The syndications that are going belly up are getting a ton of attention in these forums. Despite this, there’s still a ton of appetite for participation. I am sure BiggerPockets recognized this with the rollout of PassivePockets which should help educate potential LP’s before investing. Selecting the syndication can be daunting with so many options available, so here’s some information that may help potential LP's arrive at a short list to consider. Important to note, this advice is geared towards those writing smaller LP equity checks as I suspect that’s where most interested investors reading these forums fit. For the purpose of this exercise, I would like to start by separating syndications into two categories: (1) smaller capital raises that will only attract the friends and family sized checks because they require too much brain damage for those with the larger check writing capabilities; and (2) syndications with capital raises large enough to fit within the investment parameters of true private equity/family office check writing capabilities.

Smaller Syndications: These GP’s have no option besides raising smaller check sizes. No matter how good of a deal, it is quite difficult to raise capital from larger check writers who often have minimums they abide by. If you are a smaller check writer, it’s still important to conduct adequate diligence on the deal and the GP but there shouldn’t be any alarm signals going off solely related to the investment minimums.

Larger Syndications: When you see the syndicators achieving the larger raises that can attract the checks written by the private equity/family offices but are instead raising those funds in smaller friends and family check sizes, that would give me immediate pause. At the end of the day, ask yourself why these GP's are exerting additional effort in pursuit of the smaller check sizes instead of obtaining the larger checks. There's a few possible reasons:

1. The GP or the deal doesn't pass the sniff test and the smaller less sophisticated investors won't conduct the same level of diligence

2. Greater control

3. Favorable Fees and Profit Splits

4. Less skin in the game & delegating responsibilities such as guarantee, GP equity with less scrutiny

As an LP who can only write smaller checks, why go with the GP who falls under the larger syndication category? There's a reason why they target you, and its not out of kindness and generosity. Keep in mind they will also spend far more time raising capital and diverting their attention outside of managing the investment which is adverse to your objectives. There's nothing wrong with investing in syndications if you are writing smaller checks but perhaps invest with the syndicator who is chasing your checks because you are the only option, not the preferred option.

Stuart Udis

[email protected]

7 Votes