How often do LPs try to exit syndication offering before sponsor/GP exit?

Question

I would like to know how often LPs try to divest from syndication prior to the GP/sponsor exiting the syndication.

I would like to get responses from multiple GPs/sponsors. i am trying to gauge the usefulness of a service that I think will not have much demand.

Thanks

@brian burke

@brandon turner

@paul Moore

@tyler cauble

@brian murrat

@Dave Van Horn

@jay Hinrichs

@andrew Cushman

@matt faircloth

@liz faircloth

Brian Burke · Answer

If you mean "how often do LPs try to sell their positions," I can count on one hand all the ones I can remember, and that's over more than two decades, $400 million equity, and well over 2,000 investors.

If you are thinking of creating a secondary market of some sort, you'd be the third person in the last 5 years that I've talked to and answered this exact question.  Haven't seen the other two come to fruition...or if they have, I haven't found out.

Demand might be really high right now, but it would likely be dominated by people trying to find someone to pay the full contributed capital for worthless positions in failed deals.

Evan Polaski · Answer

@Dan Heuschele, sounds like you got your answer, but over 5 years of actively working with over 4,000 LPs, my experience aligns with Brian's.

I am sure, as of today, the number of LPs that want out of deals going south is probably much higher than leading into this correction, but unfortunately, if you want out after there is already a scent of blood, the chances of finding a willing buyer at anything more than pennies on the dollar is probably slim to none.

That being said, I know Cadre runs their own secondaries platform.  There was a group trying to get off the ground maybe 2 yrs ago.

If this is the route you were looking to go, if you wanted to be compensated for it, you would need to become FINRA licensed, since you are effectively being compensated for the trading of securities.

Chris Seveney · Answer

@Dan H.

Most GP’s don’t allow it, especially for accredited investment offerings because the purchase must also be accredited

We have a reg an offering and have a death and disability clause that gives an out and have had one case where this occurred at of 700+ investors.

As someone else mentioned, you would essentially be setting up an exchange which would require finra licensing and the licensing costs alone would make it cost prohibitive

Dave Van Horn · Answer

I agree with Brian, it's a rare request and I can't think of many instances of seeing it in the last 20+ years of working in funds and syndications.

Expectations are set up in such a way that most investors don't expect they're able to do this. It's more likely to happen when you're just retitling (i.e. in the event of death, divorce, etc.) or if you were bringing a prospective buyer for your share.

Scott Trench · Answer

Really hard problem. Fractional investing and marketplaces are really really tough. Properties can’t be continuously valued so you have a really hard time providing transparency and avoiding insider trading. You need enough supply/demand to actually create liquidity. Fees can’t be too high. Tax treatment on short term stuff is an issue.

Ameet Mehta · Answer

Finally someone who wants to know this. You see LPs exiting syndication is very uncommon because they typically invest with the understanding that their capital is committed for the entire duration of the investment period, which is mostly outlined in the offering documents at least all smart sponsors do that. In fact everyone knows that real estate syndications are illiquid.

That said, I have witnessed just once that a limited partner exited a real estate syndication before the sponsor could execute their exit strategy. The limited partner privately sold his share to another investor in the syndication but at a 35% discount. This was just 2 years before the original exit plan of the GP. Yeah, so, on rare occasions LPs try to exit syndications but this is possible only through the GPs approval and that all parties involved are on the same page. Additionally, new contracts and paperworks are made to ensure transparency but that’s another tedious task if you ask me.

Nate Marshall · Answer

Sometimes they don't have the funds on hand to return to you. People need to do a lot more diligence than they do. Hoping maybe someone will create something with AI that can look at various sponsors and operators. Even if it has to be built abroad to avoid some of the legal risk that has. But has to happen.

Lane Kawaoka · Answer

This is a good idea someone should work on this with the downtime in the low transaction market.

Dan H. · Answer

Your experience matches my expectation.  I was curious if my belief was somehow erroneous.

Thanks for replying and confirming my belief.

How often do LPs try to exit syndication offering before sponsor/GP exit?

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