Popular and well respected multi-family syndication groups?
I am looking to be a passive investor in a multi-family syndication. Who are some popular and well respected groups that others have used or know about that I can research or get to know?
Are you an accredited investor, or looking for non-accredited opportunities?
I am accredited.
Originally posted by @Grant Gibson:I am looking to be a passive investor in a multi-family syndication. Who are some popular and well respected groups that others have used or know about that I can research or get to know?
Every investor has a different risk tolerance and financial situation. So in my opinion popularity isn't necessarily a good way of judging, because something that's very popular among aggressive investors is probably going to be a horrible choice for a conservative investor and vice versa.
Also everyone has their own way of looking at deals. As a conservative investor I believe we are late in the cycle and I don't want to newbie sponsor learning expensive lessons with my money. So I require all of my sponsors at this stage to have at least full real estate cycle experience with little or no investor money lost (and the more cycles the better). There is one that I really like that has gone through multiple cycles with no investor money lost. They also use conservative leverage, and put huge skin in the game in every deal (10% or more). They operate under 506B and cannot publicly solicit. So if you'd like more info on them PM me.
Get to know other passive investors. Talking to sponsors although it seems like the thing to do is sort of a waste of time since everyone knows all the answers to your 21 questions.
Go through BP by doing the reverse engineering. Search for people and groups that are passively investing and are on BP. And reach out to them directly.
Where are you located? I'm in NY but looking to buy multi family properties in mid-eastern atlantic states. message me if you have any specific thoughts or questions.
Try starting by narrowing your criteria; asset class, number of units, market, property class, profit share structure, etc. It doesn't have to be perfectly defined - for example you can have more than one market - but once you have a general criteria you can gather a list of Sponsors, eliminate those that don't fit your criteria, and then begin to interview them / some of their investors to make your final decision.
I agree with @Michael Bishop that's it's a good idea to first determine your investment criteria and then network with other passive investors like @Lane Kawaoka suggested for references. There are a lot of excellent operators/syndicators out there that you can build a great long term relationship with, not only the popular groups that are sometimes more focused on education or selling coaching. If you just want to invest and not become a syndicator one day you might want to seek out a group that solely focuses on investing/management.
BTW just about everyone who has commented can help point you in the direction of syndicated investments if you PM them.
@Grant Gibson there's a great book called Passive Income In Commercial Real Estate by James Kandasamy. I highly recommend it if you're just starting your journey as a passive investor.
Originally posted by @Grant Gibson:I am looking to be a passive investor in a multi-family syndication. Who are some popular and well respected groups that others have used or know about that I can research or get to know?
Grant,
Another way to go about this is by looking into CROWDFUNDING platforms like Crowdstreet, Realty Mogul, Fund Rise, etc. By looking at the kind of deals that get funded and the profiles of the syndicators, you get a sense as to who are the good ones. Not many syndicators can qualify for example with Crowdstreet's stringent criteria.
Here's a review of the different CF platforms:
https://fitsmallbusiness.com/best-real-estate-crowdfunding-sites/
Given this is your first passive syndication deal, you need to look into:
1) Breadth of Experience of the syndicator. As someone else said here on this thread, you want someone who has invested and made money through different real estate cycles. I've been investing since 1999. Another respected syndicator here on BP has been investing 10 years longer than myself.
2) No money lost for his/her LPs. I totally agree with this as well. Experience once again comes into play. I had a deal where I lost money but I made it sure my investors are whole by paying them out of my pocket. Not many syndicators are willing to take a personal loss if the deal goes south.
3) Deal Selection and Underwriting. I see a lot of marginal deals (12-18% project IRR) being marketed by less experienced syndicators and I am worried that their passive investors will likely lose money as cap rates start to decompress (and cap rates will decompress - it's just a matter of time). I don't do a deal unless the project IRR is 30% or higher. If cap rates rise by 50 basis points or 100 basis points, the IRR will go down to zero - and the passive investor will LOSE money!
I don't do as many deals because I am very selective and some way, I am too conservative. But, I'd rather NOT do a deal instead of getting a bad deal. I don't want me and my investors to lose money.
Hope this helps!
Here's the way I vet syndications. Again, different investors will do it differently because every investor comes from a different financial situation and has different goals and risk tolerance. For me, I'm a very conservative investor and may look through a hundred deals a month, and at the end of the year only invest in 4-5. So things that are a red flag for me may be fine for someone more aggressive. Here's how I do my due diligence:
1) Portfolio matching: (takes 30 seconds per deal)
a) Have an educated opinion on where you think we are in the real estate cycles (financial and physical market cycles)
b) Then only then pick the strategies, capital stack, and specialized asset subclasses that make sense for that opinion. For example, I think we are late cycle, so I lean toward the safest part of capital stack which is debt (or debt free equity). I won't go with the riskiest opportunistic strategies, and will stick to core and core plus mostly with some value-added. I won't be investing in the riskiest/most supportable asset subclasses such as hotels, and tilt my portfolio the ones that have historically been more stable such as multifamily and single-family housing. I also don't want refinancing risk, so any deals with only 3 to 5 year debt are out for me. For someone that's not as conservative, or a different view on the next recession, they might have a different opinion than me on all of this
2) Sponsor quality check: (takes about 45 minutes per deal)
I believe that a great sponsor can take an average looking deal and make it great, and that in mediocre sponsor can take a fantastic looking deal and make it bad (especially if there is a severe recession). So I start with the sponsor first. Again, others might disagree.
a) Track Record: Get the entire track record for the strategy. As easy as this sounds, it's not simple and usually like pulling teeth. Many times they will claim it's wonderful and then try to hide their worst deals by only showing completed deals. Make sure to get unexited deals. Or if they are doing value-added multifamily, they will show you their hotel experience. That doesn't cut it for me. I want a specialist that's an expert, and not a jack of all trades and master of none. Also, in a mainstream asset class like value-added multifamily, I see no reason to take a risk on a sponsor that doesn't have full real estate cycle experience and didn't lose money. Again, other might feel differently here.
b) Skin in the game: as a conservative investor, I understand that the dirty secret of industries that the waterfall compensation is in the line with me and incentivizes sponsors to take more risk. So I require skin in the game (average is 5% to 15%) to offset this. Contrary to popular belief, this is not set because I believe it will give me a higher return. I believe it tends to give me a slightly lower return, because the sponsor is going to be more careful, and if there is a severe downturn will prevent me from taking catastrophic losses. Someone that is more aggressive, may want lesser even though skin in the game. Also, if the sponsor is new, I am fine with less skin in the game as long as it is significant to their net worth. On the other hand if they are a sponsor that is experienced in stopping a skin in the game, that's a huge red flag for me.
c) how open to scrutiny are they? I always discuss investments with others in an investor club because other people might think of things that I might miss. And even though virtually every sponsor agreement allows me to share investment information with others who might be advising me on it (especially when club members are bound by an NDA), I still ask the sponsor if I can share it, because it's a test. Most are fine with that, but a few will have problems with it and claim there are legal issues, etc.. That's a red flag for me.
d) death by Google: I Google everything I can about the sponsor. I check the SEC, FINRA, ratings websites for inside information on the principals in the company. I also look for lawsuits and see what happened in them. Many times it's an easy red flag. Sometimes it's ambiguous, but even then, why should I bother with the company that has numerous unresolved lawsuits, versus another company that is virtually the same but has none. Again, others might feel differently here.
3) property level due diligence: (takes seconds to weeks per deal): here is where I drill in with the low-level details.
a) pro forma popping: I examine all the assumptions, and see if they are overoptimistic or not. I look at every single item in the pro forma and imagine that it is complete BS, and see if I can challenge it. If there's a hole, it may be a red flag.
b) sensitivity analysis: I examine all the assumptions, and make sure I can live with the worst case scenarios.
c) "Stall and see": if they are getting money over multiple years, and there is no penalty for investing later, I would usually wait so I get some real performance data, versus having to look at theoretical pro forma information.
d) Recession stress test: I will not invest in anything, until I subject it to recession level stress and see if I can live with the result. And I take the worst recession I can find in the recent past. Sometimes there is only great recession data, and that recession was pretty mild on some asset classes, versus previous recessions. So I will usually 1.5x or 2.0x the stress. If the deal collapses and I would lose everything, I'm out. Others might be fine with taking risk, but least by doing this a person can get an idea of what might go wrong.
e) Legal document analysis: it will usually take a few days to go through the legal document properly, as almost inevitably there are tons of gotchas that either have to be explained, or mitigated with a side letter.
That is the very short summary of what I do. If you want more information, p.m. me and I can give you a lot more details.
@Grant Gibson Check out Think Multifamily - Mark & Tamiel Kenney out of Dallas, TX. My father and I are a part of their group of syndicators - pretty active with over $250M and 4300 units acquired in the last 12 months alone. Steady deals that perform well and a solid reputation in the industry. Feel free to reach out if you have any questions - happy to help anyway I can. Cheers to your success!
Find a Multifamily podcast that you like, and you will hear interviews with many syndicators. Maybe you will identify with a few, and you will learn a lot in the process. Though more expensive, attending multifamily events can allow you to meet sponsors in person, and get a feel for them and the industry. To piggy-back off what @Lane Kawaoka says, maybe you can meet a few fellow passive investors at your local meetup, and get their opinions. Syndicators will provide references (albeit hand picked), and they can give you their experience. Reach out if you wish. Good luck.
On top of what everyone else said, I would say go to multifamily conferences and meet the players syndicating deals IN PERSON. You can always tell a lot via body language and face to face interactions you won't get from emails or phone calls or Google searches.
#2 Multi-Family and Apartment Investing Contributor
- Rental Property Investor
- St. Paul, MN
- 3,615
- Votes |
- 2,962
- Posts
#2 Multi-Family and Apartment Investing Contributor
- Rental Property Investor
- St. Paul, MN
@Grant Gibson I have attached an article to read that will help in your search. There are a lot of great contacts right here in BP.
These 2 are about raising money, but they may provide you with some value
https://www.biggerpockets.com/member-blogs/10145/73373-opm-how-to-syndicate-with-success
Quote from @John Drowns:
Are you an accredited investor, or looking for non-accredited opportunities?
What would you suggest for a non-accredited investor? If I reached out to a syndicator would that be compliant?
Quote from @Jay Ben:
Quote from @John Drowns:
Are you an accredited investor, or looking for non-accredited opportunities?
What would you suggest for a non-accredited investor? If I reached out to a syndicator would that be compliant?
You, as a passive investor, can reach out to syndicators. The syndicator is the one offering securities, so they're the ones that need to worry about staying in compliance. You, as the passive investor, don't need to worry about that for yourself.
There is a lot of great advice in this thread! I would add that investing in real estate syndications is putting your money in long-term, illiquid investments where you have zero control. This means, as many here have said, that the most critical part of the process is finding quality operators. It's a hard thing to do - many of these deals last five or ten years, so how can you know if someone is a good operator? After going through several different strategies to find good operators, I settled on this: I only invest in a new (to me) operator if they are referred to me by someone in my Community or network who I know, like and trust and that person has already invested with the operator. I still do all of my normal due diligence on the operator, but trust transfers - so by making my first screen a referral from someone I trust, I shortcut the evaluation process.
That brings you to the next issue - how do you find people to be in your Community or network? Posting on this forum is a great start - there is a ton of good information and a lot of quality people on BiggerPockets. But if you really want to focus on passively investing in real estate syndications, I would strongly recommend joining a Community. There are several people on this thread in various Communities, so DM them and find a Community that fits you. If you walk out your front door and talk to your neighbors about finance - they will talk about the interest rate on their mortgage, their 401k and T-Bills. When you mention real estate syndications they will think you are crazy and they will be certain that it is too risky - they will also be misinformed, but this is why you need a Community. There, you will find like-minded individuals who are working toward similar goals as you and are interested in the same type of investments. You can learn from them and hopefully, short cut the process and avoid some of the mistakes many of us made in our journey.
Good luck!
@@Jim Pfeifer Can you define community? do you mean a local rei group?
Quote from @Jay Ben:
@@Jim Pfeifer Can you define community? do you mean a local rei group?
There are quite a few Communities who deal with passive investors - most are not local, most are online and some have meetups as well. Some of these Communities are organized by a capital raiser and they provide limited deal flow and education. Others are purely for passive investors and provide education, a network and deal flow. My recommendation is to join a few of them and you will find yourself spending the most time in those Communities where you are most comfortable.
Feel free to DM me if you want some recommendations on Communities!
@Jim Pfeifer may not say it but I would also recommend checking out his group/community, Left Field Investors.
Be very, very careful investing in syndications...I made the mistake listening to what sounded like successful sponsors on youtube and podcasts and my first syndication turned into a foreclosure, little transparency and money is now GONE. I'm a syndicated investor.
If you are not familiar intimately with what is going on with the investment, be very very careful. Don't believe everything you hear. There are sponsors (on this thread) that I got burned from and the blame is on the economy and interest rates. I don't buy that and need to see where my money went. Message me if you want details.