Live Deal Case Study - 240 Unit Syndication - Bring Your Question

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Live Deal Case Study - 240 Unit Syndication - Bring Your Question

Brian Adams
Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes

This is my 4th large deal that I have syndicated and I have received lots of personal messages about how buying large apartments and syndications work.

This deal will be closing on March 7, 2016. It is 240 units, buying for $9.4 million, asset appraised for $9.9 million, and raising $3 million.

Since this is a live deal, let me know if you have any questions about the process.  

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Michael Sjogren
Investor · Beverly, MA · Member since 2014 · 103 posts · 70 votes
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@Brian AdamsThanks for sharing. Since you have pulled a few of these together now how have you structured your deals as far as equity splits, preferred returns, exit payouts, etc.? Have you changed the structure at all and if so, what has worked best for yourself and your investors so far? 

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  • Benjamin Necci
    East Meadow, NY · Member since 2016 · 11 posts · 6 votes
    10y

    Hello Brian, 

    Just for curiosity Sake. Would there be a minimum investment on a deal like this? how much would that min. be? 

    Regards 

    Ben

    BNL Landscapes LLC

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    I think most folks know the process are you hoping to pick up investors with your post?

    @Benjamin Necci  most of the time you need to be accredited for these deals.. but you sure can ask the OP ..

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  • Michael Sjogren
    Investor · Beverly, MA · Member since 2014 · 103 posts · 70 votes
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    @Brian AdamsThanks for sharing. Since you have pulled a few of these together now how have you structured your deals as far as equity splits, preferred returns, exit payouts, etc.? Have you changed the structure at all and if so, what has worked best for yourself and your investors so far? 

    3Reply
  • Al Wilson
    Investor · Daphne, AL · Member since 2014 · 1k+ posts · 242 votes
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    OP, is there a question in your post that I have missed?
    0Reply
  • Brian Adams
    OP
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
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    @Benjamin NecciI know when I first started doing these types of deals my minimum was $25k. 

    What I realized quickly is putting these large deals together is a lot of work. 

    Also if the capital raise as an example is $2 million, that is a lot of people to string together. Each investor is unique with their own personality, so having "lots" of investors in a deal can be overwhelming.

    So now my minimum is $100k. 

    To be upfront this process hasn't been easy. When syndicating these deals we aren't asking the investors for $20, but a significant chunk of change.

    It has taken me time to get to this point. To get the right investor for the right deal. 

    Plus not all investors are a fit for these types of deals so you need to take the time to understand what their goals and challenges are. 

    I still have a ways to go, but now it makes doing these larger deals a bit easier as I don't need as many investors in the investor pool.

    0Reply
  • Brian Adams
    OP
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
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    @Jay Hinrichsmy intent in this thread is to share some information on how a live deal is tracking. 

    Thought it would be helpful to the forum as I have answered personal messages about the process.

    And yes agree with you that my deals are offered to only accredited investors as defined by the SEC. Also the four deals I have done have all been 506(b) private offerings. 

    1Reply
  • Brian Adams
    OP
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    @Michael Sjogrenyes over time the deal structure has changed. Once the track record is established with the investor along with hitting the projected cash flow and returns over time, you become proven.

    I started out taking 25%. One deal I took 50%, but it was a lot of work. Each deal has its own specific characteristics, so the allocations and payouts need to be tailored to each opportunity.

    I don't work for free so not only do the investors need to win in the deal, myself as the operator need to win and be able to make some money.

    One of my deals the payout or waterfall structure is way to complicated. For example, if cash flow hits X amount, the investors get Y, than the excess is paid Z percent until this happens, than that, than this. When I go back and re-read the operating agreement my head still spins.

    Now my deals are a bit simpler, before I get any cash flow, investors must get paid first so they get a stated preferred return, next the cash flow and back-end profits are split on ownership percentages. 

    1Reply
  • Brian Adams
    OP
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
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    @Al Wilsonno real question in my original thread. As I shared above I thought it would be helpful to give others a peak into how these deals work.

    By the way, please help me out, what does OP mean?

    0Reply
  • Al Wilson
    Investor · Daphne, AL · Member since 2014 · 1k+ posts · 242 votes
    10y
    OP = original post(er).
    0Reply
  • Account Closed
    Richmond, VA · Member since 2015 · 19 posts · 18 votes
    10y

    Where are you finding investors? What was your track record before your first deal?

    1Reply
  • Brian Adams
    OP
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    @Account Closedcurrently I find investors from other investor referrals and testimonials. My background is a CPA and have worked with high net worth clients before.

    Before my first deal, most of the investors knew me as Brian the CPA so it did take some time to get the ball rolling. 

    My approach to my business is be transparent, be available to answer questions, be an expert, work hard, take calculated risk, know the numbers, know the market, and answer questions like:

    WHY this deal

    WHY this market

    WHY is this the best deal in this market for the investors NOW.

    Taylor to sum it up, and in opinion, you don't need to be a CPA, financial planner, attorney or whoever to raise capital.

    You need to be passionate about your business and be credible to build trust with the investor. 

    Most people, all they invest in the deal, they are really investing or believing in you as the operator who is putting the deal together.

    Make sense?

    1Reply
  • Brandon Hall
    CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
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    @Brian Adamshow does a CPA transition into syndications? It's what I ultimately want to do and since I work with a lot of real estate investors, I feel like I already have a leg up so to speak. But I don't know how, or when, I should or can approach people for potentially raising capital. Better to start on a smaller scale and test the waters?

    0Reply
  • Percy N.
    Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes
    10y
    Brian Adams we are almost neighbors and should connect. Am interested in hearing more about the deal and perhaps I can offer an investors perspective to BP.
    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Brandon Hall  the key as your probably aware is your hamstrung trying to advertise for investors when doing a syndication certain 506 offerings  you must have a previous business relationship.. so like with this post its not intended to be a solicitation but once someone responds to the post the OP can then contact them PM style and that creates the nexus of a previous relationship.. IE you met them on line talking about the big picture. etc etc.. subliminal solicitation I think.

    For you its dead easy.. you have all your clients you have an existing relationship ,, you I believe and you should double check with your securities attorney as I is not one.. but I think your free to contact any of them directly and pitch your deal.

    In the early days of syndication or I should say the go go days of the 70 and 80's I worked for a large syndicator in CA.. how they got their leads is much how Guru's do business today.  Remember this is pre internet. PRE criags list  Pre linkedin  etc.  PRE BP

    You were not allowed to just run an Ad in the SF Chronicle that your looking for investors..

    But what you could do is run an add that on Thursday night your giving a free presentation on how to invest in Real Estate in the current market.. what type of opportunities folks could look at.. how to establish rates of returns etc etc.

    Folks would call in for their free ticket ... show up.. the owner of the company ( think syndicator) would then make a very generic presentation on the state of the Bay Area Real Estate market etc etc. But he always lead with... I was living in Iowa and came to CA and this is were I made my first million.. LOL

    then his staff would pass out a blank card that you wrote your name and phone number and address on if you wanted further information of what his company did or wanted to speak to a rep of his company.. When they filled out the card the business relationship was made and the company was free to solicit them...  

    company matured into a billion dollar under management company.. 5,000.. investors.. now these were General partnerships and I was in the asset  acquisition side of the company  so I am fuzzy on the accreditation rules of that day.

    So I think for you and your deep client list your in a very good position like the OP was in.. ready made list of folks you can approach.. then you just need to vette them for accreditation.

    I know some 506 that are one million and under you can have up to 35 non accreds and unlimited accredited's..  

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  • Brian Adams
    OP
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    @Jay Hinrichs, under SEC Rule 506(c), a company can broadly solicit and generally advertise the offering, but still be deemed to be undertaking a private offering if:  Click Here to SEC site re: 506 Offerings

    • The investors in the offering are all accredited investors; and
    • The company has taken reasonable steps to verify that its investors are accredited investors, which could include reviewing documentation, such as W-2s, tax returns, bank and brokerage statements, credit reports and the like.

    As a disclaimer though all my offerings have been 506(b)'s and haven't pursued this angle.

    0Reply
  • Xavier Randall
    Insurance Agent · Lakewood, CA · Member since 2013 · 171 posts · 98 votes
    10y

    @Brian Adams ,Thanks for posting this. I'm in the process of building my team.

    1. If i were to take an acquisition fee is it on the overall transaction or capital raised?

    2. Do you have any of your own funds in your deals along with the investors?

    3. The securities atty i've spoken with charges a minimum of $12,500 for structuring. Is that expensive?

    0Reply
  • Brian Adams
    OP
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    @Xavier Randall, how I structure my deals, the acquisition fee is on the purchase price. In our industry it is common to charge a 3 to 5% acquisition fee. All of my deals have been at 3%.

    Each deal is different and yes I have put my own capital in some of the opportunities.

    With the 240 unit deal I just closed, my PPM, operating agreements, subscription agreement, etc. was $20k. 

    Not sure what you are getting for the $12k, but make sure you are working with a reputable securities attorney who have done these types of private placements before.

    What you don't want to do is be ultra-thrifty and try to save a buck with the investor documents. 

    Reason: if the SEC ever came knocking and it is discovered that your docs don't have the necessary disclosures, risk factors, etc. you can get into a lot of trouble.

    0Reply
  • Xavier Randall
    Insurance Agent · Lakewood, CA · Member since 2013 · 171 posts · 98 votes
    10y

    @Brian Adams , i should've been clearer. Up to $2.5M transactions he charges $12,500 for the work you mentioned. From $2.5M - $15M transactions he charges $15K. It's due when you initiate your LOI.

    1. Do you have the investors pay the $20K?

    2. Do you charge an ongoing management fee?

    0Reply
  • Brian Adams
    OP
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    @Xavier Randall, I reflect the $20k as a deal cost in the sources and uses section of the PPM. So if the deal closes, Yes the investors pay.

    Just to note, I had a 220 unit deal that didn't close a couple years ago. So the $$ came out of my own pocket, so there is risk in putting these deals together.

    Each deal is different, but yes on charging an asset management fee that is in addition to the management fee. I use 3rd party management to run the day to day and generally pay them 3.5% to 4.5% for my deals. 

    0Reply
  • Robert GuilfoylePro Member
    Mount Laurel, NJ · Member since 2012 · 125 posts · 36 votes
    10y

    @Brian Adams thanks again for sharing your experience with the BP community.  You have definitely opened my eyes to apartment investing.  Thanks again!

    0Reply
  • Xavier Randall
    Insurance Agent · Lakewood, CA · Member since 2013 · 171 posts · 98 votes
    10y

    @Brian Adams , You mentioned the current deal was at $9.4M and the raised capital was $3.3M. What type of financing are you using (e.g: Seller carry, Recourse and Non-Recourse, Conv., FHA 223) and how long was the UW process?

    0Reply
  • Brian Adams
    OP
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    @Xavier Randall, I don't mind answering your questions, but I may have to start billing you like I do with my coaching students at my consulting rate of $500 an hour.  :))

    The capital raise was $3 million and I executed a Fannie Mae Non recourse mortgage. I have covered some other deal points here at this thread if you want to review. Just closed 240 unit deal

    0Reply
  • Brian Adams
    OP
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
    10y

    @Robert Guilfoyle, I appreciate your message.

    0Reply
  • Xavier Randall
    Insurance Agent · Lakewood, CA · Member since 2013 · 171 posts · 98 votes
    10y

    @Brian Adams , $500 an hour to work with someone experienced....I'll make a note of that in case i have to reach out!! :-) Thank you for entertaining my questions!

    0Reply
  • David Thompson
    Investor · Austin, TX · Member since 2013 · 933 posts · 1k+ votes
    10y

    Brian,

    My experiences with an ongoing capital raise right now is the following 3 keys to success:

    1) Right Market - is it a market over $250K MSA  where jobs and population growth are strong w/ good job diversity.  Catalyst:  new company HQs moving in like we see in N. Dallas w/Toyota.

    2) The Deal - is it a great deal? Bought well under comps for similar B/C class of similar age, unit # sold w/n last 18mos and rents below comps in the area like our case. Room to raise rents to just below market to achieve 10% CoC and + 20% IRR w/5yr hold. Conservative underwriting.

    3) Team - track record of sponsor. 10% CoC and 20% + IRR. Sponsor puts money in own deal.

    I was able to raise $1M in two weeks w/a deal like this w/a network that came mostly from:

    a) Personal contacts (work, friends, etc)

    b) Bigger Pockets

    c) Local Multi family meetup.

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