Digging deeper in syndication returns

[Daniel Lozowy]

You often hear syndicators say: we're looking at a minimum 20% return or 15%IRR. Things like that. For the sake of curiosity, I'm wondering what factors influence those required returns. Stock market volatily? 10Y treasury bond yields? Passive investors demand? What do you think?

Is it just an industry-standard or is it tied to underlying factors.

Anyways, I'm hoping to hear your thoughts,

Take care

Daniel

[Brian Burke]

Whatever the sponsors say about forecasted performance means absolutely nothing.  It all boils down to the assumptions that the sponsors are using to arrive at that forecasted performance.  Garbage in, garbage out, as they say.

There are a lot of levers that can be pulled to engineer projections.  I have a whole section in my book on this, there really are that many variables.  Debt assumptions, vacancy, concessions, bad debt, every line item of expense, routine capital improvements, how much money is raised, all of that will impact the returns that are calculated.  

The return itself is also meaningless without context. A 20% IRR deal isn't better than a 12% IRR deal if the lower return is a low-risk stabilized property in a great neighborhood and the higher return is a speculative development project in a sleepy market. Returns should always be considered on a risk-adjusted basis.