Shady Syndicator Stuff or Smooth Sailing?

[Mark S.]

Been evaluating several syndication opportunities lately and I've noticed a few things I've not seen before in this space (and even with the same operators).  I'm not going to call anyone out, but here are two main things I've run into which seem like total BS to me.  Let's see if you agree:

1.) Syndicator "Admin" Fee Changed from Flat % to Waterfall-type Split:  One group I have been dealing with historically did not charge an admin fee at all. Then they started charging a 0.50% annual admin fee. NOW, they have changed it so that after an investor receives a targeted IRR, that the investor's split changes and they take a % of the split. This is IN ADDITION TO an Asset Management Fee (and acquisition fee, etc.). I personally think this is complete BS and they're getting greedy to put it mildly.

EXAMPLE: 10% preferred return, then 50/50 split between investor/syndicator. Syndicator is essentially raising money for operating sponsor, so a middleman so-to-speak. After investor gets 10% IRR, there's an 80/20 split between investor and syndicator. So, basically, after an investor gets a 10% IRR, the split goes from 50/50 to effectively 40/10/50 (where the 10% - which is 20% of the investor's 50% - goes to syndicator raising money).

2.) Not Knowing Final % Split Until Deal Fully Funded: Another group I've been in talks with essentially cannot tell you upfront what the split will be between investors / sponsor.  There is typically a range, depending on how much money is raised.  They'll issue a certain number of A units, B units, etc.  They have a targeted amount of $ to raise.  They have a stated minimum and maximum (which can change the split).  In a recent offering, I think it ranged somewhere from 31% to 49% to investors, depending on how much $ was raised and how many Class A units were purchased by investors.  This seems backwards to me as previous deals I've invested in always state a definitive percentage upfront (70/30, 80/20, etc.).   The only thing this particular group declares upfront is a preferred return, if any.  Other than that, split is TBD.  I want to know what my split is going to be going into the deal and I also want it to be way higher than 50% in most cases.  It seems like this particular group's best case split scenario is 50% to investors (on top of a preferred return).

Is anyone else seeing these shenanigans with all the cheap money looking for a home out there or are my expectations just way out of line right now?  Really interested to hear people's thoughts.  I think the above two examples are very unfair to limited partner investors and I am shocked that these syndicators seem to have a relatively easy time raising money from likely unknowing "investors."