506B apartment complex syndication advice needed

[Amy Lin]

Hi all, 

We have came to know a syndication opportunity which is a 506B syndication deal of an 100+ doors apartment complex in Texas. We are not credited and mainly invest in SFRs.  I have read so many posts on BP forum and tried to learn as much as I can about syndication this pass few days and it has been very helpful! 

As for this deal, there are about 10 GPs and projected equity multipler is 2.3x, 5 year fixed rate with Fannie Mea at 5.6%, 3 year IO and 1-2% pre payment penalty. It's gonna be a value-add project of a C class property. Current occupancy rate is 94% and they stated that for us to make the mortage payments to break even, occupancy rate just need to be about 65%. 

It appears that there are 6 GPs going to be doing assess management. I was wondering if that's the norm for the industry ? They said there is no single main operator, each 6 GPs have their own strengths and  will be in charge of different parts of the operation. Also none of the primary GPs have finished a full-cycle with their other syndication.

Any advice for Newbie like us? We are looking to invest the minimum amount 50k.

[Taylor L.]

Here are several questions I'd ask:

How many of those GPs are actually just acting as capital raisers (without a license)?

Who is the lead person on the team? You need an ultimate decision maker because there will be disagreements amongst the team at times, it's just natural. Decision making by committee is not effective, particularly if the committee is filled with inexperienced people.

What is the GPs' skin in the game?

Have they all done a deal together before?

Do they already own any multifamily in the immediate area? Texas is huge, with many distinct markets. Where is it specifically?

What is the age of the property?

Numbers: What is the capex budget? Reserves? Exit cap rate vs purchase cap rate?

I'd set the return projections aside and focus on the team, the property, the neighborhood, and the business plan before that. Projections are just numbers on an Excel sheet, anybody can make projections.

Red flags to me based on what you've described: 

-10 GPs: That's a lot. 

- None of the GPs have done a full cycle deal

- 6 of them doing Asset Management: really?

- C Class: I do not do C Class properties anymore, personally. Too many headaches, expensive to upgrade.

I don't like it. BP has a great book, The Hands Off Investor, by @Brian Burke. Pick that up first! There are a ton of options out there, even for non-accredited investors. Investing time and energy in getting educated is well worth it.