Syndication pros and cons

[Kevin McMaster]

What are the pros and cons of syndication? What are some of the basic due diligence ? My background is in construction single and multi family. What are some questions to ask when vetting a deal? 

[Spencer Gray]

This is just a quick list off the top of my head

Pros - 

• Access to opportunities that you couldn't undertake by yourself 
• Ability to diversify across multiple commercial assets
• Profesional management
• Larger deals offer better economies of scale and have superior financing
• Completely passive investment besides initial due diligence on sponsor and deal
• Ability to diversify across different sponsors, markets and asset classes
• Scalable strategy
• No personal guarantees for debt 

Cons - 

• You are not "in control" of the deal
• Bad/inexperienced sponsor can ruin a good deal
• You do not receive all of the upside, a portion is split with sponsor
• Difficult to 1031 exchange
• There are fees charged to the deal
• The wrong structure can create unaligned interests 

It's more important to vet a sponsor than a particular deal. You're picking your race horse, not necessarily the track, although you can have your say in that as well. 

You want to find a group that has goals that align with yours and pursuing the types of projects that you are interested in. Experience is key, ask about their worst deals not just their home runs.