There are three key types of management at play for value add apartment syndications - Asset Management, Construction Management, and Property Management

Definitions, in short:

Property Managers operate the property and perform the day-to-day operations of the property - leasing units, rent collections, evictions, etc. Third party property management is preferred.

Asset Managers oversee the operations of the property and ensure the business plan is being properly executed. They should be a part of the General Management team.

Construction Managers are responsible for overseeing the renovations of units and facilities, making sure renovations happen on time and on budget, and the work is done properly.

Where most syndicators go wrong:

Most syndicators do not have in-house construction management and rely on their property manager to provide construction management. Not only that, but many General Partnerships do not have a member who is an expert on construction, including estimating costs and timelines - even if that person is not acting as a Construction Manager.

So many syndication teams have little expertise/background to monitor the construction and keep things on track. 

Problems can arise by the General Partnership not being savvy enough to oversee the Property Manager’s Construction Management, because the incentives in this area are typically far out of alignment. Not only that, but even if the PM is acting in good faith, the GP team may not know whether they're performing well, poorly, or somewhere in between.

Third party Property Managers can let costs overrun and timelines go on far too long if they do not have the proper oversight. I’ve experienced the downside risk of this as a passive investor in a deal. It’s not a fun thing to experience.

The big lesson:

General Partnership teams should have Asset Management and Construction Management in-house. When Asset and Construction management are in-house the renovations are far more likely to be executed on time and they can better manage the Property Manager Outsourcing the Asset and Construction management is typically less efficient, can lead to delays or extended timelines, and typically has higher costs than in-house.

I learned this info in a discussion with Ashley Wilson of Bar Down Investments. Ashley is asset and construction managing a syndicated apartment property in Texas we were both partners on, acquired earlier this year. She has 10 years of prior SFR investing and flipping experience, and has asset & construction managed syndicated apartments in the past.

What do you do for Asset Management and Construction Management in your apartment syndications?

To passive investors, do you consider this when you’re evaluating an investment?