Why I Would NEVER Invest with a Celebrity Owned Syndication

[Jared Prevost]

It seems like every real estate celebrity has a syndication these days. It's not for no reason - acquisition fees alone on a $10 million dollar fund can make the general partner $200,000 without having to put money into the deal (to be fair, they may have to guarantee the loan and pay for due diligence and soft costs).

Real estate celebrities have the audience, brand recognition, and trust of real estate investors. They also have the budget to make a beautiful website, put together wonderful marketing assets, and record high-quality videos. The result is that celebrities can raise a lot of money for their deals, as a passive investor this is a red flag. Easy money isn't diligent money.

I won't name any groups, but I've met people who have worked with celebrity-owned syndications and worked for one myself and I'll share the risks I've experienced (especially true for fund models).

1) Looks vs. Performance - You'll see many celebrity groups buying class-A apartment complexes or new developments because it's flashy, sexy, and elevates their personal brand. However, these types of assets tend to have lower returns and be more subject to rent risk in a market decline.

2) Excess cost of capital - Having the capacity to raise capital is great, however, you then HAVE TO put that capital to work. In a fund model, the syndication group cannot afford to pay preferred returns on cash, the capital must be deployed into deals. The issue becomes having the team and management capacity to locate, underwrite, negotiate, and execute the due diligence. Personally, I've seen groups buy terrible deals just because they had the money to spend.

3) Uninvolved Visionaries - True story, you can have conversations with celebrities running funds and they may not even know what assets they own or have in the pipeline. These are the same people on the Instagram and YouTube videos talking about their investing philosophies and how they locate and analyze deals. P.S. they may also brag about how little they work.

Here are my two cents. Searching for an operator you can trust and will get good returns with is a lot like looking for a good vendor. The vendors that have amazing marketing budgets and campaigns and are name-brand will probably overcharge and underperform. However, if you can find a vendor that is known locally, has a lot of experience, and actively runs the business themselves, that's when you're going to get a great bang for your buck and know you're being taken care of.