Real Estate Individual Syndicators Morphing into Funds

[Duke Giordano]

Hello All,

Thanks in advance for your reply.  As someone who is knee deep into the syndicator vetting process I have come across many of the well known syndicators that are now switching into the real estate fund model grouping 2-10 deals into their own fund at least as an option.  Some still offer single deals, with the fund option.  I feel the fund model adds a layer of opaqueness to the evaluation of the deal although it certainly diversifies things.  

For those experienced LPs out there who have invested in multiple syndications what is your feeling on many of the well known syndicators offering the fund model? Are you looking into them or steering clear?  It certainly makes it more difficult to vet some of these deals in that not all the asset acquisitions are even made at the time of investment draw/call.   

What would you say the pros and cons of investing in individual syndication versus these smaller funds (not including bigger funds like MLG, Origin, Broadstone etc) but mainly talking about the smaller funds individual syndicators are offering.  There is also a tax componet where depending on the number of states this may complicate both K1 filings if there is not a combined K1, as well as, depreciation deployment/treatment across several assets in a fund deal.  It makes it more difficult to predict depreciation timing (as typically in a single deal you can expect most in year 1 if bonus depreciation/cost seg used).  

The obvious answer to the pro is diversity where the con is transparency. Would be interested in peoples experience with these deals. My inclination is to lean towards the individual syndications for the reasons discussed above, but some of the goods syndicators are switching to the fund model or at least as an option.

Thanks

Duke