Real Estate Syndicate Fund

7 Replies

Hello,

Newbie to this forum. 

I own rental properties. My friend (who also owns rental properties) and I are thinking about starting a real estate syndicate fund and I'm reaching out to the community for some basic pointers. I searched this forum and found some details. I'm listing our backgrounds and our questions below. I would really appreciate any helpful pointers from the community. 


Backgrounds
: I have a strong business background (raised my own fund in the lower mid-market PE space, wrote my own PPM for business acquisition, business background with top tier MBA, sales outreach experience for dealflow, etc). My friend has a strong real estate background (owns multiple rental units, experience with tenant management, rental unit management, hiring property managers, etc). 

Questions

  1. Do syndicate investors expect the managers (my friend and I in this case) do this full time or are investors open to it if we hold a job on the side?
  2. Many syndicate funds seem to be commercial properties (class A/B/C) but we have no prior experience with commercial properties (residential or office space). Will this be a hurdle for us?
  3. What is the typical preferred return for a new fund? I understand that the typical range is between 8%-12% but is it more realistic to offer at the higher end to attract investors as a new fund?
  4. Similar question as above for the carry. Is it market now to offer 50%-50% or is it more realistic for us to offer a 60-40 or 75-25 as a brand new syndicate?
  5. Do syndicate funds typically find deals through brokers or avenues like loopNet or do they seek off-market deals?
  6. Tied to the above question - I'm guessing a unique deal flow is the biggest secret sauce/UVP (unique value proposition) for a syndicate fund based on my experience in the PE business acquisition space. Is this the case? There seems to be so much dry powder sitting on the sidelines that sourcing capital may not be a challenge here but finding a good deal is the actual challenge.
  7. Not looking for any secret sauce but are there good general pointers out there for deal flow strategies?
  8. Any book or resource that we can follow with good step by step pointers (looked but could not find any)?
  9. Any references for a good syndication attorney?

Best Ever Apartment Syndication Book by Joe Fairless is a good read. I would recommend networking with a bunch of syndicators, finding a couple that seem trustworthy, and investing the minimum into a few of their syndications.  Then observe how they communicate with investors, PMs, etc. Pay attention to how they find deals, add value to the properties, and how their overall analysis looks.  I don't think its a big deal if you are only part time.

Agreed that you should start with Joe's book. Many of the answers are contained in there. However, funds are very different from single asset syndications. There isn't a ton of content out there about running funds specifically, as the fund strategy is only just starting to gain traction.

Thank you for the inputs so far. I will definitely check out Mauricio Rauld at Premier Law and also the book by Joe Fairless. 


My biggest questions seem to be centered around deal flow and I'm wondering if many of the syndicate firms find deals through website listings. I know of people sending mailers and doing cold calls for conventional properties that are off market but somehow I'm not seeing that to be the case for big commercial listings ($5M+) - perhaps I'm wrong. 


When looking at listings website, I'm seeing listings with cap rates. Is it generally better to go for listings with lower cap rates or higher? 

Most of the of the deals on market and off market are through brokers.  Developing those relationships between the brokers is vital. A lot of deals won't even hit the open market as many brokers will have a short list of clients that they know would be interested in the property and also they know can get the deal closed.  

Google Search "Joe Fairless - Why I don't care about cap rates as an Apartment Syndicator",  Joe has a blog post talking about cap rates and why not to get to hung up on high or low cap rates.  Every market is going to be different and dictate the going rate.  Just because its a high cap or low cap doesn't mean its a good or bad deal.  It really depends on the business plan and how much can you increase the value of the property.  

Originally posted by @Bryan Stevens :

Thank you for the inputs so far. I will definitely check out Mauricio Rauld at Premier Law and also the book by Joe Fairless. 

My biggest questions seem to be centered around deal flow and I'm wondering if many of the syndicate firms find deals through website listings. I know of people sending mailers and doing cold calls for conventional properties that are off market but somehow I'm not seeing that to be the case for big commercial listings ($5M+) - perhaps I'm wrong. 

When looking at listings website, I'm seeing listings with cap rates. Is it generally better to go for listings with lower cap rates or higher? 

Cap rates, their importance, and how they impact your return have been debated at length on BP. Generally speaking, higher cap rate does not mean higher return when you're pursuing a value add strategy. 

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