Syndication strategies the work or might not

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I’d love to hear some syndication strategies you guys use regularly. I am referring to pay out strategy/schedule, preferred returns, strategies to avoid, mistakes, refinance periods, uncommon splits, length of the hold or anything others may find valuable! 

I wish you all a prosperous real estate experience!

Originally posted by @John Hamilton :

I’d love to hear some syndication strategies you guys use regularly. I am referring to pay out strategy/schedule, preferred returns, strategies to avoid, mistakes, refinance periods, uncommon splits, length of the hold or anything others may find valuable! 

I wish you all a prosperous real estate experience! 

Every deal is different and not every structure will work. 

There are a number of ways to do this. It really boils down to you and your investors. In general the more sophisticated investors (very high net worth) are more interested in preservation of capital and not returns or cashflow whereas the less sophisticated and smaller investors primarily focus on returns and cashflow.

You can sign up with several syndicators and receive their investment summaries to see what they offer but the best bet is to know and understand your investors and what they are most interested in.

We pay out quarterly. Typically offer 6-7% preferred returns on a 70/30 split or a 12% pref with no split. 

Strategies to avoid? Incorporate strategies that work for your investors and your company. 

Refi strategies: First, don't do a deal that requires a refi, in order to hit your returns. Next do a refi if it makes sense financially. Look how if effects your returns and what it may cost you. Is a refi better than a sale? Are you maintaining a conservative loan or are you over-leveraging? 

Length of hold: We are typically 5-8 year hold, but are looking at deals with 10+ year hold strategies as well. 

@John Hamilton

One thing I've noticed that the very successful, large syndicators do is that they use leverage properly

Assuming you are able to (1) find great deals, (2) structure deals properly in a way which attracts the capital needed to close and (3) operate a property properly, it seems as though the main differentiator between those who are around for a long time and those who are not, is leverage.

Knowing when to go to 80% LTV (loan to value) in order to maximize returns, and when to dial it back to 65% LTV for example, resulting in a lower overall projected return, is a skill that the well established sponsors are able to manage on a deal by deal basis.

The antithesis to this would be a sponsor with the philosophy of "We do an 80% LTV loan on every deal no matter the market or the business plan."

Originally posted by @Kevin Dean :

@John Hamilton

One thing I've noticed that the very successful, large syndicators do is that they use leverage properly

Assuming you are able to (1) find great deals, (2) structure deals properly in a way which attracts the capital needed to close and (3) operate a property properly, it seems as though the main differentiator between those who are around for a long time and those who are not, is leverage. 

Knowing when to go to 80% LTV (loan to value) in order to maximize returns, and when to dial it back to 65% LTV for example, resulting in a lower overall projected return, is a skill that the well established sponsors are able to manage on a deal by deal basis.

The antithesis to this would be a sponsor with the philosophy of "We do an 80% LTV loan on every deal no matter the market or the business plan."

Very good point regarding the LTV! Thanks for the valuable input.

@Todd Dexheimer I’d love to chat sometime. Learning these different scenarios will definitely make or break a syndicator. Running the numbers of on and off market deals daily will get newer syndicators a great opportunity to see the cost/Benefit of each scenario. 

@John Hamilton As others mentioned, there're no two deals alike. Even the same operator will tend to structure every deal depending on its own unique characteristics. I suggest you start with

1) reading books on syndications, like the one by Gene Trowbridge and another one by Theo Hicks/Joe Fearless

2) listen to podcasts. Good example is @Whitney Sewell 's podcast

3) work on your underwriting skills. Take Udemy course, they are cheap today as it's a Cyber Monday

Know your investors. If they are first-time multifamily investors, keep the structure simple. If they are more experienced, ask them the structure of the last deal they did and what they liked about it. In general, don't overcomplicate it, find what works for the masses and remove unnecessary complexities.

Originally posted by @John Hamilton :

I’d love to hear some syndication strategies you guys use regularly. I am referring to pay out strategy/schedule, preferred returns, strategies to avoid, mistakes, refinance periods, uncommon splits, length of the hold or anything others may find valuable! 

I wish you all a prosperous real estate experience! 

 John,

I do things very differently than the typical syndicator so what I do may not apply to you or your market. I've done over $100 MILLION worth of deals and I own about 1,000 apartment units right now. I've been doing this since 1999 and actually thrived during the 2008-2009 Great Recession. To answer your questions:

1) My structure is 30/70 (LP/GP) (yes - it's flipped in my favor) with 6% pref or 50/50 no pref 

2) I don't charge a refinance fee, (and typically I don't charge an asset management fee) nor do I buy out my LPs when I refinance. This allows my investors to literally own multiple properties with a one-time investment.

3) My investing horizon is 3-5 years for apartment communities in B/C areas (and longer for A areas)

4) How do I find investors willing to only own 30% equity in the deal?

a) I am choosy/selective in the deals I work on. The project IRR has to be 30%, preferably 40% or I won't do the deal. Because of my track record in the Cincinnati market, I have enough deal-flow that I get really good deals.
  b) I am also choosy in the investors I work with. My minimum investment required is $100K or even $200K (while the typical syndicator's minimum is $50,000 or even as low as $25,000). 

I agree with @Greg Dickerson   - the BIG money investors are concerned more with return of principal & safety of their investment vs. their equity share and over-all return than the smaller investor. My track record of not losing money for my investors and being selective in my projects is very attractive to BIG investors.

@John Hamilton payout every month or every quarter, your choice. Pref are 6-8% in this market. That's normal! Avoid buying strictly on appreciation or at retail value. That's a clear no no. Buy for strong cashflow in the market we are in. Refinance can be 2-5 yrs just depends on your model and exit strategy. 5-7 yrs is the typical hold time to get the numbers to work but can push out to 10 as well

Originally posted by @John Casmon :

Know your investors. If they are first-time multifamily investors, keep the structure simple. If they are more experienced, ask them the structure of the last deal they did and what they liked about it. In general, don't overcomplicate it, find what works for the masses and remove unnecessary complexities.

 I think this is a solid plan and great for new sponsors as well! K.I.S.S= Keep It Simple Stupid haha

Originally posted by @Tj Hines :

@John Hamilton  payout every month or every quarter, your choice. Pref are 6-8% in this market. That's normal! Avoid buying strictly on appreciation or at retail value. That's a clear no no. Buy for strong cashflow in the market we are in. Refinance can be 2-5 yrs just depends on your model and exit strategy. 5-7 yrs is the typical hold time to get the numbers to work but can push out to 10 as well

 Tj,

Thanks for the input! Would you want to Refinance to stay in the deal longer and provide your investors with a good portion of their capital back?? 

Two investment strategies, same structure of 2% acq fee, 80% LP / 20% GP over an 8% preferred return, and a 2% disposition fee if the preferred return is achieved.  Given where I believe we are in the cycle, we're mostly focusing on the longer term strategy unless it's with an institutional partner.

1) Short term (3 to 5 years) with debt between 65-75% LTV from debt funds

2) Long term (7 to 10 years) with debt typically between 60-70% LTV fixed rate loans from Fannie or Freddie with 7 to 10 years of interest only payments.