Syndication experience as an LP

27 Replies

I come across so many syndications and just as many people trying to get you to hire them to show you the ropes of putting together your own syndication.

What I’ve not read is anyone’s experience as an LP investor in a syndication. I want to hear from you. What is your experience? Are the sponsors performing as advertised? If anyone has an experience as an LP please share your experience.

@Rob McDonald , most syndicators started out as LPs or invest as LPs as well as are GPs in their own deals.  I've been and am both.  As an LP, once you invest in a deal, most syndicators send out monthly emails with a summary of the property performance for the previous month and provide the property financial reports on at least a quarterly basis.  Some have a quarterly webinar for invetors in their deal to discuss the performance and answer questions.  All should be available in between these formal communications to answer questions from investors.

All of that is typical, but will vary from one to another.

If you are considering investing as an LP, do exactly what you are doing, but get feedback on specific syndicators who you see on social media or who investors you know have invested with.  Pay for a background check.  Ask attorneys, contractors, accountants, and brokers who may know the syndicators you want to know more about.  There is nothing like doing your DD on sponsors.  It is more important that you have a trustworthy, experienced syndicator than is any specific deal.

I agree with the others - the most important part is the sponsor. Talk to current investors and and have the sponsor send you a summary of their track record. Experience is huge. Make sure they are responsive to your early communications.  

@Rob McDonald Great question. 

Like others have said, when looking into investments as an LP, take a look at the sponsor and their team FIRST. The deal comes second. Look them up on Biggerpockets, Linkedln, Facebook, etc. Take a look at the team who will be managing the investment and the business coaches and mentors they work with. 

To your point, ask for references. The sponsor should be able to provide you with references of past investors and asking for feedback on Biggerpockets is a great way to go about it as well. Good luck!

 A few days ago, I wrote an extensive post regarding investing as a limited partner in syndicated real estate. The problem with investing your money in these is even after doing your due diligence it is very difficult to determine whether or not the general partner has half a brain and it is very easy for the general partners to fix the books and steal your money. One of the biggest problems is many general partners don't know poop from Shinola about how to run properties well so they turn a good profit.

In about 1980, I lost exactly $1 million by being a limited partner in a deal for two K-Mart shopping centers. The pitch for the deal was terrific. We had four 25-year lease options with K-Mart. I paid an attorney $1,000 to review the Placement Memorandum that consisted of about 500 pages and the attorney said the deal looked great. I paid a Financial Advisor (whatever that is) about $500 to look at the Placement Memorandum and he gave the Green Light. My CPA said the deal was good. So, I forked out $1million and was supposed to get back $2.1 million in something like 13 years.

So, about 7 years down the road the entire deal went bust. The General Partner paid himself $7 million for setting up each of the K-mart deals = $14 million plus he paid himself $1 million every year for managing each property. That is a total of $28 million. Then, K-Mart's 100-years of rental options stated that K-Mart's rent would never increase. If you can't increase the rent you can't increase the value of the property.

The General Partner paid himself so much money he paid no attention to managing the properties and he lived in Boca Raton Florida next to where Jackie Gleason and the owner of Mary K Cosmetics lived.

We, the limited partners filed a Class Action lawsuit that took 5 years to settle and we won $50 million because that was the insurance policy's limit, but after the attorneys took their cut I received a check in the mail for $39 (not a mis-spelling nor a joke). I was so frustrated I ripped up the check and threw it in the trash.

The worse part is; I hired my personal attorney and paid him $37,000. My personal attorney moved to Africa and turned my files over to an attorney I never met. The new attorney sent me a letter telling me that he was not going to look at my case until I paid him something like $7,000 and I refused to pay the $7,000 due to his attitude and request for the money. So, the new attorney bills me for billing me and the bill gets up to $13,000. So, I filed for bankruptcy just to avoid paying this scumbag attorney and now I was out $1,050,000 plus a lot of other expenses like I was the Lead Plaintiff for the case and I used my own money to fly to Chicago and get a hotel room for a deposition because one of the K-mart shopping centers was in Chicago and one was in Florida.

I can write you horror stories all day about bad syndicators and I know some who are top of their game, but I learned my lesson and changed my business model and philosophy as such:

Never allow someone else to control your money, or always have full control of your money. 

I will tell you one more story and keep it as short as possible. I have a 25-unit property next door to my office that was purchased by a syndicated real estate company. This company actually has no bad reviews with the exception of the review I wrote on the internet. The company is from Texas, but must find that screwing everyone in California is more lucrative. 

This company must have been master when it comes to getting money from limited partners because the company purchased about 10 apartment buildings in a short period about three years ago. The problem with this company is rather than remodeling a few apartments at a time the general partner evicted every tenant in every building and had an amazing amount of construction going on that the company could not handle.

The building next to my office was 25 units. The syndication company paid $7 million for the building and it was bringing in $48,000 per month for rents. So, rather than remodel a few apartments at a time the company evicted every tenant. The syndicator used only illegal immigrants to do all the work with no permits and everything the workers did was wrong and had to be redone 2 to 3 times. The syndicator installed brand new windows in every unit, started remodeling the kitchens in all 25 units and painted the outside and inside of the units. They spray painted the entire inside bathrooms with white paint including tile walls and the bathtubs.

So, the city inspector catches them working on the building without permits. All the windows are have the wrong size openings for egress and every new window has to be replaced. The entire sewer and drain system has to be replaced under the concrete floors all the way up to the 2nd floor. All the water piping has to be replaced. Every bathroom has to be gutted to the 2 x 4's and all the bathtubs and tubs walls have to be replaced. The inspector requires the syndicator to re-wire the entire building.

The additional costs to get the building completed are about $725,000 and this is what the syndicator does, He makes the illegal contractors work and supply materials and he does not pay them one penny. When the contractors realize they are not going to get paid there is nothing they can do because the courts will not award a judgement to unlicensed contractors. A judge will not even listen to the case,

This syndicator used 4 different plumbing companies to complete the project, three electrical contractors, and I don't know hoe many plasterers and other contractors and did not pay one that I ever met. It took 2-1/2 years to complete the building and the loss of rental income was about $1.6 million.

Here is the worse part. I actually was dumb enough to do some concrete work for this syndicator. My cost was $10,400 and he never paid me one penny. I went to 4 other projects this syndicator was working on and every project had illegal non-English speaking workers working on the projects and the quality of the work was far beyond just bad.

I personally know some very good syndicators and one of them is a personal friend who did a video on BP about 18 to 24 months ago. He is a super straight-up person who can be trusted, but the problem is 'Poop Happens'. This syndicator went from zero to I think about 600 units in 1 or 2 years, but I don't know how he faired through the Corona Virus and the rent moratoriums and who would have ever expected that scenario regarding the COVID-19.

We investors have enough problems managing our own money and we only add to our risks by having someone else manage our money when we have absolutely no control over the situation. I will give you one more example.

Suppose, you invest your money into a syndicated deal for a 100-unit apartment building. You don't have enough money to purchase a property that large and being a partner in that size deal is impressive when you tell all your relatives and friends.

Here is the problem with being only a limited partner in that 100-unit property. You own only a percent of that property that is equivalent to the percent of money you invested. You percent may not be equivalent to 1 unit, or maybe you own an percent equivalent to 5 units, but whatever percent you own it is equivalent to the amount you invested. So what is the big benefit for owning the equivalence of 5 units when you could have purchase a 5 unit property with the same amount of money and have full control of the operation, control of how the money is spent and you can make all your own decisions vs. having someone you hardly know making bad decisions that are counter-productive.

Here is an example. You invest your money in the 100-unit property and there hot water heater breaks. A 100-unit building has a fairly sophisticated how water heating system with a boiler (now a water heater) and probably a 200-gallon storage tank and one or two pumps. Now, the syndicator has to make some wise decisions and many of these decisions are no very wise. The syndicator has to make choices e.g. should the boiler just be repaired for $300 to $500, or should some or all of the entire system be replaced. So, the syndicator listens to his contractor and decided to pay $30,000 of your money to replace the system when the truth is the system could have been easily repaired for a few hundred dollars and would have lasted another 15 years.

Suppose you purchase 5 units with the same amount of money and the water heater breaks. When it is your money on-the-line and you have control you get to make wise decisions. When you give the general partner control of your money you don't give the general partner full authority to spend your money as he personally sees fit. I am not positive, but I've never seen a Placement Memorandum where the limited partners get to vote when large emergency repairs are needed e.g. when 100 tenants don't have how water, or when a sewer pipe breaks and the cost for the repair is $80,000, or maybe $150,000 to jackhammer up 100 or 200 feet of concrete to replace the sewer. But...don' forget that the sewer may not even need to be replaced and you don't get to deal with anyone to get information to determine whether or not it really needs to be replaced.

One last thing. General Partners can easily steel money by hiring contractors and getting kickbacks, or by generating bills for services where the contractors and vendors don't even exist because it is very difficult to uncover these actions and expensive to litigate. Nobody will ever have control of how I operate my business and will never have control of my money.

@Jack Orthman    I think I may be at close to the same point as you.  Not a huge fan of the gurus who want to take $25,000-$50,000 mentoring fee.  To me if you have that much money, invest it in a deal or two and start learning from there.

I am in the process of vetting GPs now....so have had lots of calls, listening to podcasts, reading PPMs, attending conferences, attending meetups, etc to try to separate the bad, good, and superstar GPs.  It's been anything but a passive process the past 6months-1year.   I think now my goal is to find about 5 superstar GPs doing deals in the markets I want to be in and invest across them.

So far I have found more I dislike than I like, but have now 3 on the shortlist out of probably 50 I've talked to.

The one thing about the gurus is that they do attract people that are interested in the business at all different stages.   So going to one of their conferences can be beneficial for networking.  Finding sponsors you don't want to do business with and those that you do.

I do find there is a lot of BS.  Lots of new sponsors I feel like are desperate to do deals and continually revising their numbers to make bad deals look better, just to get 1-2-3 under their belt.   Lots of things might save them.  Everyone has to start somewhere, but I'm not at the point where I want to pay from someone elses experience and learning.

Good luck

Originally posted by @Rob McDonald :

@E. C. "Stony" Stonebraker

I agree. You’re investing in a person and their reputation and trustworthiness more than the actual property.

Thanks for the reply

It’s a good point, but how to find out if the syndicator has the resilience, expertise and professionalism to turn around the deal when it goes south, or do they simply raise their hands and focus their energy in coming up with excuses for why the deal went south.

https://www.biggerpockets.com/...

Need to be careful of how the syndicators operate
https://www.biggerpockets.com/...

I invest in real estate only for the sake of diversification (~15% of my investments), and only sticking to institutional syndicators (not on biggerpockets). Otherwise it’s a no-brainer on whether to invest with a real estate syndicator or the likes of Elon musk or Brian chesky (i.e. buy stocks of Tesla or Airbnb) - the latter has bigger upside and we all know they will turn the world upside down to deliver what they promised, even when facing overwhelming odds.

@Jack Orthman

Holy smokes! Thank you so much for sharing. I agree with lack of control and oversight being a huge negative. No way will the GP involve the LPs with decision making and to a certain degree I guess that’s the point. The LP has hired the GP to be a good operator.

Something to keep in mind about syndications is why people put them together. Look at what so many people on BP post about wanting to raise money and find investors. Their idea is that THEY will be getting rich using someone else's money to invest. They seem to acknowledge as an afterthought that the investors will want to make money too 

@Eric James

Excellent point. The sponsor gets 20-30% during the holding period and might end up with 100% of the property after the 5-8 years if they do a cash out refi and buy out all the LPs.

Knowing ones motivation is important.

I’m making way more money as an active investor then I would be as an LP. Of course being an active investor is not for everyone and if you don’t believe me just ask the syndicators.

@Rob McDonald    One syndicator I vetted recently and put on my DNB (Do Not Buy) list was one that recycles deals....taking acquisition and disposition fees each time.   No way that can be fair to every investor....either the 1st set are selling too low or too quickly or the new investors are paying too high of a price I would think.

@Jack Orthman    Now we know why they call them the anchor tenant.  Might sink the ship.   Personally while I have good people on my team, I'm not sure my attorney, my CPA, or my financial advisor would know a good syndication from a bad one.  They might point out things to consider and ask more questions based on their expertise, but I don't think I would rely on any of them to give me great advise about where to invest my money.

Good news in todays world you can often get much of your investment back in tax savings in year 1 and 2 with the cost segregation...so that reduces the risk.   Still lots of risk, but risk like many other investments.   Tough to tell these days if people are moving to the intercity or away from the intercity.   Rents down in SFO area by -30% or something like that this year....so people must be fleeing there.   While other places like Austin, people like living in the city center.   Will companies require staff to work in the downtown office building, or allow them to work from anywhere in the country or even out of the country?   Just those two factors could create a home run or a disaster depending on where that goes.

One thing I like to hear from the GPs is that they take care of their investors.  I want to hear that 20-30 times in their presentations.  Maybe if they say it enough it will sink in and they will believe it themselves.

@Steve S.    I agree that you want to have great sponsors, but great sponsors and a crappy deal is still a crappy deal.  Maybe they can make it less crappy.   Problem is this crazy market has made some crappy operators look like heroes.  I think if there is any kind of major market events, we can see some of these crappy deals get just hammered.  Like if they took bridge loans in the beginning, and then interest rates go up 2% to help curb inflation, that may sink some otherwise lucky deals.   Of course good/great sponsors and a good deal are better than crappy sponsors and crappy deal combo.

I've invested an LP in quite a few CRE syndications, I also syndicate multifamily primarily in the Midwest. I don't do any paid coaching/mentoring, although I have several (non paid ) mentors and informally mentored several investors and syndicators.

I've been fortunate to have partnered with some great operators in a variety of asset classes including industrial, medical office and commercial office. 

One thing to keep in mind is that in real estate, like in life, things will rarely go according to plan. Deals will go wrong, and it's not always the operators fault.

It's much less important how good the pitch deck looks and how solid the pitch is and more about the operator's ability to tackle adversity and solve problems. I've been in deals with capital calls, distributions suspended for over a year, but in almost evert case the operator was able to navigate the problem and beat pro-forma total return / IRR / equity multiple.

We've gone full cycle this year on 3 deals (2 as LP one GP) and will sell another 3 (as an LP), all have vastly exceeded projected returns for IRR and EM. The market and compressing cap rates making much of this possible.

There are certainly horror stories out there like @Jack Orthman mentioned. My experience has been the opposite, however. 

I'll also say that investing as an LP has improved my syndication business in many ways. It's another way to leverage my time, it's also been a great way to see how other's work and find ways to improve. 

When I was nearing retirement from my corporate job about 5 years ago I started looking into alternative investments that generate supplemental income.  I was contemplating active real estate investing vs. passive real estate investing and spent a lot of time on forums and podcasts in bigger pockets.  I then started to listen to several podcasts who specialize in Passive Real Estate.  Many of the guests would be successful Syndicators.  After about 2 years of listening to these success stories I started contacting the ones I felt had good experience in high growth areas of the US.  I also read several books on Passive Real Estate Investing.  The one I recommend most is for sale on Amazon for $8.95: "The Busy Professional's Guide to Passive Real Estate Investing: A physician's path to building wealth, creating financial freedom and leaving a legacy Paperback – December 7, 2019 by Vanessa Peters MD (Author)".  I started investing 2 years ago and have now purchased 12 syndications in 8 different states.  My portfolio is very diversified and includes (7) Value Add Apartment Complexes, (2) Ground Up Apartment Complexes, (2) Mobile Home Parks, and (1) Senior Living Facility.  These investments now generate more income then my corporate job was providing plus offer tax benefits as well.  I am now retired and have plenty of time to do the things I love to do.  I made the right choice in pursuing the Passive approach.

I have invested as an LP for three years now, across 4 different syndicators, one thing that frustrates me is the lack of basic reporting to the projections of CoC and IRR. So many are required to send income statements, rent rolls, and property related detail, but basic preferred return of year 1 (8%) and is the return on target or not, and then a few bullets why would be so helpful. "We are short on income, expenses are higher, or renovations are off track" to explain the deviation. Resetting the budget every year or worse every quarter to match actuals is not reporting to initial projections. Im my eyes, this is an investment first, report to the investors on return, then tell me about the underlying property second. Just my 2 cents.

@Bruce Lynn has an excellent point about advice from professionals. It doesn't matter how good an attorney, CPA or financial advisor you have, if they don't invest themselves in commercial (not residential) real estate (CRE), I would be cautious about taking advice from them about investing in a CRE property.

While I am not at all unsympathetic to what @Jack Orthman went through, I perhaps look at it a little differently.  I am of the camp of "extreme accountability".  If a deal were to go south on me, I wouldn't blame the syndicators.  I would blame myself for either not vetting the operator/syndicator well enough or maybe not drilling down on the deal well enough to know what would happen in the worst case scenario (which sounds like what happened).

When the syndicator took out $7MM for each K-Mart deal, and took $1MM yearly, was this part of the agreement regardless of the success of the venture?  If it was, then I see no reason for a blaming anyone but myself for signing that agreement.  This would constitute a terrible contract for partnership/syndication.  Now, If the syndicator "embezzled" the money and skipped town, that's a much different story(I can't tell from the details you gave from your class action suit).  But then again, if I truly wish to take "extreme ownership", then maybe that means that I should have vetted the syndicator more.  

Sadly, we all get burned at times, especially by some unscrupulous people.  But I believe that this calls the personal question: "What can I learn from this?"  I don't think the answer is to stay away from all syndicators and throw the baby away with the bathwater.  I think it means that one should be very well versed in syndications, know exactly what a syndicator can and can't do with your money(make sure its in writing), vet your syndicator very well, don't invest money you are not prepared to lose, and look through the contract ten ways to Sunday.  Just like any other investment, proceed with caution - perhaps extreme caution for first timers.

Originally posted by @David Cozzi :

While I am not at all unsympathetic to what @Jack Orthman went through, I perhaps look at it a little differently.  I am of the camp of "extreme accountability".  If a deal were to go south on me, I wouldn't blame the syndicators.  I would blame myself for either not vetting the operator/syndicator well enough or maybe not drilling down on the deal well enough to know what would happen in the worst case scenario (which sounds like what happened).

When the syndicator took out $7MM for each K-Mart deal, and took $1MM yearly, was this part of the agreement regardless of the success of the venture?  If it was, then I see no reason for a blaming anyone but myself for signing that agreement.  This would constitute a terrible contract for partnership/syndication.  Now, If the syndicator "embezzled" the money and skipped town, that's a much different story(I can't tell from the details you gave from your class action suit).  But then again, if I truly wish to take "extreme ownership", then maybe that means that I should have vetted the syndicator more.  

Sadly, we all get burned at times, especially by some unscrupulous people.  But I believe that this calls the personal question: "What can I learn from this?"  I don't think the answer is to stay away from all syndicators and throw the baby away with the bathwater.  I think it means that one should be very well versed in syndications, know exactly what a syndicator can and can't do with your money(make sure its in writing), vet your syndicator very well, don't invest money you are not prepared to lose, and look through the contract ten ways to Sunday.  Just like any other investment, proceed with caution - perhaps extreme caution for first timers.

Interesting! I got involved with the syndicated deal in something like 1980 and that was long before the internet. I was a plumbing, HVAC, general contractor and underground utility contractor with 60 employees. I had projects going on like installing utilities on busy boulevards like city water mains, gas mains, manholes up to 30 feet deep, city sewers, underground utilities for 50-story hotels and I was doing large plumbing and underground utilities for the Los Angeles airport.

In 1972, I worked briefly for a telemarketing company and learned that the most vulnerable, naive, gullible and easiest targets for selling things like limited partnerships to is doctors and dentists because they make a lot of money, they want to invest their money and because they are busy they don't have the time to do research for the things they invest in. 

I sold investments to a few doctors and dentists. I seriously believed the investments were a great deal and they would generate the returns we promised, but I also knew for a fact that these deals were not appropriate for doctors and dentists because I knew they did not have enough time to do the management that these investments required.

I invested in the syndicated K-Mart shopping centers in about 1980 and the internet was not born, yet. Even today, I did a lot of research to dig up some dirt on the syndicator who purchase the property next door to me and I can't find one bad review nor any negative information.

I relied on the advice from my CPA, paid an attorney $1,000 and paid a financial advisor $500. For a busy business person like myself, finding, paying and talking to my CPA, an attorney and a financial advisor actually took me a significant amount of time when I had 60 employees to manage and when I have about 30 city inspectors breathing down my neck and about 5,000 safety concerns that have to be addressed every second of the day so a trench does not cave in and to make sure a vehicle doesn't kill one of our employees.

My point is; the average person does not have the ability nor the time to do a significant amount of research and even if they did research the general partners can rig the books and even his current limited partners are not always aware of what is going to go down in the future.

The syndicated deal was for two K-Mart shopping centers. Each center had a K-mart (obviously) a large national-type grocery store and several other stores and restaurants like Payless Shoes, national brand-type clothing stores and maybe a Kentucky Fried Chicken and a Taco Bell (they were just starting to pop up around 1980).

I am a contractor and if I spent 10 years looking at the Placement Memorandum I would not have the ability to analyze the books for something as large as an entire shopping center. That is not my forte and that is what I relied on my CPA, attorney and financial advisor for and all three of them were wrong and changed their tune after the deal went south. I will not take any personal responsibility because I am a contractor and I paid professionals for their advice. I am not supposed to quit my day job to do an investigation and even if I did spend more time doing an investigation it is virtually impossible to dig up any dirt because you can bet the general partners do a great job getting prepared to answer questions and to bury their dirt.

My point to my post is; Tell me how an average investor can prove, for a fact, to himself (or herself) that the syndicator they choose can deliver what he promises, his books are clean, he has the business savvy to  manage the properties, he is not hiding any financial distress and prove before you invest your money as a limited partner that the general partner has done adequate due diligence, has not made any mistakes and the properties you are investing in won't go south, FOR ANY REASON. 

You cannot do it. When investing in a syndicated deal there are literally thousand of variables and even the best real estate syndicators make mistakes, bad choices and bad decisions. No real estate syndicator was prepared for the moratoriums for COVID-19 and you can bet there are thousands of general partners changing their tune when explaining to their limited partners the reasons their returns are negative because of the loss of rental income and the massive number of vacancies at strip malls, malls and shopping centers that resulted from COVID-19.

Originally posted by @Jack Orthman :
Originally posted by @David Cozzi:

While I am not at all unsympathetic to what @Jack Orthman went through, I perhaps look at it a little differently.  I am of the camp of "extreme accountability".  If a deal were to go south on me, I wouldn't blame the syndicators.  I would blame myself for either not vetting the operator/syndicator well enough or maybe not drilling down on the deal well enough to know what would happen in the worst case scenario (which sounds like what happened).

When the syndicator took out $7MM for each K-Mart deal, and took $1MM yearly, was this part of the agreement regardless of the success of the venture?  If it was, then I see no reason for a blaming anyone but myself for signing that agreement.  This would constitute a terrible contract for partnership/syndication.  Now, If the syndicator "embezzled" the money and skipped town, that's a much different story(I can't tell from the details you gave from your class action suit).  But then again, if I truly wish to take "extreme ownership", then maybe that means that I should have vetted the syndicator more.  

Sadly, we all get burned at times, especially by some unscrupulous people.  But I believe that this calls the personal question: "What can I learn from this?"  I don't think the answer is to stay away from all syndicators and throw the baby away with the bathwater.  I think it means that one should be very well versed in syndications, know exactly what a syndicator can and can't do with your money(make sure its in writing), vet your syndicator very well, don't invest money you are not prepared to lose, and look through the contract ten ways to Sunday.  Just like any other investment, proceed with caution - perhaps extreme caution for first timers.

Interesting! I got involved with the syndicated deal in something like 1980 and that was long before the internet. I was a plumbing, HVAC, general contractor and underground utility contractor with 60 employees. I had projects going on like installing utilities on busy boulevards like city water mains, gas mains, manholes up to 30 feet deep, city sewers, underground utilities for 50-story hotels and I was doing large plumbing and underground utilities for the Los Angeles airport.

In 1972, I worked briefly for a telemarketing company and learned that the most vulnerable, naive, gullible and easiest targets for selling things like limited partnerships to is doctors and dentists because they make a lot of money, they want to invest their money and because they are busy they don't have the time to do research for the things they invest in. 

I sold investments to a few doctors and dentists. I seriously believed the investments were a great deal and they would generate the returns we promised, but I also knew for a fact that these deals were not appropriate for doctors and dentists because I knew they did not have enough time to do the management that these investments required.

I invested in the syndicated K-Mart shopping centers in about 1980 and the internet was not born, yet. Even today, I did a lot of research to dig up some dirt on the syndicator who purchase the property next door to me and I can't find one bad review nor any negative information.

I relied on the advice from my CPA, paid an attorney $1,000 and paid a financial advisor $500. For a busy business person like myself, finding, paying and talking to my CPA, an attorney and a financial advisor actually took me a significant amount of time when I had 60 employees to manage and when I have about 30 city inspectors breathing down my neck and about 5,000 safety concerns that have to be addressed every second of the day so a trench does not cave in and to make sure a vehicle doesn't kill one of our employees.

My point is; the average person does not have the ability nor the time to do a significant amount of research and even if they did research the general partners can rig the books and even his current limited partners are not always aware of what is going to go down in the future.

The syndicated deal was for two K-Mart shopping centers. Each center had a K-mart (obviously) a large national-type grocery store and several other stores and restaurants like Payless Shoes, national brand-type clothing stores and maybe a Kentucky Fried Chicken and a Taco Bell (they were just starting to pop up around 1980).

I am a contractor and if I spent 10 years looking at the Placement Memorandum I would not have the ability to analyze the books for something as large as an entire shopping center. That is not my forte and that is what I relied on my CPA, attorney and financial advisor for and all three of them were wrong and changed their tune after the deal went south. I will not take any personal responsibility because I am a contractor and I paid professionals for their advice. I am not supposed to quit my day job to do an investigation and even if I did spend more time doing an investigation it is virtually impossible to dig up any dirt because you can bet the general partners do a great job getting prepared to answer questions and to bury their dirt.

My point to my post is; Tell me how an average investor can prove, for a fact, to himself (or herself) that the syndicator they choose can deliver what he promises, his books are clean, he has the business savvy to  manage the properties, he is not hiding any financial distress and prove before you invest your money as a limited partner that the general partner has done adequate due diligence, has not made any mistakes and the properties you are investing in won't go south, FOR ANY REASON. 

You cannot do it. When investing in a syndicated deal there are literally thousand of variables and even the best real estate syndicators make mistakes, bad choices and bad decisions. No real estate syndicator was prepared for the moratoriums for COVID-19 and you can bet there are thousands of general partners changing their tune when explaining to their limited partners the reasons their returns are negative because of the loss of rental income and the massive number of vacancies at strip malls, malls and shopping centers that resulted from COVID-19.

Jack, I say this with kindness.  Do your best not to say "impossible" or that something "cannot be done".  Those words only limit the human spirit and stifle those who dare to dream and strive for more than they are today.  It has been my experience that those who become successful do not have these words in their vocabulary.  They find a way to make the impossible possible.

Secondly, when I read your posts, it does not strike me that you were very intimately involved in many of the details of the syndication that you invested $1MM into.  As you stated, you handed a majority of the research and vetting of this investment to your CPA, lawyer, and financial advisor, since you were so busy with your contracting jobs.  So when this deal "went south", you seem to blame not only the syndicator, but several others for not doing their due diligence.  But the one thing that I still don't see is the "extreme ownership" on your part that I was talking about in my post.

I say this not to be cruel, but perhaps to propose a different view.  In this way, rather than crying out as the victim (which we see way too often in society these days), we can take personal ownership of the part we played (or were absent and should have played) in order to learn and grow, rather than throw our hands up and say "it's impossible".  If what you say is true, then no one would be making money in syndications.

Are syndications risky?  Absolutely.  But people can mitigate that risk by vetting these folks well and not just stop at the fact that "they have good reviews" or what they read on the internet or that my team(lawyer, CPA, financial advisor) gave me the green light.  There are lots of other ways to vet them that I won't get into here - BP has great podcasts/articles that cover that.  In regards to the lack of the Internet when you invested: Books existed in 1980 just as they do now and I'm confident that you could have found a way to speak with others who invested with this syndication(if not, then you shouldn't have invested in my opinion).  I try to live by the mantra that "My ignorance is not an excuse to blame anyone else but myself."  Again, this is not to be cruel, but this has helped me grow in my investments, and in my life.

To answer your question: "  Tell me how an average investor can prove, for a fact, to himself (or herself) that the syndicator they choose can deliver what he promises, his books are clean, he has the business savvy to manage the properties, he is not hiding any financial distress and prove before you invest your money as a limited partner that the general partner has done adequate due diligence, has not made any mistakes and the properties you are investing in won't go south, FOR ANY REASON."

My answer:   What I am hearing from you is that you want a "sure thing" guarantee.  An absolute and unbreakable guarantee that your investment will not go south along with proof that a syndicator will always deliver.  This simply does not exist.  Not in real estate, not in the stock market, not even within marriages.  This is called risk, and this is where "extreme accountability" comes into play and we should hold ourselves responsible to it.  I always do my best to vet all investments, and when they have not performed well(which they sometimes have done), I hold myself responsible, because ultimately, I chose to invest, no one forced me.  I am not a victim.

Originally posted by @David Cozzi :
Originally posted by @Jack Orthman:
Originally posted by @David Cozzi:

While I am not at all unsympathetic to what @Jack Orthman went through, I perhaps look at it a little differently.  I am of the camp of "extreme accountability".  If a deal were to go south on me, I wouldn't blame the syndicators.  I would blame myself for either not vetting the operator/syndicator well enough or maybe not drilling down on the deal well enough to know what would happen in the worst case scenario (which sounds like what happened).

When the syndicator took out $7MM for each K-Mart deal, and took $1MM yearly, was this part of the agreement regardless of the success of the venture?  If it was, then I see no reason for a blaming anyone but myself for signing that agreement.  This would constitute a terrible contract for partnership/syndication.  Now, If the syndicator "embezzled" the money and skipped town, that's a much different story(I can't tell from the details you gave from your class action suit).  But then again, if I truly wish to take "extreme ownership", then maybe that means that I should have vetted the syndicator more.  

Sadly, we all get burned at times, especially by some unscrupulous people.  But I believe that this calls the personal question: "What can I learn from this?"  I don't think the answer is to stay away from all syndicators and throw the baby away with the bathwater.  I think it means that one should be very well versed in syndications, know exactly what a syndicator can and can't do with your money(make sure its in writing), vet your syndicator very well, don't invest money you are not prepared to lose, and look through the contract ten ways to Sunday.  Just like any other investment, proceed with caution - perhaps extreme caution for first timers.

Interesting! I got involved with the syndicated deal in something like 1980 and that was long before the internet. I was a plumbing, HVAC, general contractor and underground utility contractor with 60 employees. I had projects going on like installing utilities on busy boulevards like city water mains, gas mains, manholes up to 30 feet deep, city sewers, underground utilities for 50-story hotels and I was doing large plumbing and underground utilities for the Los Angeles airport.

In 1972, I worked briefly for a telemarketing company and learned that the most vulnerable, naive, gullible and easiest targets for selling things like limited partnerships to is doctors and dentists because they make a lot of money, they want to invest their money and because they are busy they don't have the time to do research for the things they invest in. 

I sold investments to a few doctors and dentists. I seriously believed the investments were a great deal and they would generate the returns we promised, but I also knew for a fact that these deals were not appropriate for doctors and dentists because I knew they did not have enough time to do the management that these investments required.

I invested in the syndicated K-Mart shopping centers in about 1980 and the internet was not born, yet. Even today, I did a lot of research to dig up some dirt on the syndicator who purchase the property next door to me and I can't find one bad review nor any negative information.

I relied on the advice from my CPA, paid an attorney $1,000 and paid a financial advisor $500. For a busy business person like myself, finding, paying and talking to my CPA, an attorney and a financial advisor actually took me a significant amount of time when I had 60 employees to manage and when I have about 30 city inspectors breathing down my neck and about 5,000 safety concerns that have to be addressed every second of the day so a trench does not cave in and to make sure a vehicle doesn't kill one of our employees.

My point is; the average person does not have the ability nor the time to do a significant amount of research and even if they did research the general partners can rig the books and even his current limited partners are not always aware of what is going to go down in the future.

The syndicated deal was for two K-Mart shopping centers. Each center had a K-mart (obviously) a large national-type grocery store and several other stores and restaurants like Payless Shoes, national brand-type clothing stores and maybe a Kentucky Fried Chicken and a Taco Bell (they were just starting to pop up around 1980).

I am a contractor and if I spent 10 years looking at the Placement Memorandum I would not have the ability to analyze the books for something as large as an entire shopping center. That is not my forte and that is what I relied on my CPA, attorney and financial advisor for and all three of them were wrong and changed their tune after the deal went south. I will not take any personal responsibility because I am a contractor and I paid professionals for their advice. I am not supposed to quit my day job to do an investigation and even if I did spend more time doing an investigation it is virtually impossible to dig up any dirt because you can bet the general partners do a great job getting prepared to answer questions and to bury their dirt.

My point to my post is; Tell me how an average investor can prove, for a fact, to himself (or herself) that the syndicator they choose can deliver what he promises, his books are clean, he has the business savvy to  manage the properties, he is not hiding any financial distress and prove before you invest your money as a limited partner that the general partner has done adequate due diligence, has not made any mistakes and the properties you are investing in won't go south, FOR ANY REASON. 

You cannot do it. When investing in a syndicated deal there are literally thousand of variables and even the best real estate syndicators make mistakes, bad choices and bad decisions. No real estate syndicator was prepared for the moratoriums for COVID-19 and you can bet there are thousands of general partners changing their tune when explaining to their limited partners the reasons their returns are negative because of the loss of rental income and the massive number of vacancies at strip malls, malls and shopping centers that resulted from COVID-19.

Jack, I say this with kindness.  Do your best not to say "impossible" or that something "cannot be done".  Those words only limit the human spirit and stifle those who dare to dream and strive for more than they are today.  It has been my experience that those who become successful do not have these words in their vocabulary.  They find a way to make the impossible possible.

Secondly, when I read your posts, it does not strike me that you were very intimately involved in many of the details of the syndication that you invested $1MM into.  As you stated, you handed a majority of the research and vetting of this investment to your CPA, lawyer, and financial advisor, since you were so busy with your contracting jobs.  So when this deal "went south", you seem to blame not only the syndicator, but several others for not doing their due diligence.  But the one thing that I still don't see is the "extreme ownership" on your part that I was talking about in my post.

I say this not to be cruel, but perhaps to propose a different view.  In this way, rather than crying out as the victim (which we see way too often in society these days), we can take personal ownership of the part we played (or were absent and should have played) in order to learn and grow, rather than throw our hands up and say "it's impossible".  If what you say is true, then no one would be making money in syndications.

Are syndications risky?  Absolutely.  But people can mitigate that risk by vetting these folks well and not just stop at the fact that "they have good reviews" or what they read on the internet or that my team(lawyer, CPA, financial advisor) gave me the green light.  There are lots of other ways to vet them that I won't get into here - BP has great podcasts/articles that cover that.  In regards to the lack of the Internet when you invested: Books existed in 1980 just as they do now and I'm confident that you could have found a way to speak with others who invested with this syndication(if not, then you shouldn't have invested in my opinion).  I try to live by the mantra that "My ignorance is not an excuse to blame anyone else but myself."  Again, this is not to be cruel, but this has helped me grow in my investments, and in my life.

To answer your question: "  Tell me how an average investor can prove, for a fact, to himself (or herself) that the syndicator they choose can deliver what he promises, his books are clean, he has the business savvy to manage the properties, he is not hiding any financial distress and prove before you invest your money as a limited partner that the general partner has done adequate due diligence, has not made any mistakes and the properties you are investing in won't go south, FOR ANY REASON."

My answer:   What I am hearing from you is that you want a "sure thing" guarantee.  An absolute and unbreakable guarantee that your investment will not go south along with proof that a syndicator will always deliver.  This simply does not exist.  Not in real estate, not in the stock market, not even within marriages.  This is called risk, and this is where "extreme accountability" comes into play and we should hold ourselves responsible to it.  I always do my best to vet all investments, and when they have not performed well(which they sometimes have done), I hold myself responsible, because ultimately, I chose to invest, no one forced me.  I am not a victim.

"To answer your question: " Tell me how an average investor can prove, for a fact, to himself (or herself) that the syndicator they choose can deliver what he promises, his books are clean, he has the business savvy to manage the properties, he is not hiding any financial distress and prove before you invest your money as a limited partner that the general partner has done adequate due diligence, has not made any mistakes and the properties you are investing in won't go south, FOR ANY REASON."

My answer: What I am hearing from you is that you want a "sure thing" guarantee. An absolute and unbreakable guarantee that your investment will not go south along with proof that a syndicator will always deliver. This simply does not exist. Not in real estate, not in the stock market, not even within marriages. This is called risk, and this is where "extreme accountability" comes into play and we should hold ourselves responsible to it. I always do my best to vet all investments, and when they have not performed well(which they sometimes have done), I hold myself responsible, because ultimately, I chose to invest, no one forced me. I am not a victim."

You write very well. Something makes me thing you are a philosopher or preacher. I love the way you have the ability to write.

I can't say that I don't take responsibility for my actions and choices. My posts are not to express my feelings in in regards to my personal accountability. Of course, I hold myself accountable and tell myself and everyone I know that I made a bad decision investing in the syndication, but I will not say that I am responsible in any way for what the syndicator does wrong.

The purpose for the thread and my posts is to discuss the high risks when people invest in syndications and not to discuss my accountability even though I have no problem with discussing that subject, but discussing my accountability make me think of going before a priest to give a confession.

I don't think that you can say you are not a victim because you chose to invest in something. Suppose, you invest your money into a Dean Witter account and an unscrupulous Dean Witter agent (broker, or whatever you call him) screws with your account and you lose 90% of your money. Then, you did not make a bad choice in regards to the company you chose and you cannot hold yourself accountable for what a thief does. The sun was just not shining up your ..... that day and you had a stroke of bad luck. 

You cannot hold yourself accountable if a general partner has a gambling problem and decides he needs a lot of cash because Guido is going to break his legs. That is not a bad choice you made and you cannot hold yourself accountable.

I've made a lot of serious mistakes in my life and I also have a philosophy where I tell myself; we humans are the very best that we can be. I can't be any better than what I am. I never look back and regret anything I did because I make the best choice that I could at that time based on the best of my ability at that time".

I brought up my children and did the best that I could. Sometimes, my children complain and say I did not do this and did not do that and I say, "I am the best parent that I can be". Every parent is the best parent they can be even if the parent is a drug addict, or has other serious issues. I never regret anything I did.