Real Estate Agent · Woodstock, GA · Member since 2018 · 253 posts · 255 votes
So I have been reading up a lot on syndication lately and getting familiar with the process. I have done a lot of reading and learning and I feel pretty comfortable with the overall structure and the way these deals are setup.
I have joined a few syndicators investor lists and attending their presentations, reading over their offering memorandums, and PPMs. As I have joined a few lists I have seen a few deals and the way they are presented. I received an email for a deal earlier this week then a follow up later that day stating they have raised all the required capital. Then today I received an email from a completely different syndicator with the same apartment complex name etc stating they are going to have a webex next week to present the deal.
Is this common? This seems odd to me as neither one of the syndicators mentions working with the other. Is it possible that they both think they have a contract on the property? Anyway for me to vet this further?
This is quite common practice among members of some guru programs. I don't invest in such deals because usually they have multiple sponsors (6 was the highest number I've seen) and only one or two of those sponsors have some experience. Others are money raisers who like to boast about the number of units they "own". More often than not, the "experience" partner is a guru himself but the real operator is his rookie student. That's a recipe for disaster in my opinion. Too many cooks in a kitchen and the main chef may not even be there as he has too many kitchens to attend.
above defines what is an Accredited Investor. Your lawyer, CPA can write to syndicator confirming your status or can go to verify investor that confirms you are accredited.
And is there a verification process or certification, or is this information all simply self reported?
A 506(b) offering is self-accreditation so usually the investor fills out an investor questionnaire and they state in there if they are accredited and in what manner they qualify for that. 506(c) requires verification via CPA or 3rd party company, like verifyinvestor.com
Rental Property Investor · Oakland, CA · Member since 2016 · 341 posts · 643 votes
6y
Hi @Diana Jing - an ACCREDITED INVESTOR includes anyone that:
1. Earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
2. Has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
So I have been reading up a lot on syndication lately and getting familiar with the process. I have done a lot of reading and learning and I feel pretty comfortable with the overall structure and the way these deals are setup.
I have joined a few syndicators investor lists and attending their presentations, reading over their offering memorandums, and PPMs. As I have joined a few lists I have seen a few deals and the way they are presented. I received an email for a deal earlier this week then a follow up later that day stating they have raised all the required capital. Then today I received an email from a completely different syndicator with the same apartment complex name etc stating they are going to have a webex next week to present the deal.
Is this common? This seems odd to me as neither one of the syndicators mentions working with the other. Is it possible that they both think they have a contract on the property? Anyway for me to vet this further?
I'm a huge fan of syndications as a passive investor and I invest in then exclusively these days. If you see the same deal sent out by multiple syndicators ... means the deal isn't good enough. Tell tale sign. It's a hard pass. Good deals (favorable for the limited partners) sell themselves.
This is quite common practice among members of some guru programs. I don't invest in such deals because usually they have multiple sponsors (6 was the highest number I've seen) and only one or two of those sponsors have some experience. Others are money raisers who like to boast about the number of units they "own". More often than not, the "experience" partner is a guru himself but the real operator is his rookie student. That's a recipe for disaster in my opinion. Too many cooks in a kitchen and the main chef may not even be there as he has too many kitchens to attend.
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
6y
@Andrey Y. I respectfully disagree with your statement that "Good deals (favorable for the limited partners) sell themselves."
To "sell" a deal, one has to have a big enough pool of investors. For some, that means a handful of big fish. For others, it's a large number of small fish. But the sponsor's experience, relationship, brand authority - those all matter. A great deal presented poorly can still be slow to fund. And a poor deal presented slickly can fund quickly.
If a sponsor has a great deal and needs to raise, say, $4MM, but only has $1MM of solid investor commitments, he or she will need to hustle to bridge the gap. It doesn't happen by magic, and the deals don't fund themselves. I've seen it happen.
@Andrey Y. I respectfully disagree with your statement that "Good deals (favorable for the limited partners) sell themselves."
To "sell" a deal, one has to have a big enough pool of investors. For some, that means a handful of big fish. For others, it's a large number of small fish. But the sponsor's experience, relationship, brand authority - those all matter. A great deal presented poorly can still be slow to fund. And a poor deal presented slickly can fund quickly.
If a sponsor has a great deal and needs to raise, say, $4MM, but only has $1MM of solid investor commitments, he or she will need to hustle to bridge the gap. It doesn't happen by magic, and the deals don't fund themselves. I've seen it happen.
I get where you're coming from, I just haven't seen the same in the real world.
Think about this. When we (by "we" I mean someone who has read 50+ PPMs and invested > 7 figures of their own money into private equity) see a new deal, it takes about five minutes to know that the docs are worth it to examine further. In about one or two hours, we know whether to commit six figures or not on this deal.
I travel often and I don't review my email over the weekend or when I'm traveling sometimes. There have been at least three occasions in the last few months where I looked at the deal and immediately knew the underwriting was very favorable and conservative, and the opportunity was killer. I emailed the sponsor back and it was oversubscribed by the second or third day for this very reason.
However, "deals" where I immediately knew they weren't deals to begin with, they're around for weeks and even months and I get several emails from different capital raisers tell me about the same deal. If it is such a deal, how they are having trouble raising the capital?
Trillions of dollars have been printed and pumped into the economy. The cash is there, the deals are not. Money is literally grown on trees right now, in case you haven't noticed.
Lately, I have been relying heavily on sponsor experience in exchange for safety and lower returns.
Opportunities where I immediately know I would put my money into them, they are committed in one week or less. This includes with experienced and non-experienced sponsors. This is no accident. Also includes whether 2 million dollars or 7 million dollars is being raised, so not buying the numerical argument.
Investor · Charlotte, NC · Member since 2017 · 112 posts · 83 votes
6y
@Matthew Nicklin Funny headline. Not funny if you're super confused as to what is going on with a deal you like. For what it's worth, I'd second Ian Ippolito's post. Good luck!
Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
6y
@Andrey Y. I get what you mean. I see the same thing happening. However, I also see bad deals get oversubscribed quickly by folks who are excellent at raising capital. I don't take the speed of the raise as a definitive indicator, but I would agree that a failure to raise is probably not a good sign.
I look at way, way more deals than I participate in as a partner or investor, and it sounds like you do too. I just try not to take any single indicator of deal quality. Investor interest isn't exclusively driven by deal quality, it is also driven by sponsors' sales and marketing abilities.
If I see a crowd running in a particular direction, I'd rather figure out why and make my own decision than start running with them. It's working out so far. Newer, smaller sponsors find great deals as well, and sometimes they're better at finding deals than they are at filling up their commitments in 2 days. I'd rather invest with that group. They usually don't stay small for long, though.
Undoubtedly, when a sponsor has been syndicating for decades, of course (the Grant Cardones of the game), then they won't need to have capital raisers because they probably have a deep network of Private Equity money, single-check high net worth Investors, and/or Institutional capital connections.
It's funny you say this because Grant just started syndicating in the last few years.
Grant Cardone is 61 years old, and he has been investing in Real Estate (and buying apartments with passive investors) for what? 30 years or so? His words, not mine...
My point is I cannot expect Mark Zuckerberg of Facebook to have 30 years experience of running a tech company if he is only 35 years old... I know you understand what I am saying here.
Rental Property Investor · Washington, DC · Member since 2015 · 429 posts · 393 votes
6y
At the end of the day, this thread points to why you have to trust the Sponsor first, and then the Deal.
Get to know your Sponsors, meet them (in person if possible), talk to them, build trust.
That’s not to say every deal they bring your way will be one in which you’ll want to participate. But at least you’ll have trust that there’s nothing “weird” going on, especially if/when you see things like in the original post.
These are people whom you’re trusting to manage your investment dollars...and hopefully more and more of it as time goes on. So it should be people you trust.
If not, then you might as well just go back to throwing your money into a big-name brokerage account, and pay 1.8% for some “expert” of whose name, age, or experience you definitely have no idea, to “allocate” your invested dollars for you.
Having invested in a PE deal where the deal looked great, but I wasn’t really sure about the manager, but I invested anyway. I can say, I fortunately didn’t lose money, but I think I probably developed a stomach ulcer during those few years.
Multi-Family Syndicator · Abington, MA · Member since 2017 · 603 posts · 347 votes
6y
Just make sure the details line up. There can be multiple partners in a syndication so if indeed you are part of many groups you may see the same opportunity twice or even three times. Many people are associates and previous partners of each other.
Specialist · Tampa, FL · Member since 2012 · 933 posts · 492 votes
6y
@Matthew Nicklin you will find out very quickly in this space, that syndicators tend to partner with other syndicators out there to help bring resources to the table where they fall short. Even though they said all of the capital is raised, it could be a possible scenario to where they are looking to over raise on the project to insure they can close on it, if an investor or two decide they want to back out of it. Or it can possibly be that the syndicator who controls the deal may not have communicated to the other syndicator that all the funds have been raised. To verify or vet the syndicator, simply ask him to send you a copy of the purchase and sales agreement.