Skip to content
×
Pro Members Get
Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
ANNUAL Save 16%
$32.50 /mo
$390 billed annualy
MONTHLY
$39 /mo
billed monthly
7 day free trial. Cancel anytime
Multi-Family and Apartment Investing
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated about 5 years ago on . Most recent reply

User Stats

21
Posts
8
Votes
Thomas Loggins
8
Votes |
21
Posts

General question regarding 506b/506c passive investment platforms

Thomas Loggins
Posted

Like any investor "wanna-be", I read a lot and listen to podcasts of syndicators and sponsors (GPs, I assume) who pool capital from passive investors to target value-add multifamily opportunities. 

While I have significant experience on the debt side of multifamily real estate, I don't have a lot of experience on the dynamics of syndicating equity. I understand in general how equity relationships work (GP vs. LP, active vs. passive, preferred returns / promote, etc.) as I have to review operating agreements at times and I have reviewed promote waterfalls. But I am not an expert.

My question is: Why would these online, value-add investing platforms need or want to reach out to "mom and pop" investors, accredited or not, to raise capital? 

In most of the deals I see, underwrite, asset-manage from a lender perspective, I see the same sponsors raising equity from the same known investors deal after deal, without the need to reach out to the general public for equity contributions. I will note that pretty much ALL of the deals we finance are institutional-quality properties with exit strategies of either 1) refi via long-term, permanent takeout (life companies), or 2) sale / disposition to institutional investors.

So as I individually attempt begin my personal investing career (currently in learning mode with capital ready to deploy), I understand that I can't just walk into a room full of sophisticated, savvy and experienced investors and announce that I'd like to participate in a "sure thing", ground-up 350-unit, class A apartment building in midtown ATL. I get it. 

But why would these online, value-add strategy platforms need or want my equity contribution? Do they not have access to the more sophisticated investors? Does the equity that would be provided by such savvy and experienced investors demand demand higher returns than mom and pop can demand (i.e. more expensive equity)?  What else?

Thanks in advance for any comments.

Most Popular Reply

User Stats

245
Posts
148
Votes
Gaspare U.
  • Rental Property Investor
  • Cranford, NJ
148
Votes |
245
Posts
Gaspare U.
  • Rental Property Investor
  • Cranford, NJ
Replied

@Thomas Loggins 

  Probably because the more "sophisticated" institutional investors will demand a lot more. If one investor could drop 100m on a deal they have the weight to add stipulations or amendments to the syndication deal vs a Mom & Pop with $50k to invest.

  I also think a lot of people like to "portray" that they have access to this institutional cash flow but do not. But overall your assumptions are what I think as well, they may not really have the access or if they do, the cost to have them play is greater.  

Loading replies...