Syndication capital calls

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Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
2y
Quote from @Jay Hinrichs:
Quote from @Mark Forest:

WOW, THIS PLACE HAS REALLY CHANGED.   I dont want to hear about you selling me your course or advice at a "new customer price" . Stop the BS.  I just want to hear from regular investors about their experience.  


who is trying to sell you something on this thread.. I did not see that.

 I too am confused. Multiple investors with decades of experience, some GP, some LP, some skeptics about the entire business in general sense and some bulls who have gotten rich from investing have all chimed in on this 


you got links to specific case studies from Brian Burke, a seasoned syndicator, a guy check from Melanie p, who makes it a part time job taking the trash out and exposing the shenanigans of one syndicator after another.

Greg Scott has an excellent reputation on these forums, and provides a counterpoint to Melanie’s skepticism. Manny challenged that. Chris is telling you to provide more details.


The people on this thread have a combined hundred years of experience, conflicting opinions, and have been real with you. If you engage with them and seriously contemplate what they bring to the table, you will make a better decision in the end.

And no one has tried to sell you a thing, just a bunch of real estate multimillionaires trying to help you, for free.

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  • Melanie P.Pro Member
    Rental Property Investor · Member since 2023 · 1k+ posts · 922 votes
    2y
    Quote from @Mark Forest:

    Why is my syndication asking for capital calls?  Are any of you experiencing this?


     Sorry to hear from another victim of syndication investments. Who is the syndicator? What was the investment? It is very important to post all the details you can so others do not send money into a failing enterprise. Many people search here before they send off money.

    There are many threads about this. It means that you've lost a significant portion, if not all of your original investment.  The general consensus is that participating amounts to throwing "good money after bad." You'll have to read the details in your PPM and Capital Call notice but generally you send in more money to maintain or decrease, but never increase, your original position, It's not like putting money into a losing stock where you now own more of the company for a lower average price.

    You're far from the only person this has happened to. Syndication multi-family investments are riskier and have less upside than gambling in Las Vegas. Unfortunately the people who promote them do a great job of selling the dream of high returns for zero effort.

    0Reply
  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    2y

    They probably ran out of money.  Without cash, the bank would foreclose and you would likely lose 100% of your investment.

    They should be explaining to you exactly why they need the money, what they will do with it, and why it makes sense to give them more.  If the reason they ran out of money was due to an unforeseen circumstance and they have a path to recovering, it may make sense to send them more money.   If the lack of cash was due to poor operational management, I would not give them a dime more.

    0Reply
  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    2y
    Quote from @Melanie P.:
    Syndication multi-family investments are riskier and have less upside than gambling in Las Vegas.
    Can't say I agree with that statement.  

    Over the past decade I have invested as an LP in about 50 apartment complexes.  At this point my average annualized return is about 45%.  In today's tougher economic environment, I have recently experienced two cash calls.  One of them has a clear path to return a profit and is executing that plan well.  The other looks like it could lose about 40% of my original investment.

    In Vegas, the odds are always in the house's favor.
    3Reply
  • Manny VasquezBusiness Member
    Real Estate Agent · Orange County · Member since 2022 · 317 posts · 293 votes
    2y

    This is a HUGE Alarm. The syndication is either already out of money or they are very near being completely out of funds.  Before you commit any more money, make sure you ask a lot of questions.  What happened to the original funds and the original plans?  Where was the money used and why?  How much additonal money do they need to finish/complete the project?   Where will the new money come from?  What guarantees are they making? Be very careful moving forward with them.

    1Reply
  • Brian BurkePro Member
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    2y

    @Mark Forest the comments above that you’ve lost, or will lose, all or a significant portion of your investment may or may not be true.  The only way for you to understand the situation and evaluate your options is to ask a lot of questions.  Or if the sponsor of your investment is doing a good job they should have answered all questions you could think of before you even have to ask.

    Check out my reply on page 1 of this forum thread:

    https://www.biggerpockets.com/forums/960/topics/1185204-ashc...

    I have a few questions listed there that you should ask. The rest of the thread is a good read and will give you a lot to think about.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y
    Quote from @Mark Forest:

    Why is my syndication asking for capital calls?  Are any of you experiencing this?


     there are several posts on here about capital calls. without more information it is tough to respond but typically a capital call is because the offering is having issues with cash flow - whether it is because a loan is becoming due or some other reason - that is the primary reason - needing an influx of cash. can you provide more details?

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  • Dimitrius Kiritsis
    Investor · Carmel, IN · Member since 2024 · 55 posts · 22 votes
    2y

    @Mark Forest 

    There are a number of possibilities as to why your syndication is calling for additional capital. It's likely that they encountered unforeseen expenses that require additional capital beyond what was initially raised. 

    It's of vital importance that you speak with your GP to determine the root cause of the capital call so that you can make an informed decision on whether or not you should provide it. 

    Best of luck. 

    0Reply
  • Mark Forest
    OP
    Member since 2024 · 11 posts · 2 votes
    2y

    WOW, THIS PLACE HAS REALLY CHANGED.   I dont want to hear about you selling me your course or advice at a "new customer price" . Stop the BS.  I just want to hear from regular investors about their experience.  

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y
    Quote from @Mark Forest:

    WOW, THIS PLACE HAS REALLY CHANGED.   I dont want to hear about you selling me your course or advice at a "new customer price" . Stop the BS.  I just want to hear from regular investors about their experience.  


     What fund is doing the capital calls?

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y
    Quote from @Mark Forest:

    WOW, THIS PLACE HAS REALLY CHANGED.   I dont want to hear about you selling me your course or advice at a "new customer price" . Stop the BS.  I just want to hear from regular investors about their experience.  


    who is trying to sell you something on this thread.. I did not see that.
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  • Scott TrenchPro Member
    Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
    2y
    Quote from @Jay Hinrichs:
    Quote from @Mark Forest:

    WOW, THIS PLACE HAS REALLY CHANGED.   I dont want to hear about you selling me your course or advice at a "new customer price" . Stop the BS.  I just want to hear from regular investors about their experience.  


    who is trying to sell you something on this thread.. I did not see that.

     I too am confused. Multiple investors with decades of experience, some GP, some LP, some skeptics about the entire business in general sense and some bulls who have gotten rich from investing have all chimed in on this 


    you got links to specific case studies from Brian Burke, a seasoned syndicator, a guy check from Melanie p, who makes it a part time job taking the trash out and exposing the shenanigans of one syndicator after another.

    Greg Scott has an excellent reputation on these forums, and provides a counterpoint to Melanie’s skepticism. Manny challenged that. Chris is telling you to provide more details.


    The people on this thread have a combined hundred years of experience, conflicting opinions, and have been real with you. If you engage with them and seriously contemplate what they bring to the table, you will make a better decision in the end.

    And no one has tried to sell you a thing, just a bunch of real estate multimillionaires trying to help you, for free.

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  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    2y
    Quote from @Scott Trench:
    Quote from @Jay Hinrichs:
    Quote from @Mark Forest:

    WOW, THIS PLACE HAS REALLY CHANGED.   I dont want to hear about you selling me your course or advice at a "new customer price" . Stop the BS.  I just want to hear from regular investors about their experience.  


    who is trying to sell you something on this thread.. I did not see that.

     I too am confused. Multiple investors with decades of experience, some GP, some LP, some skeptics about the entire business in general sense and some bulls who have gotten rich from investing have all chimed in on this 


    you got links to specific case studies from Brian Burke, a seasoned syndicator, a guy check from Melanie p, who makes it a part time job taking the trash out and exposing the shenanigans of one syndicator after another.

    Greg Scott has an excellent reputation on these forums, and provides a counterpoint to Melanie’s skepticism. Manny challenged that. Chris is telling you to provide more details.


    The people on this thread have a combined hundred years of experience, conflicting opinions, and have been real with you. If you engage with them and seriously contemplate what they bring to the table, you will make a better decision in the end.

    And no one has tried to sell you a thing, just a bunch of real estate multimillionaires trying to help you, for free.


    Exactly! Ask for advice, then get the advice and then somehow assume people are trying to sell you something based on their advice? BP does a great job getting rid of comments that are selling something. Nothing that I have seen above even has a hint of selling. 

    Now, my thoughts (full disclosure: I am not selling you anything): 

    I see it as a red flag that the GP is doing a capital call, but you don't know why. Either you don't know why because you have your head in the sand and haven't paid attention to their communications or they are trying to hide things from you. 

    Capital calls only make sense to participate in if there is a clear path to profit or at least recouping your investment. Study the original business plan and why it has gone wrong and compare it to the new business plan. If the new money coming in just allows you to lose less money, then it's likely not worth the risk. If it is to be able to do a cash in refi for instance and that allows for the property to cash flow long term and buy time for the market to rebound, then you may want to consider. 

    Originally you looked at the investment as a risk vs reward and decided to invest. Look at the capital call the same way and take your emotions out of it. 

    2Reply
  • Scott TrenchPro Member
    Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
    2y

    I agree with @Todd Dexheimer and will say this: 

    If you don't know what you are doing, you shouldn't invest. 

    If you have no idea what is going on with this capital call, then the bias should be "no" until you understand what is going on and believe that is the best possible use of your hard earned cash.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y
    Quote from @Scott Trench:

    I agree with @Todd Dexheimer and will say this: 

    If you don't know what you are doing, you shouldn't invest. 

    If you have no idea what is going on with this capital call, then the bias should be "no" until you understand what is going on and believe that is the best possible use of your hard earned cash.

    AS we see some GP failures there is another thread on this guy Lane Kawauka not sure how you spell it but one of his investors gets on BP and says they go dark.. Brian B does a little investigation to find out that this GP had basically zero experience in the space yet took down a 50 mil dollar apartment in Houston ( not sure how they talked lenders into that one) but there is 10 mil in investor money that got wiped out as Brian showed this investor that the property went to foreclosure and reverted to the bank ( no one bid it). But my point is now the investor is asking what do I do !!!!  So you have LP who makes investment then when it does not go right has no clue what to do @Chris Seveney then points out not only did they get wiped out but if there is significant cost seg taken there will be some pretty hefty tax due and the LP did not know if there was a cost seg or not.. So obviously many of the LPs appear to make these investments not really knowing much detail.. And for sure when your  an LP and your GP goes belly up not much you can do although I am sure lawsuits will be flying from other investors towards the GPs thats a given.

    So to Scotts point so many LPs got into these deals with NO clue on what to do if they dont go right. I have been on the *** end of these deals when I was young and did land acquisitions for a GP that went busto and man its a cluster of epic proportions.. GP is more important in many instances than the property and that is playing out big time right now.

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    @Jay Hinrichs

    Agree. There was a post also where I believe Carlos made a comment that the LP’s should also take some accountability.

    Now they should not take the blame for the failure but have accountability for throwing $50k or $100k into something they did not understand. They caught a cool YouTube video and saw everyone else was making all this money so let me join in.

    He got blasted by some but he wasn’t wrong.

    Yes deals go bad, even a good sponsor can have a bad deal - but as you mention jay the sponsor is far more important than the deal.

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  • G. Brian DavisPro Member
    Investor · Hatboro, PA · Member since 2016 · 2k+ posts · 842 votes
    2y
    Quote from @Mark Forest:

    Why is my syndication asking for capital calls?  Are any of you experiencing this?


     Out of curiosity which sponsor is it? 

    We're constantly updating our watchlist of struggling sponsors to be wary of, so it helps to hear other investors' experiences. 

    0Reply
  • Mark Forest
    OP
    Member since 2024 · 11 posts · 2 votes
    2y

    The company I have invested with has done a great job explaining why this is happening and what they are doing about it.  It is primarily over the high and sharp rise in interest rates we've been experiencing.  I mainly wanted to know if other investors in syndications were experiencing the same thing. 

    0Reply
  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    2y
    Quote from @Mark Forest:

    The company I have invested with has done a great job explaining why this is happening and what they are doing about it.  It is primarily over the high and sharp rise in interest rates we've been experiencing.

    Mark:

    It it is time to name names.
    2Reply
  • Melanie P.Pro Member
    Rental Property Investor · Member since 2023 · 1k+ posts · 922 votes
    2y
    Quote from @Mark Forest:

    The company I have invested with has done a great job explaining why this is happening and what they are doing about it.  It is primarily over the high and sharp rise in interest rates we've been experiencing.  I mainly wanted to know if other investors in syndications were experiencing the same thing. 


     Mark, For all your complaints about people not contributing good advice here... you know the people you're invested with are still raising money and the fact that they've paused distributions, for any reason, is highly important information to any potential investor. 

    Please share details. With the explanation that they've been good about updates and have a plausible reason for the pause. The information is still highly relevant. 

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    1y
    Quote from @Ram Go:

    Passiveinvesting is doing a capital call on a property in houston(braxton at tamarron). They are asking for 28% capital call proportional to investment amount. primary purpose of capital call to survive high interest rates for next 1 year and hoping interest rates gets favorable by then. Looking for some advise if it is right choice to additional capital to this investment


    Here is how I look at a capital call. They can be used in situations of control or hope. What I mean by this here are two very different situations:

    1. Sponsor is doing a capital call and pausing distributions as they have a loan coming due and realize they need $3M in order to refinance the loan. Once refinanced the property will be stabilized but still may see slow/low distributions because of cap rates and interest rates. In this instance this is a plan that can be executed upon and they have some control

    2. What seems to be your case - request a capital call to cover debt service for the next year "hoping" rates go down. In this instance, there is no control and just hope.

    I would ask for financials, what happens if rates do not go down, and really get a better understanding. Sometimes its better to lose less now than more in the future. Again, this is only based on info you provided so there could be a lot more to the story for the good or bad but I can only comment on what was provided.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    1y
    Quote from @Chris Seveney:
    Quote from @Ram Go:

    Passiveinvesting is doing a capital call on a property in houston(braxton at tamarron). They are asking for 28% capital call proportional to investment amount. primary purpose of capital call to survive high interest rates for next 1 year and hoping interest rates gets favorable by then. Looking for some advise if it is right choice to additional capital to this investment


    Here is how I look at a capital call. They can be used in situations of control or hope. What I mean by this here are two very different situations:

    1. Sponsor is doing a capital call and pausing distributions as they have a loan coming due and realize they need $3M in order to refinance the loan. Once refinanced the property will be stabilized but still may see slow/low distributions because of cap rates and interest rates. In this instance this is a plan that can be executed upon and they have some control

    2. What seems to be your case - request a capital call to cover debt service for the next year "hoping" rates go down. In this instance, there is no control and just hope.

    I would ask for financials, what happens if rates do not go down, and really get a better understanding. Sometimes its better to lose less now than more in the future. Again, this is only based on info you provided so there could be a lot more to the story for the good or bad but I can only comment on what was provided.


    not sure many are thinking rates are going to drop much in the next year.. seems like one would want to know how much they need to drop to see if the plan will work before putting good money after bad.
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  • Jason Piccolo
    Real Estate Agent · Arlington, VA · Member since 2014 · 78 posts · 37 votes
    1y

    @Ram Go I am in the same boat as you with this capital call. I was told that the dilution of my original investment would be 21.8% if I did not participate. If they sold the asset right now at the current valuation it would wipe out 80-85% of my equity. This would be the fourth year of two one year extensions. The asset was purchased at 76 million and it recently appraised at 63 million. I am at a crossroads on what to do about this one, but hopefully the market saturation from competitor assets in Katy, TX dries up. I  don’t think rates will change much for the next year.  

    0Reply
  • Brian BurkePro Member
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    1y

    @Jason Piccolo or @Ram Go, what is the loan balance, interest rate, and when does the loan mature?  Are there maturity extensions built into the loan agreement?  If so, how many, how long, and what are the covenants for qualifying for the extensions?

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  • Ram Go
    Member since 2020 · 4 posts · 0 votes
    1y

    Initial debt was $59.8M. 

    Loan: The loan on Braxton at Tamarron is a capped floating rate loan that is SOFR + 3.45% with a maturity date of January 2025 with two 1-year extensions available. The rate cap, capped at 5.45%, will expire in January of 2025. The rate cap in January is currently priced at $747,000.

    The Capital Call funds will be used in the following ways:
    1) $4mil is being used to pay down the loan.
    2) $175k fee to extend the loan for 1-year.
    3) $2.247mil to cover interest rate cap extensions for the remainder of the hold period, including $747k for the January 2025 6-month interest rate cap purchase.
    4) $1,000,000 in reserves to prepare for additional extension fees and cash reserves.

    0Reply
  • Ram Go
    Member since 2020 · 4 posts · 0 votes
    1y
    0Reply
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