Kansas City Syndication: First Investment, Need Feedback

[Chris C.]

Hi BP,

I am considering investing in my first syndication, and was hoping to get a sanity check on the numbers from those with experience. Here are the highlights:

• 100+ unit multi-family in Kansas City
• Total acquisition cost is $7m: $6.35m purchase price, $400k reserve and immediate needs (for unit upgrades), and the balance for loan fees, closing costs, attorney fees, etc
• It’s a limited partnership, where general partners take 1% acquisition fee, 2% asset management fee(of gross revenues), and 2% of gross proceeds upon sale
• Investors are paid 100% of cash flow until each has received 7% compounded annual return, then the GPs take 20% of total net profits distributed to investors, followed by 80/20 investor/GP split until each has received 12% return
• Upon sale, investors get 100% of investment returned, then the GPs get their 2% of gross proceeds, then investors get 7% compounded annual return, then GPs get 20% of net profits distributed to investors, and finally there is an 80/20 split for investors/GP

I am still doing my due diligence on the GPs, but so far it appears they have a good track record. I also like to story and economics behind KC and this particular property.

Would appreciate any thoughts on the numbers, fees, splits, etc and also on the KC market generally. Also, are there any other watch outs that I need to be careful of for this first (hopefully of many) investment? Thanks!

[Seth Wilson]

Hi Chris,

I am not sure what the investment plan is here but I am concerned about the price. I personally syndicate in KC (We buy undervalued apartments and and turn them around to the middle class renter) with a PP of $6.35MM it seems really steep to me for 100 units (I see your '100+' but I don't know the size). And probably won't cashflow well. Just a couple weeks ago I purchased a multifamily for $33,700/a door. Almost half of what this syndicator is purchasing the property for. But once again I only buy turnaround deals with large upsides.

So far as the fees, they seem in line with the standards. Everyone, myself included, have slight variations. What is your total IRR? If it isn't at LEAST 15% please message me, and we can discuss.

I am sorry to circle around back to this but I feel that the KC market is nearing a top if it hasn't already. With such a high purchase price and low cash flow this syndicator might be painting themselves in a corner.

Let me know if you have any more questions.

~Seth