Using Syndication Ownership(s) as Collateral for Loan or LOC

[Zach Frederick]

Is it possible to get a loan or secured line of credit against multifamily syndication ownership interests?  Would most banks/credit unions even understand what a syndication is? 

Looking for guidance to see if anyone has done this before and what rates might be. 

[Brian Burke]

I haven’t tried this so don’t consider this answer to be definitive—but I have thousands of investors in my syndication offerings and I’ve never heard of anyone doing this. I suspect that if this were a thing I’d have heard of it by now.

These types of credit lines are common in stock trading accounts for the purpose of buying more stock, because there are mechanisms to immediately liquidate the underlying securities if they decline in value.  There are no such immediate liquidation mechanisms in a syndication investment, so the lender would have a hard time converting their collateral to cash. 

Plus, think about what the security for their loan actually is: the equity portion on real estate.  You might get a line of credit on your real estate but it is subject to combined loan-to-value limitations.  Your syndication investments likely already have senior debt in place that leave little room for added leverage.  And then there’s the added complexity that if the lender did have to foreclose on their collateral, they now own a fraction of an asset for which they have no control and no secondary market with which to sell.

My guess is you are more likely to just find an unsecured signature line of credit.  Perhaps a lot of banks won’t understand these types of investments.  But I think that if they did understand them they’d be even less likely to accept them as collateral.