Real Estate Syndication-Best way to find investors?

[Dan Krause]

Depending on what kind of syndication you choose and what role you could play in such a deal-what is the best marketing tool to get investors for a syndication deal? Anybody with experience doing syndications? How many members do you have in your syndicate? Thanks, Dan

[Don Konipol]

There are a number of different kinds of syndications, and a number of different ways of categorizing them. I currently am general partner of two limited partnerships, each operating as a blind pool mortgage fund. The first one has 35 limited partners and contributed capital of over $10 million, the second 21 limited partners with contributed capital over $5 million.

You have to be careful in syndicating to make sure you comply with all aplicable securities regulations - either federal, state or sometimes both. The regulations are complicated, full of registration requirements, exemptions from registration, and restrictions on who can be an investor, who can be solicited to invest as well as type and method of solicitation.

The simpleist syndications are the ones with maybe 2-5 investors, all having previous relationships with the syndicator. These can be put together with maybe $1000 in legal and entity forming fees. Moving up the ladder as to number of limited partners, amount of capital raised, etc gets more complicated and expensive. For a private syndication raising up to say $20 million with 35 limited partners in one state only, legal fees would run about $10,000 on the low side to $25,000 on the high side. Marketing costs can run a couple thousand on the low end to $50,000 - $100,000 high end. the low end would consist of website, email, talks at seminars, writing articles, etc. The high end would include lunch seminars, targeted direct mail solicitations with expensive brochure/book, in person meetings with potential investors at those investors locations, referral fees, possibly salary for marketing person, travel expenses, hotel suites in different cities, etc.

The market for fund raising for private syndications has become much more difficult in the last two years. Much less capital is being invested, and the investors that are still investing are subjecting the syndicators to much greater scrutiny. Investors are hiring private investigators to obtain information on the syndicators before they commit to any large investment amounts. They expect the syndicator to have a successful and verifiable track record record in real estate deals and not have any negative information (legal issues, bankruptcies, credit) associated with them.

Even experienced syndicators with good track records are able to raise considerably less capital today than in previous economic environments.