Evolution of Syndications

[Stuart Udis]

Syndications and passive investing are frequent topics of discussion in the forums. Over lunch yesterday I  was discussing with a friend how the business has evolved in recent years. The conversation began after we commented  on a teacher's  BP forum post  about paused distributions that he was reliant on for medical treatment. While it saddens me to hear this, ultimately this was not someone who should have been investing passively in syndications in the first place. This leads to the main point of this post which I hope results in hearing other's point of views on the subject.  Historically (with some exceptions), there were two categories of syndicators: (1) The Sponsors who would raise "friends and family" equity and (2) Sponsors  who would raise capital from family offices,  pension funds, insurance companies etc.  for what is often referred to as institutional real estate assets. Transaction sizes and/or total equity raise are what led to the separation. 

 We are now at a place where there are Sponsors who are raising capital to compete for these institutional level assets but rather than filling the capital stack with these sophisticated larger check writers, they are raising the capital in smaller increments.  These Sponsors tour the convention circuits and roll out robust social media brands to get their name out and raise funds from smaller investors. Has anyone stopped to wonder why some Sponsors can secure commitments from the more sophisticated check writers while others have to target less sophisticated investors and spend significantly more time on the capital raising to compete for the same buildings? Keep in mind there are brokers/placement firms  out there who can serve as a conduit to the family offices, pension funds and insurance companies and the cost of those placement services are going to be significantly less than the amount of effort and expense that goes into the this new breed of syndicator. Therefor I don't want to hear anyone argue  they simply don't have those relationships as an excuse.  I also understand there are transactions out there that are too small for the larger check writers and in those cases the smaller check writers are still necessary. I am focused on those out there who are raising $50M+ to buy institutional level assets but do so by managing  500+ separate investor relationships.  I would like to hear other's perspective on this topic.