Returns with syndication

[Rafael Esteves]

Hey friends,

I am wondering how large syndicated properties make the profit they do. In deals supplemented by a bank loan, many investors look for a 10% return or more; however, this return is only possible because they are financing 80% of the property with a fixed low interest rate loan. 

In syndication deals, many LPs are guaranteed between a 5 and 10% return and the GPs are still able to make money. This means that on these large deals there would need to be a high return without utilizing any leverage. How is this possible? Is the markets for commercial properties just that profitable or am I misunderstanding something?

Thanks 

[Sam Grooms]

Hi @Rafael Esteves. First, I doubt many GP's are "guaranteeing" a return. Most of them are equity syndications, and that would be illegal. 

Second, most of the current multifamily syndications aren't buy and hold projects. They're value-add 3-5 yr deals. Basically, it's a multifamily flip. You wouldn't ever compare SFR rental returns to an SFR flip. Same logic would apply here.

Even for the syndications that are buy and hold, they're driving their returns through a refinance. In that sense, you'd have to compare it to the BRRR strategy, not a pure buy a hold. Your returns are driven up by not have much cash invested in the deal after the renovation.