The Number 1 Syndicator/Sponsor “Fail”

[Don Konipol]

This analysis makes 2 assumptions: 1 - the syndicator/sponsor is HONEST and not a scam, and 2 - the syndicator/sponsor is competent in investing in the subject  area of real estate 

So assuming these 2 conditions are true, what is the biggest syndicator “fail”.  Hands down its lack of communication with the passive investors.  Most new and many experienced syndicators just seem to be unable to deliver any news, let alone negative news.  So they just send out a terse announcement with no warning, lead up, or any previous indication of problems, that dividends or payouts will be suspended until further notice.  

Investors, caught by surprise, and more than a little upset that income they had been counting on to pay living expenses has been cut off; call, write, email and text the syndicator for explanation.  After answering a few of these inquiries, the syndicator begins to feel overwhelmed, and instructs his virtual assistant to contact the investors, with a script to read from.  The script unfortunately provides almost no information, as it has been vetted by the syndicators attorney, who has “sanitized” it to eliminate any possibility of it containing useful information.  So investors now receive a phone call from someone with an almost incomprehensible accent reading from a script that’s provides no information and sounds like a legal disclosure. 

This of course merely increases the investor calls with many containing threats of legal action.  This prompts the syndicator to call his attorney, who then advises issuing a statement to investors and not responding to investor inquiries beyond that statement.  

All this could be avoided if the syndicator/sponsor recognized that people who placed their faith and cash in his hands deserve to be informed of ANY major change in their investment, good or bad.  For example, if a major tenant files BK, the syndicator should put out a statement to investors as to how this may impact the ability to make dividend payments and how it may impact the value of their investment.  Further, when more information is available the syndicator would do well to set up a conference call or zoom meeting  with investors and record the call for those unable to attend.  

While there may be a few naive investors who really don’t understand the risks associated with any investment, the vast majority of investors just don’t want to be kept in the dark; they want to know relevant information about their investment. 

[Chris Seveney]

Quote from @Don Konipol:

This analysis makes 2 assumptions: 1 - the syndicator/sponsor is HONEST and not a scam, and 2 - the syndicator/sponsor is competent in investing in the subject  area of real estate 

So assuming these 2 conditions are true, what is the biggest syndicator “fail”.  Hands down its lack of communication with the passive investors.  Most new and many experienced syndicators just seem to be unable to deliver any news, let alone negative news.  So they just send out a terse announcement with no warning, lead up, or any previous indication of problems, that dividends or payouts will be suspended until further notice.  

Investors, caught by surprise, and more than a little upset that income they had been counting on to pay living expenses has been cut off; call, write, email and text the syndicator for explanation.  After answering a few of these inquiries, the syndicator begins to feel overwhelmed, and instructs his virtual assistant to contact the investors, with a script to read from.  The script unfortunately provides almost no information, as it has been vetted by the syndicators attorney, who has “sanitized” it to eliminate any possibility of it containing useful information.  So investors now receive a phone call from someone with an almost incomprehensible accent reading from a script that’s provides no information and sounds like a legal disclosure. 

This of course merely increases the investor calls with many containing threats of legal action.  This prompts the syndicator to call his attorney, who then advises issuing a statement to investors and not responding to investor inquiries beyond that statement.  

All this could be avoided if the syndicator/sponsor recognized that people who placed their faith and cash in his hands deserve to be informed of ANY major change in their investment, good or bad.  For example, if a major tenant files BK, the syndicator should put out a statement to investors as to how this may impact the ability to make dividend payments and how it may impact the value of their investment.  Further, when more information is available the syndicator would do well to set up a conference call or zoom meeting  with investors and record the call for those unable to attend.  

While there may be a few naive investors who really don’t understand the risks associated with any investment, the vast majority of investors just don’t want to be kept in the dark; they want to know relevant information about their investment. 

I completely agree with this and would add another angle I’ve seen far too often: many syndicators are simply inexperienced, not just in real estate investing but also in leadership and communication.

Because of that, they’ve never had to deliver bad news before. They’ve never had to manage a team, respond under pressure, or lead through uncertainty. Too many go from owning a few rentals to raising capital for large syndications, believing it is a natural next step. But without the operational foundation or people skills, it becomes painfully obvious when challenges arise.

Some syndicators also operate entirely solo, without a team, which makes it even more overwhelming. Add to that the fact that many are still working full time in other jobs, and it’s not hard to see how investor communication quickly falls through the cracks.

And as you pointed out, assuming the sponsor is both honest and competent, the biggest failure still tends to be communication. Most investors can handle bad news if it is delivered early and clearly. What they cannot accept is silence. That erodes trust quickly.