Syndication vs traditional financing - dumb question

[Travis White]

Dumb question incoming - 

Why would a lead/sponsor investor opt for syndicating a deal vs accessing traditional lending? It seems like I'm hearing syndication deals offering passive investors a return of 10-20% and traditional financing for an apartment complex can be had for 8-14%, so why not go with the cheaper money?  Clearly, I'm not wrapping my head around this in the right....educate me, please! 

[Brian Burke]

@Travis White this isn’t an either/or situation, you are talking about different portions of the capital stack.

Traditional lending rates are actually between 3% and 6% for the most part depending on the LTV and type of loan. So certainly it's desirable to obtain financing. But you can only get financing for 75% to 80% of the purchase price, or in some cases purchase price plus rehab cost. What about the rest?

Syndication is typically used to fund the equity portion. In simple terms that’s the down payment, closing costs and rehab (or portion of the rehab that the loan won’t cover, as the case may be).

So it is not that syndicators are going without conventional loans, instead they are going without their own cash, or less of their own cash, to close deals. You can’t get conventional financing for that part.