First syndication as an LP

[Evan Loader]

Just wired the $ for my first syndication as an LP. It is a 200 unit stabilized apartment, with some small value add, but the main focus is getting utility costs in line. Nervous yet excited. Did extensive DD to ensure the numbers were correct, the sponsor had everything in order and the deal was solid, so that keeps the worry at a reasonable level.

For those who have participated in one, how did you feel after you sent the money? What were your expectations? How did the first year or two go?

[Spencer Gray]

My group of investors and myself have invested in over 30 syndicated real estate deals spread across over 8,000 units as both a totally passive LP as well as an active co-sponsor. 

As an LP, it sounds like you've approached the deal in the right way, thoroughly vetting the sponsor and stress testing the deal, the proforma and it's underwriting assumptions.

In my experience, the underwriting assumptions are exactly that, assumptions. No one, even the best operators can predict the future or what you will learn once you have acquired the asset. 

Anything can happen, I've experienced multiple fires, extensive water damage, major tax reassessments, etc. It's all about the strength of the team and the headroom of the deal. 

Because of this I always recommend doing multiple deals to diversify so if one deal can't distribute or is under performing, you have several others that are.

I've found that the first year or two, especially in a value add deal, comes with bumps in the road. It takes time to get the right staff in place (high turnover is common) to execute on the plan and for the machine to be finely tuned to perform. Don't be surprised if vacancy and expenses spike.

Some of our deals that have been poor performers in their first year or two become the best performers after some figuring out. Be patient. That doesn't mean to not ask the hard questions, but understand it's a process.

I hope this helps and feel free to reach out if you have any questions.