Reasons why syndication fails: stories

[John B.]

Hello,

I would be interested in starting a thread where more experienced investors can share their real life experience as to why a syndicated deal they participated in (or not) ended up failing, and by failing I mean not even returning the original capital to the limited partners. I am new to this and I am mostly reading about success stories, so I'm trying to look at the other side of the fence and learn from past failures. Some example of what I am just speculating (since I have no experience) could be failure stories:

- The property was over leveraged

- A larger than expected market downturn caused the economic vacancy to skyrocket, and the debt service couldn't be covered

- The sponsor failed to execute the plan of improving the NOI (why?)

- The mortgage on the property was an interest-only one in order to make the COC reasonable, although by the time the IO period was over, a sell strategy didn't materialize and the increased mortgage wasn't sustainable

- The sponsor was a scam (how?)

- The mortgage was too short and by the time the balloon payment was due, a sell strategy didn't materialize, maybe because the exit cap rate in underwriting was aggressively too low

- After stabilizing the property, it was refinanced in order to partially cash out investors, however the refinance was too aggressive and the NOI ended up not sustaining it?

Thanks!

[Mike Dymski]

A little off topic...  The most important things that good syndicators have to loose are their investors, their reputation, and their self-respect.  That's why I invest with people and the property is secondary.