MHP and Self-storage Syndication

[Thomas Donnellan]

Hello All,

I would like to thank the community for all of the research/help I have received in the past few years. This site is an absolute resource for a newbie like me. After MUCH research and deliberation, I just invested with Ashcroft Capital(Joe) on their latest deal, and I am looking to expand my investments in syndications. 

I am currently looking for income replacement and focusing my future investments on cash-flow- which has led me to self storage and MHP. I have search the site relentlessly the last few weeks and have narrowed my search down to a few experienced sponsors. Realizing that a post like this is blood in the water, I'm wondering if any experts out there could recommend a sponsor that they have experience with, with a proven track record to boot. I thank everyone in advance for their help. 

-TJ

[Bryan Hancock]

I have had conversations with Praxis and Jeremy Roll and based on the little experience I have with both they each seem like good options.  Jeremy was very involved in FIBI on the west coast when I was dealing with him.  Brian is arguably BP's best poster and his posting history and track record speak for themselves.  

Seasoned sponsors are more likely to have funds and this is generally a signal that their capital formation process has matured to the top of the heap.  What happens when there is a lot of capital chasing a sponsor and it is continuously being recycled is that the pursuit costs and timing are minimized such that the lag between when capital is put to use and when it is raised is rather short; so short that it makes more sense to just raise it in a fund.  This is a signal that the sponsor isn't worried about sitting behind a pref to source quality deal flow.  It also aids sponsors in moving quickly and bidding strongly on the buy-side, which can create better deal flow because various forms of distress opportunities require both certainty of close and a quick close.  A lot depends on the asset class and how the deal docs are written so there is subtly and nuance here, but in general if a sponsor has successfully raised a sizable amount of money into a fund it probably means that other investors of an ilk equal to yours have validated this is a good risk-adjusted bet.  That's not relieving you of your need to adequate diligence on your own, but it can be useful in screening.  

Syndicated assets are often fine too.  Some sponsors are looking for once-in-a-lifetime investments and are seeking to deploy limited capital optimally.  Others are more merchant developers or serial deal-doers who impute a lot of value through their effort and are looking to beef up fees in trade for their time.  Builders and developers come to mind here, but this arguably applies to apartment syndicators as well as other types of investments.  

From an investor's point of view there are a couple of things a fund offers that you're less likely to get through a syndication.  The first thing is deal diversity or so-called "diversification" because your dollars are spread over more assets.  The second is likely some temporal dispersion because various vintage products are purchased at different times in the fund.  There may also be some small tax advantages as well, but in my estimation these aren't generally a big deal.  

Syndicated assets in theory offer you the ability to underwrite actual projects, but this assumes that you can actually add enough value for it to matter to net out your zero returns while you're placing capital. If the capital sits idly for X months or years looking for the "20% IRR" deal you need to account for this idle time in your overall return calculations. Almost all investors I know are also exceedingly bad at underwriting sponsors. To do it well you need very specialized expertise in abstruse things like capital account accounting, internal controls risk, cross collateralization, contingent liabilities, deal carve-outs, and many systemic risk patterns that by definition are impossible for the sponsor to design out without paying to pass this risk to a party who would charge more than the risk indemnification would cost.

The best thing you can do is to be diligent, learn as you go, and limit your investment with a sponsor.  As they prove themselves you can invest more with them, but be careful to not have too much concentration risk.  All sponsors are likely to be hard chargers focused on their business or career and thus are subject to divorce risk, leverage issues, ego problems, etc.  

There ain't no such thing as a free lunch.  Buyer beware.  Best of luck to you.