I had a meeting earlier today with an investor on an awesome multi-million deal my partners and I are working on just outside of Cleveland. He asked me about what value do syndicators like me provide to investors like him. Meaning, why should he invest alongside us in a deal. Before I go into that, I’ll quickly explain what a syndicator does.
A real estate syndication allows investors like you to pool our cash and invest in large multifamily deals much bigger than you can handle on your own. This method collectively increases our buying power, leverage & rate of return.
Some of you out there invest with small investment funds. Some of you may even have access to hedge funds and larger investment pools that invest heavily in multifamily. Others can divert their time working a full-time job to find a deal and invest that way. But if you’ve been watching for a bit, you know there is a lot more to locking down and operating a profitable multifamily investment than just jumping on Loopnet and sending a Letter of Intent. Most of the investors my partners and I deal with are looking to maximize their potential returns from a deal while maintaining their time freedom.
So, here are my 7 value propositions we offer to our investors:
1) Professional Infrastructure: As syndicators, we bring together the experts needed to locate, assess and run the property. This means finding and building a team of professionals and covering all the upfront costs associated with this task. We are talking about commercial brokers, banks, CPAs, attorneys, property managers, bookkeepers, construction people and much more. Because we are involved with other properties, the sheer volume gives us more buying power with vendors which is good for price breaks as we scale upwards. An investor going it alone will have a hard time keeping their operating costs under control without such scale.
2) Underwriting & Acquisitions: We have a team of people that do everything from vetting a market to working with brokers to lock up off-market deals. After we negotiate the deal, the team will handle the due diligence, financial underwriting and value-add plan post acquisition. Keep in mind that this is just on a single deal! There is a lot that needs to happen and there are teams of people dedicated to getting that property to perform.
3) Access to Financing: Because we spend a great deal of time cultivating the relationships I mentioned, we work with many lenders to line them up with the right deal. Not all lenders are a fit for every deal. We spend a lot of time getting to know our financial sources and make sure we give them deals that they want to take on. This could be lining up additional capital for a rehab, doing a refinance or restructure, or even deals in excess of a given dollar amount, we handle all this.
4) Marketing for Private Money: When you are handling OPM (Other People’s Money), this requires a lot of expertise along with financial and legal resources to get it handled. We handle the creation and distribution of the PPM (Private Placement Memorandum) and it is designed to ensure that that everyone involved is aware of the risks – like what you sign when you take on similar investments.
5) Investor Management: When we are working on small deals with a handful of investors or a larger one with dozens of investors, managing and servicing the infrastructure is very time-consuming. They need to be updated on a regular basis – starting monthly for the first 6 months then quarterly afterwards. While we have technology and management in place, it still requires a team to 24 multifamily deals concurrently.
6) Risk Reduction: First, when you are investing with other investors in our deals, the investment risk is distributed to all the investors. This allows you to adjust your investment to a comfortable risk level. Secondly, we are the legal buffer for the capital investors. We as syndicators take on the responsibility of the liability involved in daily operations while handling legal issues, if they arise.
7) Construction & Rehab Management: The great thing about multifamily apartments is that the value is primarily driven by the NOI (Net Operating Income) not by property comps. Forcing appreciation by making physical and operational improvements can drive valuation and, in some cases, add tremendous value. To do this right, you need to effectively manage contractors and get them to focus on what is in the post-acquisition plan. This one thing can make all the difference in making bank or losing your shirt.
As I said before, I really like syndication because it helps everyday investors pool their money together to get into good-sized deals – and reap all the benefits afterwards. Are you syndicating deals? What are your syndicators doing for you? Let me know. Leave it in the comments.