Posted 6 months ago

Edified Equity Podcast Ep 59: Why Multifamily Syndicators Get Paid

Edified Equity Podcast Episode 59: Why Multifamily Syndicators Get Paid

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Edified Equity Investor Insight: You should undoubtedly discuss all aspects of the partnership split. Once they completely understand how much value and what a great opportunity you are bringing them they shouldn’t have any problems with it (you making money too). I’ve had limited partners tell me some of the best deals they’ve been a part of were the deals they paid the highest amount of fees to. Many LPs want the general partners (GPs) to be paid and rewarded for their work and like setting up “when you win - we all win structures”. Some LPs get nervous if they see the GPs giving up too much in order to make a deal work. You’re correct though if the limited partners don’t feel 100% aligned with the structure, they’ll say no and, you won’t be able to put together any deals/opportunities. However, being 100% transparent and telling the entire story from the get-go is the right thing to do and it will help you earn their trust. The truth of the matter is…, as you know, there’s a ton of uncompensated work and expenses that go in to a successful syndication and you should be paid/compensated. Think about, and detail, the following 10 points: 1) There’s a great deal of time and energy it takes for the acquisitions team to analyze (thoroughly underwrite) enough deals to finally find a true investment opportunity 2) You are bringing their biggest partner to the table (agency financing) for them by qualifying for the loan 3) The GP team supplies all the risk capital, liquidity, and track record 4) You’ve worked hard and established/built essential relationships with Commercial Brokers and property management companies to help these off-market deals surface 5) You’ve successfully negotiated the opportunity at a price that works 6) You’ve performed the paper (financials, expenses, T24, P & L, etc…) and physical due diligence (numerous site visits, walk-throughs, & inspections) 7) You’ve built trusted relationships that took time, in some cases several years, to establish in regards to the other equity partners (aka LPs) that are investing alongside of them 8) The GPs are going to Operate the deal/investment and create value while increasing the NOI and ultimately the value of the property 9) You are bringing them tax sheltered/deferred money and provide a phenomenal alternative investment that has very unique tax benefits (through cost segregation and bonus depreciation), cash flow, and profit sharing at refinance (tax free) &/or sale & 10) The GP team carries all the weight and fiduciary responsibilities