Syndication: BAM Captical

[Gino Hillincci]

Another question:

I was looking at BAM Capital, they were raising money last month. In a video, I heard the GP saying that "in this fund, we are purchasing some property from a previous fund" (paraphrase).  That was curious to me.

I took a call with BAM, and asked some questions about that... there is something about that practice I don't like.

My understanding is that BAM could use the capital from this current fund to improve those properties from the previous fund.  So the previous fund "created value," and can sell (back to BAM), exit, create upside for investors in the previous fund.  And the current fund could take new money, and further improve that same property, creating additional value in rents and on exit.  BAM said that by buying their own property (from themselves), they can be certain about the rents, market, etc.  Again, I am paraphrasing.

I won't invest in the current fund, because of this "selling to themselves" component.  If the first fund was doing what it should have done, there shouldn't be a lot of upside left in that property.

My concern is that BAM is "propping up" the first fund, buying the property at a level that makes that previous fund look successful (even if the current fund has to compensate for that price).  Why create this complication? Why not sell to a 3rd party, proving the value on the open market? This makes me cautious.  By selling to themselves, they could hide some flaw from the earlier fund, pass "low performance" to the current fund.  The current fund should be looking for deals that have a lot of investor upside, and if that is true, the previous fund didn't get it done, or if that's not true, and the current fund is essentially a recapitalization (without calling it that). Either the first fund underperformed (and is looking to clean that up), or the second fund is buying something with less upside than it could otherwise... that is my read.

Is this all normal/healthy? It doesn't feel right.

I don't know why they would do that? It would be so much cleaner not to buy their own buildings.

I am trying to get educated here. This is my read. I am curious what more experienced investors would say? And where you might send me to learn more as I look at places to invest.

Thank you.