Any LP investors on here?

Question

I'm looking into investing in syndication deals and I wanted to see if there are any experienced passive investors on BP that would be willing to chat. PM me if you'd be interested in connecting.

Salem VanderStel · Answer

@Rick S.

1. Not with a traditional multi-family, value add, secondary market play.  Teams that are doing above 8-10% would typically be over-leveraged.

2. The effect on your return will range from negligible to significant depending on how the deal is underwritten, assuming you are working with an experienced team.  For example, if the property has a sub 70% LTV loan in a high cap rate market, 30-50% of your return would come from cash flow.  Because so much of your return comes is derived from income - which is inherently much more stable the property values - your total IRR would still be over ~12% if you sold at peak 2009 cap rates.  In practice, however, the operating team would likely choose to hold 1 or 2 more years when cap rates normalized to some degree.  Conversely,  if the property was underwritten more aggressively and leaned heavily on appreciation, a sale at peak 2009 rates could cut your target return significantly.

In summary, the trade off for lower cash flow can be a group that operates more conservatively with a low LTV ratio, ample cash reserves per door, underwriting to rising cap rates, and 40%+ of return deriving from NOI, all of which will mitigate the effect of a downturn on your total return.

Best,

Salem

Spencer Gray · Answer

I'm in the same boat as @Lane Kawaoka , we participate in some deals an LP and some as a GP/sponsor depending on the deal and the co-sponsor/operator. Both have their advantages; an LP can be totally passive while being a GP usually has more upside potential but carries more potential risk as well.

@Rick S. 12% cash on cash isn't unrealistic but hard to do in the first first or second year. I like to see at least 8% cash on cash in a B class MF deal of 200+ units and would expect higher if there is a interest only period of more than 6 months. If there is a major value add I would like to see the property cash flowing in the double digits by year 3-4.

As far as a market downturn it depends on your specific market and where/how the asset is positioned in the market in terms of location, quality, target demo, and the type of debt that is in place. A property with strong cash flow, positioned in an area with expanding demographics,  can weather most storms (especially with low interest fixed debt).

Gavin Tam · Answer

@Antoine Martel I hope so too! Open to different markets - will depend on the syndicator/deal.

@Michael Dang I'll PM you.

Antoine Martel · Answer

Gavin.

There should be many syndication investors on BP and I hope that you can find them.

Where were you looking to invest?

Sam Grooms · Answer

Similar to a few others here, we're on both sides of deals, GP and LP.

We've invested locally as LPs, and on sites like RealtyShares.

We did this mainly as a learning experience, to get into the GP side.

Todd Dexheimer · Answer

12% on your cash is realistic, but not up front. In our purchases we are typically not targeting 12% until around year 3 or 4. In years 1 and 2 we are going to be seeing under 10% because we are completing a value add, thus making the cash flow, especially in year 1, less. Overall our projects are expected to return between 16-18% IRR, with a good chance of much greater upside.

As for a downturn. We underwrite for a downturn and always base our numbers as if this market is the top. Depending on the degree of downturn our investors should come out ok. If it is a really bad downturn, then we may be paying smaller returns and holding the property for a longer period of time.

Just make sure that whomever you invest with understands your concerns and is being conservative in their proformas.

Rick S. · Answer

I also am considering investing as an LP in MF synications, and have a couple questions...

1. My goal is to earn 12% on my cash. Is this realistic with a syndication at this point in the cycle?

2. If the market takes a downturn, what would happen to my return/investment?

Nick B. · Answer

@Gavin Tam, I invested in 5 large apartment syndications with 3 different sponsors. What questions do you have?

Any LP investors on here?

Most Popular Reply