Investor · Tampa, FL · Member since 2016 · 22 posts · 7 votes
I would like to raise private money from investors I know personally to syndicate a commercial multi-family project(under $1 million and between 2-12 units). I would act as managing partner. I have never syndicated a deal before. Would a commercial lender only finance a syndication if the sponsor/MP had sufficient financial reserves or is there a way around this? I would come up with the 25% from the private investors then finance the rest of the deal. From what I've read, they require a guarantor which again I don't have substantial financial solvency to act as any kind of guarantor. I read even hard money lenders require a gaurantor for 5+ units. Would keeping it residential(2-4 units) be a better way to go to get started until I've built up more capital? Thank you!
Rental Property Investor · Buffalo, NY · Member since 2016 · 32 posts · 10 votes
4y
@Chris Duffy I just completed my first syndication and can confirm that @Aaron W. is correct. I was/am in the same boat as you, to get around this we have a larger GP team (4 people). This was because we combined 2 GP teams of 2 people but it also worked out well - between all 4 of us we were able to meet all of the lenders requirements. One thing that's worth remembering is that *almost* nothing is set in stone. Our mortgage broker originally said the GP team had to put in 50%, after saying we were not he went back to the lender and negotiated for us. My recommendation is to find a good mortgage broker and build that relationship, they can be invaluable when looking for commercial loans.
Syndications are expensive so going smaller may not make sense but every deal is different! Good luck!
Rental Property Investor · Northern Virginia · Member since 2019 · 793 posts · 620 votes
4y
@Chris Duffy You will always need a guarantor on a loan. In commercial loans, they look for the sponsorship team to have a net worth equal to the loan amount. So, if you are borrowing $1M, then your combined net worth must be at least $1M.
They also look for liquidity which varies on the amount. Most I've dealt with need at least $1M in liquid funds/assets. For smaller deals, it is likely going to be less.
If you are unable to meet the financial criteria, it is not uncommon to partner or offer one of your investors shares in the GP/sponsor team for providing this.
There's no one right way to do this and you can get creative as long as the lender is okay with it.
Rental Property Investor · Buffalo, NY · Member since 2016 · 32 posts · 10 votes
4y
@Chris Duffy I just completed my first syndication and can confirm that @Aaron W. is correct. I was/am in the same boat as you, to get around this we have a larger GP team (4 people). This was because we combined 2 GP teams of 2 people but it also worked out well - between all 4 of us we were able to meet all of the lenders requirements. One thing that's worth remembering is that *almost* nothing is set in stone. Our mortgage broker originally said the GP team had to put in 50%, after saying we were not he went back to the lender and negotiated for us. My recommendation is to find a good mortgage broker and build that relationship, they can be invaluable when looking for commercial loans.
Syndications are expensive so going smaller may not make sense but every deal is different! Good luck!
@Aaron W. thank you so much for those contributions I really appreciate it! Just one more question - Let's say I went after a 2-4 unit property(one that a hard money lender would lend on without having to show much financial solvency since with commercial loans a hard money lender requires a guarantor too) and I raised let's say 25-30% of the capital in private money and borrowed the other 70-75% from the HML, rehabbed and increased value, then financed out to a conventional bank at 80% LTV to pay back HML. Would I still run into the same guarantor problem at the re-fi with the conventional bank or no because of how much equity is in the property they are re-financing. Thanks!
@Aaron W. thank you so much for those contributions I really appreciate it! Just one more question - Let's say I went after a 2-4 unit property(one that a hard money lender would lend on without having to show much financial solvency since with commercial loans a hard money lender requires a guarantor too) and I raised let's say 25-30% of the capital in private money and borrowed the other 70-75% from the HML, rehabbed and increased value, then financed out to a conventional bank at 80% LTV to pay back HML. Would I still run into the same guarantor problem at the re-fi with the conventional bank or no because of how much equity is in the property they are re-financing. Thanks!
You are likely still going to run into a guarantor issue when you refinance into a permanent loan. The lender wants to know someone is responsible should the loan go into default. It's a risk mitigation strategy by the banks. It could be you need to bring on a partner who can sign on the loan with you, which means giving up a portion of the equity. Not the end of the world as you are able to get a deal done.