Syndications: Idle Cash Prior to Deployment

[Mark S.]

I'm looking at a self storage syndication fund that has some language in the PPM that capital shall be placed within 90 days.  If it isn't the sponsor can either choose to return it to the investor or the preferred return will start to accrue after 90 days.  Is this normal? 

I understand that funds are constantly seeking properties/facilities to put into the fund and the money may not exactly be "working" 24/7 until placed, but wouldn't an investor normally expect to earn a return (whether full preferred return or even a lesser amount) on their cash sitting in escrow (since there's always an opportunity cost)?  Or am I being too picky here?

[Jack Martin]

@Mark S. the way we approach that is we don't call capital until it is needed. Investors can complete the onboarding process and sign docs to save their spot in line, but the capital call doesn't take place until a deal is about to close escrow. That way, you get to keep your capital and have it deployed on your behalf until it is called. As long as there is sufficient advance warning, that has proved to work best. 

As it relates to pass through of depreciation, I would agree with @Brock Mogensen that those benefits should be passed through to LPs and the GP should only receive a portion if also invested as an LP alongside everyone else.

All the best, 

Jack