Track record of Syndicate

[Sanjay Bhagat]

1) Is there a syndicate/s in BP which has gone through all the 4 real estate life cycle (recovery, expansion, hyper-supply, and recession) ?

2) What is their track record of delivering what they promise to deliver in percentage ?

3) Is there a chart in BP which tracks what is promised and what is delivered since inception by the Syndicate/promoter/General Partners?

4) If yes to #3, then may I have the link for such a information from a Limited Partner (investor) perspective?

5) If no to #3, then BP should start something in those line ( My 2 cents)?

[Nathan Gesner]

Quote from @Sanjay Bhagat:

BP is not in the business of tracking syndication performance. Can you imagine how much time that would take? They have to collect the data, confirm the data, then publish the data for the public. It would also open them to liability if they got something wrong.

Syndications are tricky. Raising money is easy; managing assets is hard. If you listen to David Greene, he's hearing more and more stories about syndications struggling to keep up with their promises and a lot of investors are losing money, or pouring more money into the syndication to try and save their original money. It's a mess.

I would only invest in a syndication if the owner is someone you completely trust. Even someone like Brandon Turner is less and less involved in his syndications, so there's an increased risk that his syndications will not be run with his original values in place.

[Chris Seveney]

Quote from @Sanjay Bhagat:

BP is not in the business of tracking syndication performance. Can you imagine how much time that would take? They have to collect the data, confirm the data, then publish the data for the public. It would also open them to liability if they got something wrong.

Syndications are tricky. Raising money is easy; managing assets is hard. If you listen to David Greene, he's hearing more and more stories about syndications struggling to keep up with their promises and a lot of investors are losing money, or pouring more money into the syndication to try and save their original money. It's a mess.

I would only invest in a syndication if the owner is someone you completely trust. Even someone like Brandon Turner is less and less involved in his syndications, so there's an increased risk that his syndications will not be run with his original values in place.

 I agree. Also BP would be on the hook to verify this information. We had a third party report done for our prior offerings (similar to how a mutual fund has a third party verification report to verify the returns). 

What blew my mind through this process is how people calculate returns. I was shocked as I thought it would be very simple (which it is), but some syndicators will use funny math such as not counting fees, placing expenses on a quarterly or yearly basis when using IRR (backloading to end of year).

So even a sponsor saying historical 30% return may or may not be counting all their offerings nor has that been verified by a third party. 

This is a question you should ask if they talk about prior returns - ask them why have they not gotten it third party verified. It costs a few grand. Its not a burden. 

[Jonathan Greene]

You should not invest in syndications because it's clear you are looking for a quick way to analyze which ones are the best and that is antithetical to syndication investing. If you take lessons from The Hands-Off Investor and many people here, you want to judge the operator first and do your due diligence on them. This is what you are trying to do, but you want a chart to tell you which means you don't have the time to put into it right now to be successful.

[Evan Polaski]

@Sanjay Bhagat: the closest thing BP will offer is Passive Pockets.

I have seen several groups try this, and none have gotten any real traction, likely, for a multitude of reasons.  But the biggest one, as Nathan notes, is that it is an incredible amount of work for whoever is trying to compile this info and there very few people willing to pay for.  

Beyond the sheer volume of work and little demand, even getting consistent data is next to impossible, and the reason why results are hit or missed is the bigger reason to invest with groups.

I.e. Syndication A: currently paying "projected" distribution rate. NOI well below budget. Floating rate debt is a ticking time bomb on them. But distributions show up each month. Is this syndicator hitting targets or not? Distributions are being paid from reserves or out of syndicators own pocket.

Syndication B: Sold a deal and achieved a 30% net to LP IRR. Their NOI was 30% below projections. They luckily bought a deal at the right time in the right market, but other than that completely missed their operating metrics and projections. Is that a good deal or bad?

Syndication C: NOI above projections and budget. Business plan being executed as anticipated and head of schedule. Submarket is showing strong gentrification. Given current market conditions for sale and improving demographics, syndicator is planning on holding longer than anticipated. As such, they want to repaint, have some deferred maintenance that needs handled in next several years, and therefore pause distributions to LPs, to fund those additional improvements out of operating cash. All signs point to this deal outperforming long term, but currently no cash flow is coming to LPs. Is this a good deal or bad?

[Mackay Oakey]

The replies above provide great detail to this question, thanks everyone.

@Sanjay Bhagat, if you're looking for more info on syndications the best place to go is PassivePockets. You can find education, deals, and forums with many investors who have participated in those deals to chat with. LMK how it goes.

[Brock Mogensen]

Good syndicators will have all of this data for their business. I agree on a key metric to track is proforma vs actuals. We track that on a quarterly basis, as I think it is the best way to hold yourself accountable.

[Todd Dexheimer]

The 4 real estate cylces have been hit. We may or may not be done with the recession phase, but we certainly went through recovery, expansion, and hyper-supply. 

Reach out to each individual syndicator that you like to discuss your questions. They should be able to provide you with a track record list. Ask them if that is a comprehensive list of all deals they have been involved in. 

[Brian Burke]

@Sanjay Bhagat BiggerPockets doesn't do this, but it's sister website, www.passivepockets.com does.  They have a sponsor directory where sponsors can upload their track records and slide decks.  Keep in mind this is sponsor-provided material, not something that the site discovered through research, nor verified.  But it's a start.

While track record is very important, learning how to interpret a track record is just as important.  You could view a sponsor's history and look at the returns shown on their track record, but without context it's meaningless.  Are the returns gross or net?  Are they projected or realized?  Were the entry and exit points contained within an overall bull market?

Things to look for are how long the sponsor has been in business.  Did they suffer loss of principal during down cycles (or even up cycles for that matter).  Is their current portfolio distressed, or was the majority of their current portfolio purchased at the peak of the market, indicating that they might be in distress in the near future.  What financing structure do they use--max LTVs and loan maturities.

One thing that is especially misleading are your questions 2 & 3.  Comparing what was promised to what was delivered lacks context.  There are plenty of sponsors that projected high-teens returns five years ago and delivered in the forties three years later.  It was more lucky than good and says very little about the sponsor's abilities.  Conversely, sponsors might have projected mid-teens in 2020 and deliver a zero when they sell in 2025.  That doesn't make them bad, per se, it is just a very difficult market right now.  You'll learn more about the sponsor by learning how they handle an adverse market, and how they survive it, than by comparing projected vs actual without context.

[Nicholas L.]

@Brian Burke

and in all these requests / proposals for data and analysis, doesn't the importance of relationships get overlooked?

i haven't read your book, but i've listened to all of the podcasts you've been on, and you talk about the importance of the character of GPs.  where is that in what OP posted?  if anyone could sit down at their computer and find the perfect fund or syndication where past results guaranteed future success then no one would ever lose money.

[Sanjay Bhagat]

Quote from @Brian Burke:

@Sanjay Bhagat BiggerPockets doesn't do this, but it's sister website, www.passivepockets.com does.  They have a sponsor directory where sponsors can upload their track records and slide decks.  Keep in mind this is sponsor-provided material, not something that the site discovered through research, nor verified.  But it's a start.

While track record is very important, learning how to interpret a track record is just as important.  You could view a sponsor's history and look at the returns shown on their track record, but without context it's meaningless.  Are the returns gross or net?  Are they projected or realized?  Were the entry and exit points contained within an overall bull market?

Things to look for are how long the sponsor has been in business.  Did they suffer loss of principal during down cycles (or even up cycles for that matter).  Is their current portfolio distressed, or was the majority of their current portfolio purchased at the peak of the market, indicating that they might be in distress in the near future.  What financing structure do they use--max LTVs and loan maturities.

One thing that is especially misleading are your questions 2 & 3.  Comparing what was promised to what was delivered lacks context.  There are plenty of sponsors that projected high-teens returns five years ago and delivered in the forties three years later.  It was more lucky than good and says very little about the sponsor's abilities.  Conversely, sponsors might have projected mid-teens in 2020 and deliver a zero when they sell in 2025.  That doesn't make them bad, per se, it is just a very difficult market right now.  You'll learn more about the sponsor by learning how they handle an adverse market, and how they survive it, than by comparing projected vs actual without context.

 Good morning Brian,

I have heard so much about you that it is mind boggling.Thank you for answering to a newbie like me.

I had to read your post 3-4 time to comprehend it. Reading and comprehend are two separate entity.I am new to syndication and have never invested in it. Thank you for pointing me to Passive pockets.Thank you again for your insights on returns in bull vs bear cycles. On hind sight, I agree with you. My questions 2 and 3 are misleading while taking into context the bigger picture which you clarified.

I do not know how to track record of a syndicate. Having said that:

1) Should I hire a third party accountant to interpret the deal sponsor track record for due diligence? If yes then what should his/her credentials should be and "approximate" cost?

2) Get the sponsor accountant/CPA/CA to certify the sponsor result? 

What do you suggest?

Thank you again

Sanjay

[Sanjay Bhagat]

Quote from @Nicholas L.:

@Brian Burke

and in all these requests / proposals for data and analysis, doesn't the importance of relationships get overlooked?

i haven't read your book, but i've listened to all of the podcasts you've been on, and you talk about the importance of the character of GPs.  where is that in what OP posted?  if anyone could sit down at their computer and find the perfect fund or syndication where past results guaranteed future success then no one would ever lose money.

[Sanjay Bhagat]

Nicholas,
I agree with you to a "greater" extent. A investor in syndication invest in the person more than the deal. But in the end/exit , the deal tends to be more important.

Sanjay

[Sanjay Bhagat]

Quote from @Todd Dexheimer:

The 4 real estate cylces have been hit. We may or may not be done with the recession phase, but we certainly went through recovery, expansion, and hyper-supply. 

Reach out to each individual syndicator that you like to discuss your questions. They should be able to provide you with a track record list. Ask them if that is a comprehensive list of all deals they have been involved in. 

[Sanjay Bhagat]

God morning Todd,

Thank you for the reply. What should the "ideal" comprehensive check list include?

Sanjay

[Todd Dexheimer]

Quote from @Sanjay Bhagat:

God morning Todd,

Thank you for the reply. What should the "ideal" comprehensive check list include?

Sanjay

 I am saying to make sure the track record list that they provide is complete. You want to be sure they didn't omit the bad deals. 

[Ian Ippolito]

Quote from @Sanjay Bhagat:

1) Is there a syndicate/s in BP which has gone through all the 4 real estate life cycle (recovery, expansion, hyper-supply, and recession) ?

2) What is their track record of delivering what they promise to deliver in percentage ?

3) Is there a chart in BP which tracks what is promised and what is delivered since inception by the Syndicate/promoter/General Partners?

4) If yes to #3, then may I have the link for such a information from a Limited Partner (investor) perspective?

5) If no to #3, then BP should start something in those line ( My 2 cents)?

Hi Sanjay,

First, in case you don't know, crowdfunding deals are essentially the same as old-school syndicates ... except they are allowed to market on the Internet.

1) There are hundreds of new syndicate deals that come out every year. Most of the sponsors do not have full real estate cycle experience but a relatively smaller number do.

2) Most of these deals are protected under nondisclosure agreement. So it would be a violation of those legal agreements to post the information you are asking about (i.e. to people who had not signed the agreement).

3) I understand what you're trying to do, which is similar to how someone would approach investing in the stock market.  However, syndication/crowdfunding are very different than the stock market. 

Once you find a sponsor that you like, they may not have another deal open for several years.  And even the ones that raise more often only do so several times during the year and many times there is nothing available.

So even if you had such a list, it is not really useful in deploying money in the real world.

A more practical approach is to see which offerings are currently available and simply scan them to see if they match your criteria or not. Since you are looking for full real estate cycle experience, you will quickly be able to weed out most of them.

Then the few that are remaining you can look closer at their track record (often after signing an NDA)  to see if it meets your other criteria or not.

Good luck.

[Brian Burke]

Quote from @Sanjay Bhagat:

1) Should I hire a third party accountant to interpret the deal sponsor track record for due diligence? If yes then what should his/her credentials should be and "approximate" cost?

2) Get the sponsor accountant/CPA/CA to certify the sponsor result? 

I don't recommend it unless you can find a CPA who really understands the syndication space.  A better approach is to network with other experienced passive investors and review the offering together.  This helps you because you'll learn from the more experienced investor, and you can help the other investor by making them aware of a deal they perhaps hadn't seen.  PassivePockets is a great place to do this as well as live events such as BPCON every October.

Just as important as networking is education.  Read the forums here on BP and on PP.  Take the PassivePockets passive investing course (free when you join I think).  Read The Hands-Off Investor.

Important to keep in mind here in late 2024:  The market has been in a down cycle for the last three years.  There's no proof it's even bottomed yet.  The market isn't going to take off and leave you behind tomorrow--you have time to take this slow and learn, observe, and review offerings without making an investment until you are ready.  There's no rush.  And when you decide to act, don't put it all in one deal or even with one sponsor.  Spread your risk around because even your best due diligence won't eliminate all risks.

[Brian Burke]

Quote from @Sanjay Bhagat:

A investor in syndication invest in the person more than the deal. But in the end/exit , the deal tends to be more important.

Sanjay, this is a phrase I'm often repeating on podcasts, in my book, and here in the forums:

A good sponsor can deliver the best possible outcome in the face of adversity, and a bad sponsor can screw up a perfectly good real estate deal.  

Sponsor quality far surpasses the "deal", assuming a qualifying criteria for a "good sponsor" is that they don't buy crappy real estate deals to begin with.

Having said that, if a great sponsor is offering a deal you don't like for some reason, don't invest in it--just wait for the next one.  Conversely, don't invest in a deal you really like if it's run by a subpar sponsor.  The syndication graveyard is filling up with those this year.