Raising money for a syndication

18 Replies

Would it be possible to raise the funds needed for a syndication through an equity placement broker? If so, how would this change the fee structure? For example: there's usually a 1-3% acquisition fee when using privately raised money. Would one still be able to charge fees with money brought in by an equity placement broker?

@Ben Bymaster there's really no such thing as an "equity placement broker" in the context that you are describing. Only a licensed broker/dealer is allowed to sell securities.  A broker/dealer would add around 10% of the equity raise for their commissions, and that's assuming that you pass their third party due diligence, which will cost you $30K to $60K out of pocket.  They'll have some minimum experience requirements and will require that you have certain internal controls and perhaps even auditing.  For a typical small-scale real estate syndication, the commissions, costs, and requirements are impractical.

There are equity brokers out there that charge 1% to 3% of the equity being raised, but they are matchmakers between experienced sponsors and institutional equity sources.  If you have less than 1,500 units and several years of experience it's hard to get much traction with this route.

There are a lot of people, on BP and otherwise, that raise capital for syndication sponsors by joining the sponsor on the GP side and sharing in the fees and promote.  I'm not sure how that all works but I'm sure someone else can elaborate.

@Ben Bymaster This isn't a direct answer to your question.  Just more of a caution.  If you are already aware then just ignore my reply :) You need to be very careful about raising money via a syndication.  Syndications are great and I'm part of a syndication as a passive investor on 132 unit in San Antonio. Here's where you need to be careful; accepting money from family and friends.  If an investor is not accredited then they MUST be sophisticated per SEC Rule 506(b) of Regulation D and you must have a pre-existing and substantiate relationship. So you can't use a general solicitation such as Facebook to find people you don't know. Furthermore you are limited to 35 non-accredited investors.  Here's a link from the SEC if you want to read through it https://www.sec.gov/smallbusiness/exemptofferings/rule506b

Hopefully you find this information useful.  I want your deal to be successful and make everyone lots of money!

@Ben Bymaster it really all depends on the deal and how you structure it. You could still charge fees if there's enough meat on the bone, but you will never know until you have a solid deal. Do you have a solid deal in place at this moment?

Hey @Ben Bymaster , the same kinda holds true for a single family as it does for an apartment complex or even an office building. Find a partner who has done it a few times before. They may keep you in the deal for 10%, but you will be on the inside. See what they do, see what happens. See all of the documents that get created, shared, all the emails that happen with the attorneys, etc.

You might get a little fee for bringing the deal, but in a few years when refinancing happens you will get some cash and continue to have a cash flow. Not a bad deal.

You have done some heavy lifting (if the deal is actually a deal), now let your partner finish it (syndication, financing, getting it closed). 

Originally posted by @Ben Bymaster :

Would it be possible to raise the funds needed for a syndication through an equity placement broker? If so, how would this change the fee structure? For example: there's usually a 1-3% acquisition fee when using privately raised money. Would one still be able to charge fees with money brought in by an equity placement broker?

No equity placement broker exists. A broker/dealer can help you but only if you have experience and the right amount of internal controls/sophistication with an auditable track record (as @Brian Burke mentioned). 

I wouldn't waste my time too much at this stage. Doesn't matter how good of a deal you have. Literally, no one cares because you don't have a track record.

In my opinion after reading some of these. 

1. If you want to raise money to syndicate a Multi-Family Property. Get a coach/ mentor to help you gain an education.

2. If you put your mind to it you can achieve whatever you want. 

3. Read books on syndication and capital raising. There is a handful of books out there. 

Joe Fairless wrote a good book on syndication. 

You do want to be extremely careful when raising money. But gain the education first and a coach/mentor then start. Feel free to message me if you have any questions! 

You can do it! Gain the Knowledge first! 

In my opinion after reading some of these. 

1. If you want to raise money to syndicate a Multi-Family Property. Get a coach/ mentor to help you gain an education.

2. If you put your mind to it you can achieve whatever you want. 

3. Read books on syndication and capital raising. There is a handful of books out there. 

Joe Fairless wrote a good book on syndication. 

You do want to be extremely careful when raising money. But gain the education first and a coach/mentor then start. Feel free to message me if you have any questions! 

You can do it! Gain the Knowledge first! 

@Brian Burke is correct. The only people who can do this are FINRA-licensed broker dealers, but even then, most BDs nowadays won't place capital for issuers anymore. Usually there are huge upfront fees and they take 7%+, so it doesnt make sense to use a BD for a sub-$10 or 20M deal if you can find a BD who is willing to sell for you in the first place.

@Brian Burke my understanding is that the regulations have become so strict over the past decade and the liability so high that many don't find it a profitable venture anymore. They still do many things (escrow funds, transactional processing compliance (Accredited Investor Verification, Know Your Customer (KYC) Checks, Anti Money Laundering (AML) Checks, Investor Suitability Checks, Transact Offerings, bad actor checks), due diligence, data retention, etc. I tend to interact more with the tech-enabled BDs and dont often talk to the traditional ones too much, but one BD told me last month that few BDs will place anymore.

Originally posted by @Amy Wan :

one BD told me last month that few BDs will place anymore.

Interesting, and not surprising.  There is a lot of money chasing deals so raising capital isn't as hard as it once was, plus with 506(c) allowing general solicitations, I've long thought that those two factors would eventually be the demise of the conventional BD's business model.   

If this is your first deal or not a long track record I would focus on your contacts. I would speak with a securities attorney like Ms. Wan. A broker deal as other have said is who you would need to work with but it might not be beneficial at this as too early. Good luck and ca not wait to hear about all your deals!!