Multi Family Syndication Questions (Advice Needed)

11 Replies

Looking at getting started in multi family acquisitions and I wanted to pick the brain of the members on the site for some questions/topics that are not discussed as much.  These are a bit more detailed on the GP side but wanted to get some perspective from others regarding these items:

1.  When syndicating apartment buildings I am assuming the GP is raising the acquisition fee and Cap X requirements as part of the LP equity amount?

2. Besides the rent roll and T12 what would you suggest reviewing or requesting?

3. Is the asset management fee charged by the GP factored into the CAP rate? I am assuming it is not since it can change from sponsor to sponsor but wanted to make sure.

4.  Any tips when interviewing a potential property manager?

5.  Any specific metrics or stats  you look at when evaluating a suitable market?

6. Any specific processes or procedures followed when it comes looking at a deal, issuing a LOI, underwriting the deal, signing the purchase contract, raising the capital, securing debt, etc. More looking for timing and at what point each step would be done.

Those are the main points I had right now I was curious about.  Appreciate everyone's help and feedback!

1) Sometimes they're raised, sometimes financed. It depends. In my experience we've raised the fees and capex.

2) I look at rent comps and do my own underwriting as well. Check the sponsor's work and see if you agree. Even experienced sponsors can make math errors. Maybe they've used comps that you'll end up disagreeing with, maybe not.

3) Asset management fees are usually (but not always) a percentage of gross operating income. This can vary so find out on your deal how it is calculated. Cap rate doesn't apply here. NOI is gross operating income minus operating expenses. Asset management fee isn't a factor in NOI, it is deducted further down the line when calculating cash flow.

4) So many. Vast tomes have been written on this topic. Jake and Gino have a very handy post here 

5) We look for industry diversity, job growth, population growth, rent growth without major vacancy growth, new construction (but not oversupply) and other factors. @Joe Fairless ' Best Ever Apartment Syndication book lines out criteria very well.

6) Again, refer to Joe's book. He teaches these things very well, there's way too much to distill it down to a forum post.

My biggest thought is don't try to do the whole thing on your own right off the bat. Form a partnership with someone who has the skills or resources you don't!

1.) The acq fee will be part of the raise and Cap X is usually part of the raise.  Although some people may do a supplemental loan for Cap X as well.

2.) Rent Roll and T12 are the two most important docs that you will need for initial review. Once you get a deal under contract there is a huge list of docs you should be requesting from the owner/broker (DM me if you want that list).

3.) Asset Management fee is not factored into the cap rate, since cap rate is calculated based off NOI.

4.) References is the most important but also making sure they have good systems and technology in place.

5.) Population growth, job growth, median household income, median home price value, crime stats.

6.) The processes and procedures will vary based on the deal and timeline.  Its always good to have a good base of capital commitments before putting a deal under contract though.  I have a timeline for due diligence that I put together that I am happy to send over too.


Hope that helps!

@Taylor L.   Appreciate the responses and feedback very much here.  Couple of follow up questions so I apologize for over picking your brain:

On #2 above do you ever do a financial lease audit with the property management company or request the sponsor's aged receivables to ensure bad debt isn't being left off the P&L?  Do you ever try to get the owner's Schedule E or tax document to verify expenses as they wouldn't leave out expenses on their tax return?

Regarding #6 I was more referring to when in the process do you present the LOI to the seller and what DD do you typically try to do prior to presenting the LOI. How long typically do you go from the LOI issuance to a formal purchase offer and what additional DD are you doing during that period?

Not sure if you have any template LOI's, financial models, etc. that you would be okay sharing with me that you use to evaluate financials, investor models, etc. Let me know as that would be a great tool to have.

@Brock Mogensen   Appreciate the detailed feedback here as well.  This all helps tremendously.  Couple of follow up questions here too so apologize for the brain picking as well:

#2 Yes I would definitely be interested in that list if you don't mind emailing it to me.

#6  Yes please do share that as well if you are comfortable.  Going to ask you the same question as Taylor to get your input but regarding #6 I was more referring to when in the process do you present the LOI to the seller and what DD do you typically try to do prior to presenting the LOI. How long typically do you go from the LOI issuance to a formal purchase offer and what additional DD are you doing during that period?

Not sure if you have any template LOI's, financial models, etc. that you would be okay sharing with me that you use to evaluate financials, investor models, etc. Let me know as that would be a great tool to have.

Originally posted by @Sean Richway :

@Taylor L.  Appreciate the responses and feedback very much here.  Couple of follow up questions so I apologize for over picking your brain:

On #2 above do you ever do a financial lease audit with the property management company or request the sponsor's aged receivables to ensure bad debt isn't being left off the P&L?  Do you ever try to get the owner's Schedule E or tax document to verify expenses as they wouldn't leave out expenses on their tax return?

Regarding #6 I was more referring to when in the process do you present the LOI to the seller and what DD do you typically try to do prior to presenting the LOI. How long typically do you go from the LOI issuance to a formal purchase offer and what additional DD are you doing during that period?

Not sure if you have any template LOI's, financial models, etc. that you would be okay sharing with me that you use to evaluate financials, investor models, etc. Let me know as that would be a great tool to have.

Lease audit is definitely a smart thing to do during the due diligence phase. Your LOI should explicitly state it's non-binding (if you want it to be). If you have a relationship with a banker and you can talk to them before submitting the LOI that is beneficial. Your LOI should clearly state your proposed timeframe for due diligence period and closing, in addition to price (of course), earnest money, how you intend to finance, etc. You can put a response deadline on your LOI so the seller knows when you expect a response and you limit their time to shop. If they accept then you send a PSA which you can have your attorney draft up.

I don't share my templates publicly, but if you hit the Google machine you will find a few templates for sure. Michael Blank has a deal analyzer that he sells for $100 or so that is generally accepted to be quite good. Most folks eventually build their own Excel models based on how they like to underwrite, so you can consider that as well as you get more experienced.

Thank you for your post regarding Syndications. I will be very specific regarding my experience. The GP is responsible for raising the equity and the Capital Expenditure Reserves from the LP. Generally a GP will raise the following from the LP:

1. Down Payment

2. Closing Cost 

3. Capital Reserves (If not provided by the lender) (Average is about $250 per door)

4. Acquisition Fee

5. Financing Fees

As far as the rent roll and the T-12, you will want to review rental comps in the area so you will have an ideas as to how you will raise rents (Assuming you are doing a value add play). You also want to review the OM (if it is an on-market deal) so you can get an idea as to what the investment play is. You should also be reviewing the market. This is important when exercising your exit strategy. In my opinion, I love CAP Rates but I prefer to invest in areas with lower CAPS because I go in with the exit in mind. I rather have multiple people submitting bids on my deal rather than one person (Which is Possible if CAP Rates are high in the subject market). To sum everything up here, you want to be looking at the following information other than the Rent Roll and T-12:

1. Rental Comps

2. CAP Rates

3. Market Analysis

I recommend doing your own due diligence in finding this information rather than rely on a broker. You may want to consider asking a Property Management Company for this information.

The asset management fee is its own separate fee that is collected from the GP managing the property. To align yourself more with your investors, I recommend doing a performance based metric approach when taking into account the fees (Other than Acquisition Fee) that is paid to by the sponsor.

For Property Management Companies, it astounds me that so many GPs believe that once they get a deal over the closing hurdle, they can relax and feel like everything will go smoothly because the Property Management Company managing the asset WRONG!!!!! You need to find a good property management company that will manage your asset. Here are some tips when it comes to interviewing PMs:

   1. Do they have experience managing an asset like yours.

   2. How big is their staff? Do they have the man power to be able to manage your asset.

  3. Do they own any apartments within close proximity to your apartment complex? (This is important because        there can be a potential conflict of interest if both properties are vacant.)

  4. How are they reporting activity on your property? Ideally I recommend you ask for Reports such as          Occupancy, Delinquency, Leasing, and Incidents report. You should also find out what is their marketing     strategy when it comes to leasing out your vacant units.

5. What is your communication response time for owners and tenants and by what means.

As far as the metrics and stats, I am looking for job diversity and employment growth in the market. You should have investment metrics like IRR and CoC that can tell you if this is a deal for you or not.

@Brian Geiger   I appreciate your responses here very much!  Gonna pick your brain a bit more if you don't mind :)

  • -How long typically do you go from the LOI issuance to a formal purchase offer and what additional DD are you doing during that period?
  • -Not sure if you have any template LOI's, financial models, etc. that you would be okay sharing with me that you use to evaluate financials, investor models, etc
  • -Are there any sites you are using to run your comp analysis on rents?
  • -Are there any sites you are using to look at similar buildings to model your CAP rate expectations off of on the purchase side to make sure the current value is being calculated properly?
  • -Are there any sites your prefer using when looking at market data in that area? Job growth, population growth, rental demand, etc.

@Taylor L.   Appreciate this very much as that is great insight!  

  • -How long typically do you go from the LOI issuance to a formal purchase offer and what additional DD are you doing during that period?
  • -Are there any sites you are using to run your comp analysis on rents?
  • -Are there any sites you are using to look at similar buildings to model your CAP rate expectations off of on the purchase side to make sure the current value is being calculated properly?
  • -Are there any sites your prefer using when looking at market data in that area? Job growth, population growth, rental demand, etc.

@Sean Richway

When I underwrite deals from the beginning, I will do the following:

1. Review the rent roll

2. Review the T-12 (Profit & Loss Statement)

3. Input the data into a financial model (For Expenses, you want to see expenses take about 50% of the Effective Gross Income. If the expenses significant lower than 50%, then income may be grossly overstated or the property is poorly managed because very little money is going into it. If the expenses are much higher than 50 % of the EGI, then we may have some value add play here that will require to cut expenses.) The 50% Rule comes in handy here. 

4. Research the rental comps in the area and add it to the model.

5. From the comps, I would see where there may be some value add potential in regards to rents.

6. I would then come up with assumptions on how I would manage the property based on how the property was managed before (The reason why I love due diligence so much is because I can verify my assumptions by doing the due diligence).

7. Adjust the purchase price until I get the IRR and CoC metric I am looking for.

From there I would submit my LOI to purchase. When I do that, the ball is in the seller's court to review it. I would add a deadline to the LOI. The purpose of the deadline is to expedite the process. During the phase between the LOI and the Purchase Price, we are negotiating terms (the deadline to have the due diligence completed by) and price. The broker may come back with a counter-offer. The back and forth happens until we agree on a purchase price. Once we agree on the price, I would have my attorney draft a Purchase and Sale Agreement that outlines the price, the time frame for due diligence and a refundable earnest money deposit of usually 1% of the price going hard after 30 days of due diligence.

As far as a financial model template, I recommend using the following for when you are just starting out:

1. Michael Blank Deal Analyzer

2. Jake and Gino Deal Analyzer

3. Think Multifamily Deal Analyzer

You will have to purchase these financial models but the goal here is to use one of them to familiarize yourself with underwriting apartments. Overtime you should create a model that you will use for your company. As far as the LOI template is concern, I can show you an example. Just PM me but remember each deal is different so do not follow my template verbatim. Instead I highly recommend having an attorney draft it for you.

When doing a rental comparable analysis, you want to go on sites like Apartments.com, Hotpads.com and Zillow Rentals to get an idea of the rents in your area. You can also speak with brokers and Property Management companies in your area to get an idea of the rents in the market. Be sure that you are comparing Apples to Apples and not Apples to Oranges. (i.e you want to compare the same number of rooms and baths with other apartments in your area). To further explain this, your subject property will have a 2 BD X 1 BA at a 780 Sq ft. you want to compare this with what other apartments (usually within a 1 mile radius depending on the market) are charging for the same characteristics. 

For job growth: I use the U.S. Census.gov, CityData.com and the Department of Numbers.gov (Updates Monthly).

For Unemployment Rate: Data.io.USA, U.S. Census and City Data

Rental Demand: U.S. Census, CoStar (Paid Service).

I recommend that you read through market reports to find out about rental demand, job growth, population growth and unemployment data. You also want job diversity. You would not want ONE company employing more than 30% of the market. I listed some market reports for you so you can get some understanding on the markets you are looking at:

Marcus & Millichap’s Annual U.S. Multifamily Investment Forecast

CBRE Biannual Cap Rate Survey

Integra Realty Resources (IRR) Annual Viewpoint Commercial Real Estate Trends Report

Zillow Annual Consumer House Trends Report

RCLCO Quarterly State of the Real Estate Market

PwC Annual Emerging Trends in Real Estate


I hope this helps and please reach out if you need me to clarify something.