Questions to ask a syndicator
The list of questions to ask a syndicator can become exponentially long and one cannot possibly cover all possible questions. My goal here is to give you guidance and a general idea about the type of questions to ask when you speak with a syndicator (aka deal sponsor) that you have not dealt with. Therefore, my list is not all-inclusive, but rather an introductory one.
- How long have they been actively engaged in real estate investing?
- What is their track record? Here, you can also ask for comparison analysis of their offerings to investors versus the actual results.
- How long have they been doing syndications?
- What locations do they invest in?
- How well do they know the local market they are currently investing in?
- Do they have a team ready to undertake their next investment? (Note: team may include but not limited to attorney, inspector, loan broker, insurance broker, property management, other partners on a deal)
- Which asset classes do they invest in? How many years of experience do they have with a particular asset class?
- Do they put your own money into your deals?
- Did they ever have a deal go bad? If so, how did they handle it?
- Are they sponsoring any other investments? If so, how many?
- Can they give you the name and contact information of their past/current clients?
- Can they provide contact information for other investors, that you can speak to them from a reference standpoint?
- How do they structure their deals? Is there a preferred return? Do they use change the split between the general and limited partners after certain threshold?
- Do they allow for accredited investors only in their syndications?
- How many key principals/partners do they have? If there is no other partner(s), what’s going to happen with your investment if anything happens to this singe partner?!
- What are their sponsor fees?
- How long are they usually holding an asset for?
- What is their common investment strategy?
- This question may sound strange to you, but I picked it up from someone on one of the forums. So, the question to a syndicator is, “May I call your parents?” (the logic here is if their own parents won’t give them a good recommendation, then there is no point to go further.)
In addition to the above questions, here’s a list of tips and tricks that you should consider to verify the information provided by the syndicator.
- Check online for positive comments and complaints about the syndicator.
- Perform a background check on the syndicator, if needed.
- Search on social media for references about this syndicator.
- Validate what kind of web presence they have, such as websites, podcasts, YouTube channels, etc.
- Ask if you can discuss their offering with your trusted adviser(s). A Non-Disclosure Agreement (NDA) would most likely have to be signed first!
- Attempt to connect with the syndicator’s past or present colleagues and/or employees on your own and ask about their opinion.
- Ask for details about a past deal the syndicator had handled.
- When the legal documents for a deal arrive, make sure the legal paperwork is complete and accurate. Check that all documents are there, and that they look professional, and were prepared by a reputable syndication attorney; and not via an online tool.
- Analyze the property, the market (job and population growth), major employers in the area, the location, its proximity to major shopping area and main employment hubs.
- Review the pro-forma underwriting and the holding period. Determine for yourself whether a deal is conservatively underwritten.
- When reviewing the Offering Memorandum (OM), ensure it is professionally prepared and is not full of typos and mistakes.
- Ask yourself as to whether a deal sponsor is giving you enough time and attention. Are they answering all your questions?
- Evaluate the market comps that the syndicator is provided. Is the syndicator targeting competitive rents? Are the projections in line with the comps?!
- Does the overall offering make sense in terms of returns, durations, syndicator integrity and background and proposed plans?!
In summary, what it comes down to is what is your comfort level with a particular deal sponsor, her/his beliefs and values, and as to whether their overall strategy is in line with your expectations. At the end of the day, a great syndicator can make a great investment out of a mediocre one, and a mediocre syndicator can ruin a great investment.
For additional questions please refer to this article: The Hard Questions To Ask Before Investing In Any Real Estate Deal