Syndication refinance question--what happens at this event?

[Travis Doyle]

Hi guys!

I want to thank the very many kind, knowledgeable people here on BP for all the help. I have a quick question. If I raise money through syndication. Let's say 100k purchase with a holding period of 3-5 years. We cut ourselves 30% equity in the deal. At the end of that holding period, we refinance after the property is worth 200k and take 150k out. We dish out cash flow pro-rata during the holding period.

2 questions:

1) What does the cash return at the refi event look like? Who gets what? I assume we just split the 150k by equity ownership at that point? i.e. I take 50k for myself and the other 70% get 100k.

2) What about the remaining 25% equity left in the property? What does the sponsor do with it? What is the industry norm for this? Does the sponsor usually buy them out?

What essentially happens after the refi? I would think a sale closes the deal, but it seems that a refi keeps it open indefinitely?

[Anthony Chara]

Hi Travis, your Operating Agreement defines how the money is split. You could give a % of the refi money back to the investors and let them keep their ownership stake or you could have the OA written in such a way that you pay off the investors with the refi and remove them completely from the project, thus, leaving you with 100% of the deal. Or, anything in between the 2 scenarios mentioned above.

As @Jay Hinrichs wrote above, nothing is written in stone until you turn it into stone in the OA.