Starting a Multifamily Investing Fund vs Syndication Deal by Deal

[Dan Handford]

Our group has been syndicating deals one by one with much success. However, I’ve been noticing many experienced (more than a decade) doing deals via a fund model with multiple assets.

Anybody on BP have experience or opinion on the fund model vs syndication?

[Brian Burke]

I've done several funds over the years and found them to serve a need for both the sponsor and investor.  Having said that, over the last decade or so most of my offerings were single-asset syndications up until a couple of years ago.  Then I was doing them in pairs--essentially doing mini-funds that acquired two assets instead of one.  Most recently I've shifted to a fund model.

From the lens of the sponsor, the reasons for my shift were threefold.  First, my syndications were over-subscribing within hours, so even longtime investors who participate in every deal were getting shut out if they weren't watching their email for a couple of days.  Second, our off-market deal flow is increasing, allowing us to acquire more assets in a shorter period of time than if I were relying on marketed deals where you can only find one good one every couple of years.  Third, having committed capital puts us in a better competitive position as buyers, removing the uncertainty surrounding equity sourcing that causes a lot of sellers to choose buyers that have capital at-the-ready.

Despite the advantages, timing our shift to a fund model was very important.  I waited until I had robust enough deal flow and a large number of investors (I've raised over $100 million) before going that route.  Reason being, investors don't want to commit capital that is just going to sit there and not get used by a sponsor that doesn't have deal flow.  And most importantly, a fund model requires the investor to trust you a heck of a lot more because they don't get to underwrite the properties themselves.  They have to trust that you only bring good deals and won't spend their money carelessly.  That is an enormous hill to climb which is why you've noticed only the most experienced sponsors using the fund model.  One thing I've learned over the years is that raising for a fund is much more difficult than raising for a single asset.  But it's a much more powerful vehicle for both the sponsor and the investor when properly executed.