From an LP’s Perspective What Makes a Well-Run Syndication?

Question

I’ve connected with a number of LPs through BiggerPockets and have found they generally fall into two categories. The first are investors who want to start passively in order to learn the business before moving into direct investments. The second are investors who are  interested in passive investing as part of their long-term investment strategy. Under both scenarios, the same critique consistently comes up, which is a lack of communication.

Investors who want to learn feel they lack visibility into what is actually happening with the investment, while purely passive investors still want to be kept meaningfully informed without being overwhelmed. It would be helpful to hear from LPs on what they view as an ideal level of communication and reporting from a sponsor.

Another common takeaway is that many LPs are unclear on how investments are structured from a distribution perspective, including how and why distributions are made over the life of a deal. I personally place more of this fault on the LP but what can be done differently to help LP's better understand the investment opportunity?

More broadly, it would be useful to hear any additional feedback or critiques related to how syndications are managed from an operational standpoint. To be clear this is not about investment performance, but about the processes and practices that shape the LP experience.

Chris Seveney · Answer

@Stuart Udis - a lot of FOMO from all the Facebook and instagram ads offering 20%.

Evan Polaski · Answer

Communication is always tough because it is a moving target.  At the end of the day, anyone that believes being an LP will help them become a GP is simply deluding themselves, to the point that there is no point in even addressing this.  But some items you will never see:- Monthly cash flow meetings and budgeting/reforecasting meetings- Acquisition meetings talking about pipelines, assumptions, market trends- Lender negotiations- Property management discussions

As for the truly passive LPs, it is a hard target to hit.  There are countless examples of nuances here, that I could argue fully align with legal arrangements but not the spirit of the operating agreements.  But the biggest issue, coming from someone that is both LP and worked for GPs, is every investor will have their own ideas of what is adequate and necessary.  As you note, when you have someone that is wanting to be learning the business through LP investing, they will want every minuscule detail of what is happening behind closed doors.  "why did you budget for the roof this year versus next?"  "why are we replacing the interest rate cap with another 1 yr cap, versus 2-3 yrs?"  "What insights are you seeing in that specific market/submarket?"  The reports will become 50-60 pages really quickly.

Versus the LP who sold his company for $50mm, and if he loses $500k in this investment it is meaningless, where he just wants to know if his distribution is getting paid on time, in full and if a sale is going to be profitable or not and when.While I agree with the sentiment you hear, this is one reason why LPs should ask for recent reports from sponsors from multiple deals and over several reporting periods (i.e. if sponsor reports monthly maybe get last couple months, plus a few sporadic ones from 2025/2024, etc).  Ask for one that is sharing bad news with the investors.  Ask for a referral from someone in that "bad news" deal, and ask that referral how well in advance was the sponsor preparing the LPs for whatever the bad news was.  I am thinking capital calls or paused/reduced distributions.  Was the rug pulled out: one month money came, the next month an email came the day distributions were to be sent saying "no money coming"

Stuart Udis · Answer

I’ve been thinking about Reg A offerings and whether they’re being used conscientiously today, given that social media allows sponsors to reach unsophisticated investors at a scale that never existed before.

This isn’t meant to reopen wounds for investors who were burned, but public examples like RAD Diversified naturally come to mind because of how widely they were marketed. It’s fair to ask whether companies like that could have reached so many retail investors without modern social media amplifying their message.

Stuart Udis · Answer

@Ian Ippolito  Thanks for chiming in. Poor communication is one of the most common complaints I hear from LPs I speak with. In many cases, it seems investors watch a presentation, decide whether to invest based largely on that presentation, and move forward without closely reviewing the PPM—let alone the operating agreement.

I say this because a significant number of LPs later express dissatisfaction with the underlying investment, when in reality it becomes apparent they were never fully aware of how the investment was structured in the first place, particularly with respect to the distribution schedule and timing.

Ian Ippolito · Answer

My minimum acceptable threshold is having quarterly status reports (which provide real details  on progress and/or problems and not just fluff), at least yearly financials (and quarterly is better) and at least yearly capital account statements (and quarterly is better).Distributions (and waterfalls) are often detailed in the operating agreement in dense legalese (and differ alot from deal to deal).  So it's nice when they take the effort to be  transparent and put this in investor deck and in the investor's language.

From an LP’s Perspective What Makes a Well-Run Syndication?

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