Is this Equity split in syndication fair

[Nelson Lin]

I’m looking to invest in a syndication in Phoenix for a 60 unit apartment that will be a value add.

The equity split is 80/20 for investors/sponsors, but the sponsors are only putting in 10% of the equity raise. Is this a normal/fair split, not sure since I’m a bit new to syndicating.

[Brian Burke]

80/20 to the investors is actually a bit generous if there is a preferred return.  If not, then not so much.

“Standard” terms, if there really is such a thing, is a preferred return to investors ranging from 6% to 10% (8% is probably the most common.  What this means is that the investors get 100% of the distributable cash flow until they have received this rate of return. 

After that test is met, the balance of remaining cash flow is split between the investors and the sponsor.  Typical splits range from 80/20 to 60/40. 

A straight split with no preferred return is less favorable to the investor, especially if the deal underperforms.