Multi-Family and Apartment Investing
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
Updated about 5 years ago, 11/18/2019
Rapid Growth to 21,000 Units
Hey BP,
I recently read a story about 3 entrepreneurs in their late 20s doing syndication. They acquired 21,000 units in about 8-9 years.
My question is, how is that even possible. I know there’s a lot of syndicators on this platform so I wanted to get some feedback from that. I know this business is in no means a get rich quick plan, or easy. But, if they did it, I don’t see why it can’t be duplicated.
Any thoughts as to how they grew so fast?
#3 All Forums Contributor
- Lender
- Lake Oswego OR Summerlin, NV
- 61,901
- Votes |
- 42,081
- Posts
#3 All Forums Contributor
- Lender
- Lake Oswego OR Summerlin, NV
Originally posted by @Matt H.:
@Jay Hinrichs Irvine Co easily has highest market value. They have lots of complexes at 1M/door+ and I bet their average is over 400k/door. And that is just saying their resi market cap is top that list, add in their commercial holdings and I don't think anyone has more. Don has done real well for himself, he owns absolutely everything around here.
i thought maybe a NYC huge landlord may be at the top as well.. but Irvine is the classic case of where money is made in this game PATH OF PROGRESS.. and fore sight..
- Jay Hinrichs
- Podcast Guest on Show #222
Originally posted by @Jay Hinrichs:
Originally posted by @Matt H.:
@Jay Hinrichs Irvine Co easily has highest market value. They have lots of complexes at 1M/door+ and I bet their average is over 400k/door. And that is just saying their resi market cap is top that list, add in their commercial holdings and I don't think anyone has more. Don has done real well for himself, he owns absolutely everything around here.
i thought maybe a NYC huge landlord may be at the top as well.. but Irvine is the classic case of where money is made in this game PATH OF PROGRESS.. and fore sight..
I’d imagine one of the big nyc landlords would take it as well if u include commercial.
21,000 units is a huge achievement.
Now, I’ve been lucky enough to work and know some larger owners. The guys you want to be are the people who have most of the ownership. I’d rather be a 50% owner of 1000 units than 5% of 10,000.
Syndications and raising equity sounds great, but are a lot of work and has a lot of risk. I don’t take any equity on my rentals but do on my flips.
Originally posted by @Syed H.:
21,000 units is a huge achievement.
Now, I’ve been lucky enough to work and know some larger owners. The guys you want to be are the people who have most of the ownership. I’d rather be a 50% owner of 1000 units than 5% of 10,000.
Syndications and raising equity sounds great, but are a lot of work and has a lot of risk. I don’t take any equity on my rentals but do on my flips.
Not really interested in having 5% but 20-30% is extremely attractive to me and what I want to model my business around. I think if you're a pro at raising capital than anything is possible.
Originally posted by @Jordan Santiago:
Originally posted by @Syed H.:
21,000 units is a huge achievement.
Now, I’ve been lucky enough to work and know some larger owners. The guys you want to be are the people who have most of the ownership. I’d rather be a 50% owner of 1000 units than 5% of 10,000.
Syndications and raising equity sounds great, but are a lot of work and has a lot of risk. I don’t take any equity on my rentals but do on my flips.
Not really interested in having 5% but 20-30% is extremely attractive to me and what I want to model my business around. I think if you're a pro at raising capital than anything is possible.
Yeah I’ve never had issues with raising capital fortunately. But I am very skeptical about doing it in my rental business. I don’t like being forced to do anything (aka your exit). Unless you are a PE/Development shop who makes money off fees and the promote, there are a lot of issues when you run the business as a smaller syndicator that I avoid.
Now all that being said, syndication is a great way and might be the only way for plenty of people to start after they have some experience. I invested a ton of personal capital that I made in flipping into rentals and ground up construction. If you don’t have that capital, it’s much harder to start.
How come one become a Pro in raising capital for syndicate? I'm starting with a 6plex and plan to use other people's money for the deal and share 50% equity. Are the track record of all your deals and the deal itself are the most important parts to raise capital?
Originally posted by @My Nguyen:
How come one become a Pro in raising capital for syndicate? I'm starting with a 6plex and plan to use other people's money for the deal and share 50% equity. Are the track record of all your deals and the deal itself are the most important parts to raise capital?
If the deal is good I can help you raise capital
#5 Investor Mindset Contributor
- Investor
- Greenville, SC
- 12,927
- Votes |
- 4,881
- Posts
#5 Investor Mindset Contributor
- Investor
- Greenville, SC
I'd rather be the person who sold 21,000 units than the one who bought them.
Originally posted by @Mike Dymski:
I'd rather be the person who sold 21,000 units than the one who bought them.
Kinda of like Equity Office selling to Blackstone in '07? After looking at their assets and the market, that may be the best play...
- Rental Property Investor
- Eastvale, CA
- 459
- Votes |
- 138
- Posts
@Michael Ealy thanks for another insightful answer. I hear most of the syndication guru’s saying the normal GP/LP split is 30/70 (maybe that skews more towards the GP after certain milestones are hit), but I’ve seen a few of your post where you mention YOU’RE the 70.
Can you share how you uniquely position yourself/structure your deals to get passive investors to choose you at 70% over other syndicators at 30%?
You make a super valid point in saying less units with more equity is a better business model.
As others mentioned, these ROCO guys are rather an exception than the rule. And btw, not sure how closely you've been following their progression, but they now own only 11,000 units since the rest has been sold at a handsome profit. Here's the news for those interested...
https://www.crainsnewyork.com/real-estate/property-management-company-sells-10000-apartments-nyc-investor
Originally posted by @Alina Trigub:
As others mentioned, these ROCO guys are rather an exception than the rule. And btw, not sure how closely you've been following their progression, but they now own only 11,000 units since the rest has been sold at a handsome profit. Here's the news for those interested...
https://www.crainsnewyork.com/real-estate/property-management-company-sells-10000-apartments-nyc-investor
But why are they an exception? If it’s been done once it can be duplicated.
Originally posted by @Tony Robinson:
@Michael Ealy thanks for another insightful answer. I hear most of the syndication guru’s saying the normal GP/LP split is 30/70 (maybe that skews more towards the GP after certain milestones are hit), but I’ve seen a few of your post where you mention YOU’RE the 70.
Can you share how you uniquely position yourself/structure your deals to get passive investors to choose you at 70% over other syndicators at 30%?
You make a super valid point in saying less units with more equity is a better business model.
Tony,
Yeah - I am not a "normal" apartment syndicator ;)
The main thing is I get deals with superior returns not marginal deals. In a way, the way I structure it with 70/30 GP/LP is actually beneficial for me and my investors. Why? It "forces" me to get deals with IRR of 30%-40% or higher.
I wrote this on a separate post but the bottomline is, most syndicators give away 70% to the LP but they get marginal deals - say 15% IRR. Let's simplify it (but the correct calculation is not as straightforward as below however, I am simplifying it just to illustrate the point):
Marginal return of typical syndicator: 15% IRR x 70% = 10.5% IRR for the LP
Mike Ealy's project return: 40% IRR x 30% = 12% for my LP
Not only does my investors benefit from the higher return, they are also protected from market downturns. I did the math on this but the bottomline is that, the 10.5% IRR that the LPs are supposed to get...when the market goes down and say, the projections are off by 20%, the LPs of a typical syndicator's deal will get 0% real return and their money is stuck in the deal. In contrast, my LPs will likely get 6-8% IRR while getting their capital back (because even when market cap rates increase by 100 basis points, I can still sell my deal profitably).
Investors love safety and being able to get their money back first, before they look at IRR.
I have not lost money for my investors even during the Great Recession of 2008-2009 and investors love a good track record.
Lastly, when I refinance and I return my investors their capital, I don't buy their equity out. They still own 30% of the deal and get all their money back. As a result, they reinvest with me on my next deal because with me, they get to own equity in MULTIPLE properties with the same initial capital. With a typical syndicator, when they get their money back, they can only move their money to another deal but they no longer own the property they first invested in.
Originally posted by @Michael Ealy:
Originally posted by @Tony Robinson:
@Michael Ealy thanks for another insightful answer. I hear most of the syndication guru’s saying the normal GP/LP split is 30/70 (maybe that skews more towards the GP after certain milestones are hit), but I’ve seen a few of your post where you mention YOU’RE the 70.
Can you share how you uniquely position yourself/structure your deals to get passive investors to choose you at 70% over other syndicators at 30%?
You make a super valid point in saying less units with more equity is a better business model.
Tony,
Yeah - I am not a "normal" apartment syndicator ;)
The main thing is I get deals with superior returns not marginal deals. In a way, the way I structure it with 70/30 GP/LP is actually beneficial for me and my investors. Why? It "forces" me to get deals with IRR of 30%-40% or higher.
I wrote this on a separate post but the bottomline is, most syndicators give away 70% to the LP but they get marginal deals - say 15% IRR. Let's simplify it (but the correct calculation is not as straightforward as below however, I am simplifying it just to illustrate the point):
Marginal return of typical syndicator: 15% IRR x 70% = 10.5% IRR for the LP
Mike Ealy's project return: 40% IRR x 30% = 12% for my LP
Not only does my investors benefit from the higher return, they are also protected from market downturns. I did the math on this but the bottomline is that, the 10.5% IRR that the LPs are supposed to get...when the market goes down and say, the projections are off by 20%, the LPs of a typical syndicator's deal will get 0% real return and their money is stuck in the deal. In contrast, my LPs will likely get 6-8% IRR while getting their capital back (because even when market cap rates increase by 100 basis points, I can still sell my deal profitably).
Investors love safety and being able to get their money back first, before they look at IRR.
I have not lost money for my investors even during the Great Recession of 2008-2009 and investors love a good track record.
Lastly, when I refinance and I return my investors their capital, I don't buy their equity out. They still own 30% of the deal and get all their money back. As a result, they reinvest with me on my next deal because with me, they get to own equity in MULTIPLE properties with the same initial capital. With a typical syndicator, when they get their money back, they can only move their money to another deal but they no longer own the property they first invested in.
Wow. What a great response and breakdown. So you actually keep 70% of the ownership in your deals?
Originally posted by @Jordan Santiago:
Originally posted by @Michael Ealy:
You make a super valid point in saying less units with more equity is a better business model.
Tony,
Yeah - I am not a "normal" apartment syndicator ;)
The main thing is I get deals with superior returns not marginal deals. In a way, the way I structure it with 70/30 GP/LP is actually beneficial for me and my investors. Why? It "forces" me to get deals with IRR of 30%-40% or higher.
I wrote this on a separate post but the bottomline is, most syndicators give away 70% to the LP but they get marginal deals - say 15% IRR. Let's simplify it (but the correct calculation is not as straightforward as below however, I am simplifying it just to illustrate the point):
Marginal return of typical syndicator: 15% IRR x 70% = 10.5% IRR for the LP
Mike Ealy's project return: 40% IRR x 30% = 12% for my LP
Not only does my investors benefit from the higher return, they are also protected from market downturns. I did the math on this but the bottomline is that, the 10.5% IRR that the LPs are supposed to get...when the market goes down and say, the projections are off by 20%, the LPs of a typical syndicator's deal will get 0% real return and their money is stuck in the deal. In contrast, my LPs will likely get 6-8% IRR while getting their capital back (because even when market cap rates increase by 100 basis points, I can still sell my deal profitably).
Investors love safety and being able to get their money back first, before they look at IRR.
I have not lost money for my investors even during the Great Recession of 2008-2009 and investors love a good track record.
Lastly, when I refinance and I return my investors their capital, I don't buy their equity out. They still own 30% of the deal and get all their money back. As a result, they reinvest with me on my next deal because with me, they get to own equity in MULTIPLE properties with the same initial capital. With a typical syndicator, when they get their money back, they can only move their money to another deal but they no longer own the property they first invested in.
Wow. What a great response and breakdown. So you actually keep 70% of the ownership in your deals?
Most of my apartment deals - yes. Sometimes, it's 50/50 but when it's 50/50 I don't give 6% pref.
Raising capital (even with my structure) is not that much harder when investors understand how getting 30% equity with me is actually better than 70% with someone else. As a matter of fact, this week, I have 4 people talk with me (and my partner) and they want to invest a total of $14,000,000.
Originally posted by @Michael Ealy:
Originally posted by @Jordan Santiago:
Originally posted by @Michael Ealy:
You make a super valid point in saying less units with more equity is a better business model.
Tony,
Yeah - I am not a "normal" apartment syndicator ;)
The main thing is I get deals with superior returns not marginal deals. In a way, the way I structure it with 70/30 GP/LP is actually beneficial for me and my investors. Why? It "forces" me to get deals with IRR of 30%-40% or higher.
I wrote this on a separate post but the bottomline is, most syndicators give away 70% to the LP but they get marginal deals - say 15% IRR. Let's simplify it (but the correct calculation is not as straightforward as below however, I am simplifying it just to illustrate the point):
Marginal return of typical syndicator: 15% IRR x 70% = 10.5% IRR for the LP
Mike Ealy's project return: 40% IRR x 30% = 12% for my LP
Not only does my investors benefit from the higher return, they are also protected from market downturns. I did the math on this but the bottomline is that, the 10.5% IRR that the LPs are supposed to get...when the market goes down and say, the projections are off by 20%, the LPs of a typical syndicator's deal will get 0% real return and their money is stuck in the deal. In contrast, my LPs will likely get 6-8% IRR while getting their capital back (because even when market cap rates increase by 100 basis points, I can still sell my deal profitably).
Investors love safety and being able to get their money back first, before they look at IRR.
I have not lost money for my investors even during the Great Recession of 2008-2009 and investors love a good track record.
Lastly, when I refinance and I return my investors their capital, I don't buy their equity out. They still own 30% of the deal and get all their money back. As a result, they reinvest with me on my next deal because with me, they get to own equity in MULTIPLE properties with the same initial capital. With a typical syndicator, when they get their money back, they can only move their money to another deal but they no longer own the property they first invested in.
Wow. What a great response and breakdown. So you actually keep 70% of the ownership in your deals?
Most of my apartment deals - yes. Sometimes, it's 50/50 but when it's 50/50 I don't give 6% pref.
Raising capital (even with my structure) is not that much harder when investors understand how getting 30% equity with me is actually better than 70% with someone else. As a matter of fact, this week, I have 4 people talk with me (and my partner) and they want to invest a total of $14,000,000.
Wow that’s amazing. How much of the purchase price, renovations, other costs etc are you raising for your projects from outside investors? And how are you finding such great deals? (If you don’t want to give away your secrets I totally understand)
Originally posted by @Jordan Santiago:
Originally posted by @Michael Ealy:
Wow. What a great response and breakdown. So you actually keep 70% of the ownership in your deals?
Most of my apartment deals - yes. Sometimes, it's 50/50 but when it's 50/50 I don't give 6% pref.
Raising capital (even with my structure) is not that much harder when investors understand how getting 30% equity with me is actually better than 70% with someone else. As a matter of fact, this week, I have 4 people talk with me (and my partner) and they want to invest a total of $14,000,000.
Wow that’s amazing. How much of the purchase price, renovations, other costs etc are you raising for your projects from outside investors? And how are you finding such great deals? (If you don’t want to give away your secrets I totally understand)
I don't understand the first question.
But to answer your second question, most of my off-market deals are from brokers. They feed me deals as soon as they get them because they know I can close. And even though I am a licensed real estate agent, I let them have both sides of the commission. I don't try and save $40,000 from a deal if I know I will make $1 M.
There are other ways of course to find these deals. I posted one technique I use in this forum thread:
https://www.biggerpockets.com/forums/432/topics/769196-how-to-find-off-market-apartment-deals
Originally posted by @Michael Ealy:
Originally posted by @Jordan Santiago:
Originally posted by @Michael Ealy:
Wow. What a great response and breakdown. So you actually keep 70% of the ownership in your deals?
Most of my apartment deals - yes. Sometimes, it's 50/50 but when it's 50/50 I don't give 6% pref.
Raising capital (even with my structure) is not that much harder when investors understand how getting 30% equity with me is actually better than 70% with someone else. As a matter of fact, this week, I have 4 people talk with me (and my partner) and they want to invest a total of $14,000,000.
Wow that’s amazing. How much of the purchase price, renovations, other costs etc are you raising for your projects from outside investors? And how are you finding such great deals? (If you don’t want to give away your secrets I totally understand)
I don't understand the first question.
But to answer your second question, most of my off-market deals are from brokers. They feed me deals as soon as they get them because they know I can close. And even though I am a licensed real estate agent, I let them have both sides of the commission. I don't try and save $40,000 from a deal if I know I will make $1 M.
There are other ways of course to find these deals. I posted one technique I use in this forum thread:
https://www.biggerpockets.com/forums/432/topics/769196-how-to-find-off-market-apartment-deals
Great idea, thanks for sharing.
The first question, I meant, since you’re only giving your LPs 30% how much of the capital are you raising from them? How much are you, if anything at all, putting in the deal?
Originally posted by @Jordan Santiago:
Originally posted by @Michael Ealy:
I don't understand the first question.
But to answer your second question, most of my off-market deals are from brokers. They feed me deals as soon as they get them because they know I can close. And even though I am a licensed real estate agent, I let them have both sides of the commission. I don't try and save $40,000 from a deal if I know I will make $1 M.
There are other ways of course to find these deals. I posted one technique I use in this forum thread:
https://www.biggerpockets.com/forums/432/topics/769196-how-to-find-off-market-apartment-deals
Great idea, thanks for sharing.
The first question, I meant, since you’re only giving your LPs 30% how much of the capital are you raising from them? How much are you, if anything at all, putting in the deal?
OK - now it's clear what you mean.
The LPs put up all the money and when I put up some of the money, I have a share of the LP in addition to my GP equity.
For example, in my most recent deal (which is a hotel deal), me and my partner put up $400,000 of our cash in the deal with a total capital raise of $1.7M. The LP owns 30% of the equity - and we own $400K/$1.7M or 23.6% of the LP, which represents 7% additional equity to the 70% that me and my partner own.
Jordan,
Originally posted by @Jordan Santiago:
Originally posted by @Alina Trigub:
As others mentioned, these ROCO guys are rather an exception than the rule. And btw, not sure how closely you've been following their progression, but they now own only 11,000 units since the rest has been sold at a handsome profit. Here's the news for those interested...
https://www.crainsnewyork.com/real-estate/property-management-company-sells-10000-apartments-nyc-investor
But why are they an exception? If it’s been done once it can be duplicated.
- Rental Property Investor
- Eastvale, CA
- 459
- Votes |
- 138
- Posts
Originally posted by @Michael Ealy:
Originally posted by @Tony Robinson:
@Michael Ealy thanks for another insightful answer. I hear most of the syndication guru’s saying the normal GP/LP split is 30/70 (maybe that skews more towards the GP after certain milestones are hit), but I’ve seen a few of your post where you mention YOU’RE the 70.
Can you share how you uniquely position yourself/structure your deals to get passive investors to choose you at 70% over other syndicators at 30%?
You make a super valid point in saying less units with more equity is a better business model.
Tony,
Yeah - I am not a "normal" apartment syndicator ;)
The main thing is I get deals with superior returns not marginal deals. In a way, the way I structure it with 70/30 GP/LP is actually beneficial for me and my investors. Why? It "forces" me to get deals with IRR of 30%-40% or higher.
I wrote this on a separate post but the bottomline is, most syndicators give away 70% to the LP but they get marginal deals - say 15% IRR. Let's simplify it (but the correct calculation is not as straightforward as below however, I am simplifying it just to illustrate the point):
Marginal return of typical syndicator: 15% IRR x 70% = 10.5% IRR for the LP
Mike Ealy's project return: 40% IRR x 30% = 12% for my LP
Not only does my investors benefit from the higher return, they are also protected from market downturns. I did the math on this but the bottomline is that, the 10.5% IRR that the LPs are supposed to get...when the market goes down and say, the projections are off by 20%, the LPs of a typical syndicator's deal will get 0% real return and their money is stuck in the deal. In contrast, my LPs will likely get 6-8% IRR while getting their capital back (because even when market cap rates increase by 100 basis points, I can still sell my deal profitably).
Investors love safety and being able to get their money back first, before they look at IRR.
I have not lost money for my investors even during the Great Recession of 2008-2009 and investors love a good track record.
Lastly, when I refinance and I return my investors their capital, I don't buy their equity out. They still own 30% of the deal and get all their money back. As a result, they reinvest with me on my next deal because with me, they get to own equity in MULTIPLE properties with the same initial capital. With a typical syndicator, when they get their money back, they can only move their money to another deal but they no longer own the property they first invested in.
Michael,
Thank you so much for sharing that insight. I re-read what you wrote about 20 times. And I just read your other post about finding off-market deals. I've always understood the need to get a "GOOD" deal, but it's starting to sink in that there's a difference between "GOOD" and "GREAT".