Best sponsors for syndications or funds in MFH or Industrial?

Question

Hi BP Members,

I am in research mode on the best sponsors! Appreciate any help you can provide.

Looking for a focus on MFH or Industrial with a sponsor that has a 15 year + track record. This is critical as I am seeing many syndicators who have set up and had success in the past 5 years but I'm looking for a sponsor that has those battle scars!

It seems 8% preferred with an equity split on exit is achievable.

I have spoken to a few companies recently and been put off by some who have been set up in the past 5 years, only made a few exits and yet currently have in excess of 30 syndications and looking to add more with business model that has aggressive underwriting . More power to them but I don't want to be the one holding at the end if there is a strong market adjustment.

Appreciate any insights or recommendations for quality sponsors to research.

Thanks

Marc

Andrew Tripp · Answer

Tough for individual investors (under, say, $100,000 minimum investment, maybe higher than that even) to get into quality industrial funds/deals, especially right now.  For one thing, there just isn't as much true syndication in this sector in general because the overall market is so much smaller.  The Class A stuff is virtually all institutionally owned in some fashion or another.  And pricing there is making the investment managers push into Class B product, which is squeezing pricing on the product where syndicators catering to HNW individuals would normally be operating like they are in multifamily.  And when pricing is tight, its hard for a true syndicator like you would see in the multifamily sector (as opposed to an institutionally-backed PE fund or an investment advisor repping a sole institutional source, which are more common in industrial) to compete.  Throw in the public REITs, and you have an incredibly competitive environment in the primary, secondary and now even tertiary markets in terms of how much raw capital is out there chasing deals.  You can find local operators doing Class C (and some hairier Class B) deals, but I don't think they are going to fit the profile of what you are looking for.  And there is ton of competition there too.  Seems to be a river of 1031 money flowing into those assets from individual investors.  I agree with others, Ashcroft is what came to mind for me too.

My other theory is that there are just aren't as many value-add type deals in the industrial space either, which is really where multifamily syndicators shine.  The risk profile of a value-add industrial deal of any size makes tackling it with a pool of individual investor money really tough in most markets.  You need some deep pockets and patience to take down a building with a 100,000 sf vacancy, put in $3-$4 in capex improvements and a 6% brokerage commission to get back to market.  And if you look around on the crowdfunding platforms that cater to individual investors, it's no accident that is mostly multifamily (and, until recently, retail) product.

If you have the stomach to invest in a development deal, you do see pitches from smaller shops available to individual investors pretty regularly. Finding them is the tough part. Some really nice returns available, and that is going to be a much shorter turnaround on exit. But, that much riskier too. And developers generally aren't fiduciaries either. So you have to shop carefully.

Marc Cohen · Answer

@Petro Barchuk I’m reading it now. Really like it so far and am in talks with Praxis. They seem legit.

Ashcroft seem good but are only 5 years old so all their experience has been in this hot market. They have a huge number of deals in play so that also makes me hesitant. Will keep you posted

Petro B. · Answer

MAG Capital Partners has an interesting niche - industrial sale leaseback transactions.

Ian Ippolito · Answer

@Marc Cohen, Despite what some people are saying on this thread, those type of sponsors do exist (and you can often get in is at as little as $50,000). They are much harder to find than the less experienced, more aggressive sponsors (who are a dime a dozen and together put out 100+ new deals every month).

One potential challenge in finding them is that if they are that old they were around before crowdfunding. So they typically still operate under those same older sections of the law which prohibit them from publicly soliciting.

But if you private message me directly, I can give you a couple in multi family.

Ronald Rohde · Answer

Leaseback is always tough though, I question the strength of the Seller, I've seen and passed on a few deals with no deposit, no guaranty on a 3-5 year leaseback where the operator has little incentive to renew. Thats just a cashout for the owner who wants to retire from RE and the business.

Petro B. · Answer

@Marc Cohen I'm with you, experience and track record in different market cycles are critical. As the good old saying goes, everyone is a genius in a bull market. It does look like during the last 7-10 years there have been an explosion of the new players in the field. I myself have been looking for ways to allocated capital through syndications, so would be interested to see the recommendations.

Praxis Capital - Brian Burke's book "The Hands-Off Investor" was great.

I've also head some good things about Ashcroft Capital.

Lane Kawaoka · Answer

I would try to build relationships with pure passive investors.

"sponsor that has a 15 year + track record." if they had this they would be more institutional which means more acquisition fees, worse LP splits, and 100-250k mins.

Marc Cohen · Answer

@Ian Ippolito thanks will connect now

I have had many opportunities with the bigger funds and the minimums have been fine. The challenge is the returns are lower - the trade off v less risk.

Marc Cohen · Answer

@Ronald Rohde Thanks. I have had some opportunities with bigger players and great conservative option but unfortunately not the level of return. Market so high that eats their margin.

I did just complete due diligence on a great opportunity with Praxis Multi Family Fund. Seem like a good outfit so looking forward to seeing how it goes.

Now just looking for Industrial but like you say in this space not many mid market syndications or funds.

Ronald Rohde · Answer

I would be in the 5-10 year camp, but in my experience, the "old hands" with battle scars are not needing to raise any money. I'm not sure how much capital you'd commit, but they probably wouldn't entertain less than $50-150 million. So you're stuck with 5 year performers and maybe single asset deals vs. open funds. What about just prologis or REITs?

Best sponsors for syndications or funds in MFH or Industrial?

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