Vetting a GM in a syndication Deal

[Ariel Gonzalez]

I've heard many horror stories from limited partners about the general manager they partnered with to do a deal and I noticed some commonalities in each story:

- Not following through with business plans

- Lack of communication

- Lack of accountability

I know LPs look for experience above all, but are there any other criteria that you look for in a GM that helps when getting into a syndication deal them? 

[Evan Polaski]

@Ariel Gonzalez, I will also note that while there is a lot of very sound advice being presented here, including my own comments, none of this is actually measurable.  

As I note, track record.  Is 10yrs adequate?  Is 15?  Does it need to be 30?  Each investor will be different, but I don't think anyone will argue that more experience is WORSE than less.

Same with Conservative Underwriting.  This topic is always brought up on these forums and touted by syndicators.  But no one with half a brain would ever market themselves as "and we get very aggressive with our underwriting".  But what is conservative underwriting?  Is buying at a 5% cap rate today conservative, or is it an 8% cap rate?  If the 5 cap deal was an office tower in Hudson Yards, Manhattan is that better than an 8% cap rate on a 70's built multifamily in Class C area of DFW?  Is 4% rent growth conservative if CoStar is projecting 6% rent growth for that market for next 5 yrs?  2% would be more conservative, but who is to say one is right or wrong.

All of this comes back to what syndications really are: marketing.  You can market yourself and your deal as just about anything you want.  

"North Carolina has increasing supply, so rents are falling today.  Which is why it is a good time to buy.  Once the current glut of new supply is absorbed, there is nothing in the pipeline, creating a 3-5 yr window of lower competition.  So with population growth of 50,000/yr forecast to come in for the next 5 yrs, and only 70,000 new units being delivered, we are buying for a long-term hold based on the future fundamentals of the market.  Once the new supply is absorbed, and we are seeing rent growth again, which supply and demand is all but guaranteeing, not only will our project benefit from stronger rent growth, but also appreciation will accelerate as more buyers will come in helping drive up prices."

Alternatively, (and I don't know Milwaukee):

"Milwaukee is a great place to buy.  Population growth is remaining strong, and since this was not a "hot" market in the last run-up, there is limited new supply.  Being more affordable than the southeast, allows us to get in with a better basis and potential for growth as more people seek out affordable places to live with strong lifestyle amenities, and convenient travel available: major industries, all major sports, Delta Hub airport."

It really comes down to creating a message about you, your company, your deal that resonates with potential LPs and then spreading it widely.