% of money back AND they still have ownership....basically BRRRR of an office building. Looks like a good deal to me
Rhodium Capital Advisors - 100 Franklin Drive: this office property in Somerset, NJ, which exited the marketplace in November 2017, was recently refinanced resulting in 102% of originally invested capital distributed to investors. This distribution, combined with cash flow distributions, translates to 108% of original invested capital distributed to investors to date with investors still maintaining their current ownership shares in the offering.
Cherry picking is nice. There are also those deals that returned a 5% IRR :)
Well yeah, I am cherry picking, I am trying to be an advocate for my argument. Do I have to argue for both sides? :-)
The good thing about syndication is you get to pick them individually, unlike a REIT. So you can pick the deals that work best.
I would also point out the amount of office space is not shrinking and the vacancy rate is not getting higher. There is just no data trend that supports office is slowly dying. It is anecdotal, like retail, there is just not the underlying data to support the assertion.
In the end, I think there is plenty of deals to go around. I wish everyone luck in their individual choices, no one has to lose or win, it is not a zero sum game.
Well yeah, I am cherry picking, I am trying to be an advocate for my argument. Do I have to argue for both sides? :-)
The good thing about syndication is you get to pick them individually, unlike a REIT. So you can pick the deals that work best.
I would also point out the amount of office space is not shrinking and the vacancy rate is not getting higher. There is just no data trend that supports office is slowly dying. It is anecdotal, like retail, there is just not the underlying data to support the assertion.
In the end, I think there is plenty of deals to go around. I wish everyone luck in their individual choices, no one has to lose or win, it is not a zero sum game.
Totally agree. Investing in syndications, unlike energy trading, is not a zero-sum game.
It is anecdotal, like retail, there is just not the underlying data to support the assertion.
You don't think retail has taken a huge hit over the last decade?