Paying a syndication sponsor's (high) travel costs

Multi-Family and Apartment Investing
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Paying a syndication sponsor's (high) travel costs

Andrey Y.
Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes

This is something I frequently see when reviewing opportunities:

Travel and inspection costs / Asset due diligence                         $200K $300K etc.

Now, if the entity is purchasing 1 or 2 assets, how much does travel, hotels, etc. cost? There is nothing to stop the syndication sponsor from traveling first class, staying at the Plaza 5* hotels, and eating lobster and champagne every meal. If there is a huge cushion in the budget, why not? I don't blame them. Its human nature. I probably would too.

When I think about it, I want my GP in a sense to get great accommodations and be as comfortable as possible. I'm a doctor and I definitely don't travel first class most of the time. This makes me think I am in the wrong business! There is so much lee way for a sponsor to do whatever they want, human nature will come into play. There is no one auditing their actions. And the budget is very generous for these things.

A high number isn't a big deal if the LLC is raising $50MM. If its a $10M property, I'm not so sure. That said, I am considering to change careers ;)

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y
Originally posted by @Brian Burke:

$200K to $300K is insanely high.  A clue here is it says "Travel and Inspection Costs / Due Diligence."  So could this possibly include third-party reports, lender inspections, lender's travel costs (yes, lenders bill the borrowers), and so on?  And would this be for multiple properties in a fund?  I can see maybe $50K or so per property for all of that stuff, including lender thirds, survey, zoning reports, etc.  But for sponsor travel?  No way!  I budget around $15K for DD related travel and we usually don't come close to spending all of it, meaning any remaining balance goes to cash reserves or offsets another line item that goes over budget (it happens!).

you know all those pics of successful syndicators sitting in private jets :)  someone is paying for those.. or maybe its just fluff.. ? along with lambo pulled up next to said Jet.. :)

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Luke Miller:

    @Andrey Y. let us know what the sponsor says. I'd be curious. For reference, my travel (before the deal closes) is usually limited to a couple thousand on the high end. For due diligence, I budget somewhere around $100/ unit for inspections and then a certain percentage to do the file audit. 

    I would imagine that there is a reasonable (in their mind) explanation for their costs, but who knows? I doubt they are using it for nefarious purposes like @Jay Hinrichs insinuating, but i've been wrong before. 

    That's the beauty of being an informed investor though, if you don't like the offering move on. No one is forcing you to invest.

    Lucus my post was in jest .. not accusing any syndicator of blowing investor money on due diligence.. or using it for private aviation or buying a lambo.. :)

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  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Luke Miller:

    @Andrey Y. let us know what the sponsor says. I'd be curious. For reference, my travel (before the deal closes) is usually limited to a couple thousand on the high end. For due diligence, I budget somewhere around $100/ unit for inspections and then a certain percentage to do the file audit. 

    I would imagine that there is a reasonable (in their mind) explanation for their costs, but who knows? I doubt they are using it for nefarious purposes like @Jay Hinrichs insinuating, but i've been wrong before. 

    That's the beauty of being an informed investor though, if you don't like the offering move on. No one is forcing you to invest.

     The sponsor contacted me in private and was very upset that I shared 'confidential information' from the PPM, and they weren't okay with it. So it sounds like I am 'out of' this opportunity.

    I was contacted by other players in this space, they said I did nothing of the sort because I didn't state the name of the sponsor nor did I share a copy of the PPM with anyone. Saying "this anonymous sponsor" has $250K fees for travel and DD isn't a breach of anything, and I'm happy that experienced commercial multifamily operators are telling me this.

    If someone is totally comfy with the fees they are charging, I think they would be happy to explain it. Out loud. In public, even. It shouldn't be a big secret. This is just my opinion. Others are welcome to disagree.

    I don't really want to get into specifics of their answer, as I am afraid this may upset them further. Potentially, people can deduce who the sponsor is if I talk about the types of deals they are doing? Anyway, out of respect I won't post those details in this venue.

    I will only say that their justification kind of made sense, but I am still not totally clear that that entire figure is warranted. So, if I am going based on what @Omar Khan said above, definitely would pass on this particular opportunity.

    1Reply
  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    @Greg Dickerson @Ben Leybovich @Dylan McCabe

    Appreciate your thoughts and input, guys!

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  • Steve K.
    Honolulu, HI · Member since 2017 · 247 posts · 315 votes
    6y
    Originally posted by @Andrey Y.:
    Originally posted by @Luke Miller:

    @Andrey Y. let us know what the sponsor says. I'd be curious. For reference, my travel (before the deal closes) is usually limited to a couple thousand on the high end. For due diligence, I budget somewhere around $100/ unit for inspections and then a certain percentage to do the file audit. 

    I would imagine that there is a reasonable (in their mind) explanation for their costs, but who knows? I doubt they are using it for nefarious purposes like @Jay Hinrichs insinuating, but i've been wrong before. 

    That's the beauty of being an informed investor though, if you don't like the offering move on. No one is forcing you to invest.

     The sponsor contacted me in private and was very upset that I shared 'confidential information' from the PPM, and they weren't okay with it. So it sounds like I am 'out of' this opportunity.

    I was contacted by other players in this space, they said I did nothing of the sort because I didn't state the name of the sponsor nor did I share a copy of the PPM with anyone. Saying "this anonymous sponsor" has $250K fees for travel and DD isn't a breach of anything, and I'm happy that experienced commercial multifamily operators are telling me this.

    If someone is totally comfy with the fees they are charging, I think they would be happy to explain it. Out loud. In public, even. It shouldn't be a big secret. This is just my opinion. Others are welcome to disagree.

    I don't really want to get into specifics of their answer, as I am afraid this may upset them further. Potentially, people can deduce who the sponsor is if I talk about the types of deals they are doing? Anyway, out of respect I won't post those details in this venue.

    I will only say that their justification kind of made sense, but I am still not totally clear that that entire figure is warranted. So, if I am going based on what @Omar Khan said above, definitely would pass on this particular opportunity.

    perhaps it is for the best that you are not being welcomed...

    0Reply
  • Omar Khan
    Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Andrey Y.:
    Originally posted by @Luke Miller:

    @Andrey Y. let us know what the sponsor says. I'd be curious. For reference, my travel (before the deal closes) is usually limited to a couple thousand on the high end. For due diligence, I budget somewhere around $100/ unit for inspections and then a certain percentage to do the file audit. 

    I would imagine that there is a reasonable (in their mind) explanation for their costs, but who knows? I doubt they are using it for nefarious purposes like @Jay Hinrichs insinuating, but i've been wrong before. 

    That's the beauty of being an informed investor though, if you don't like the offering move on. No one is forcing you to invest.

     The sponsor contacted me in private and was very upset that I shared 'confidential information' from the PPM, and they weren't okay with it. So it sounds like I am 'out of' this opportunity.

    I was contacted by other players in this space, they said I did nothing of the sort because I didn't state the name of the sponsor nor did I share a copy of the PPM with anyone. Saying "this anonymous sponsor" has $250K fees for travel and DD isn't a breach of anything, and I'm happy that experienced commercial multifamily operators are telling me this.

    If someone is totally comfy with the fees they are charging, I think they would be happy to explain it. Out loud. In public, even. It shouldn't be a big secret. This is just my opinion. Others are welcome to disagree.

    I don't really want to get into specifics of their answer, as I am afraid this may upset them further. Potentially, people can deduce who the sponsor is if I talk about the types of deals they are doing? Anyway, out of respect I won't post those details in this venue.

    I will only say that their justification kind of made sense, but I am still not totally clear that that entire figure is warranted. So, if I am going based on what @Omar Khan said above, definitely would pass on this particular opportunity.

    You did nothing wrong because you did not name anyone nor provide any hint in your post as to who that person could be. Going off your post, this could literally be ANY sponsor in the entire world. Don't understand why the sponsor is butt hurt (FYI: I am a sponsor). 

    I am not saying that a sponsor has to agree to every point an LP raises - legitimate or not. But asking for a breakdown on fees and airing questions around the use of funds is entirely within your rights. In fact, it would be dumb to NOT do it. 

    Sunlight is the best disinfectant. It might be for the best to avoid this person/group because (only based off your post/responses) they are not transparent. 

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