Syndication Sponsor Shenanigans

[Andrew Sol]

My Dad is currently invested in a few syndicated multifamily deals, and one of them is stabilized and ready to market. 

Instead of selling it, the sponsor has decided to "recapitalize the property with new equity and debt amount".  Basically, he's doing a cash-out refi, distributing the proceeds, and plans to "exit" the investors from the deal (calling it a recapitalization). The Operating Agreement is silent on this process and says nothing about exiting upon refinancing, only upon dissolution of the fund after the assets are liquidated.

The sponsor is keeping the remaining 20% equity (after the refi) for himself. The annualized COC return on the deal is over 20%, so no complaints there. But if it were a sale, or true recapitalization, the investment proceeds would double that.

Does the sponsor have any justification or precedent in doing this, if it's not described in the OA?  He believes he does, but gives no details.  He's asked for a signed “assignment of membership interest” form, before distributing the proceeds from the refi.  Most of the investors, I believe, are Mom and Pop types, and don't know any better than to give back their interest.

I don't want to burn bridges with the sponsor, but I'm not willing to give up the significant $ that the OA entitles me to.  Any helpful thoughts or insights?  Is it time to contact an attorney?