Raising private money in a syndicated deal

[Ryan Franklin]

Hi guys...I'm putting together my first syndicated apartment complex deal and I have questions regarding raising private funds in conjunction with bank commercial mortgage lending.

For these questions assume I have already analyzed and put together a deal package and sent it out to investors.

1.) Say I have enough committed investors to fund the deal. At what point do I take their money? I imagine I wouldn't take the money until I have the deal under contract, but what if I need to show proof of funds before I can get the deal under contract?

2.) If I don't take the money until after I get a deal under contract, I assume there is a high likelihood that one or more investors might pull out of the deal leaving me short of the required capital. Do I "overbook" commitments to guard against this type of scenario - and give precedence to the people that committed but get left out of the deal in my next deal?

[David Thompson]

Hi Ryan,

You should always raise about 20-30% more than you need in a general raise.  That can be adjusted a bit depending on # of investors and size of any one commitment.  Ex. with a big investor you should make sure that money is good or your buffer may even be higher than 30%.  The deal should be awarded and under contract.  The due diligence phase commences ~ 60 days before close.  This is the time frame where you have put together an investment summary of the deal to share w/prospective investors and start your raise.  You will be creating a PPM (Private Placement Memorandum) eventually and that will contain the offering, risks, partnership agreement, subscription agreement.  Investors review / sign then fund..all well before close ideally.  Make sure you seek legal counsel on the end to end process and the PPM as you are offering a security when raising capital from investors. Understand the rules and talk w/folks that have done syndications.

The lending piece, we have our lending in place before we have all the money from the investors that way the investment summary and the PPM will contain the loan type / terms / rate, etc.