Your Experience as an LP in Syndication?

[Luke Grieshop]

Hello fellow BPers!

I’m looking to learn from anyone who’s had experience as an LP in multifamily syndication. Ultimately I’d like to contribute as an LP locally (Phoenix, AZ), with the goal being to learn as much as possible from the GP about his/her process and ask questions along the way. I’d also prefer the ability to drive by the asset if needed, but am open to thoughts on this? Lastly, I also welcome any recommendations on GP’s to look into (506B, non-accredited)!

- What do you wish you knew before investing in your deal?

- Did it meet expectations?

- Any added benefits other than the returns?

- Was the asset local? If not, did that pose any challenges?

Any other information that you learned in the process…

Thank you all!

[Jack Martin]

@Luke Grieshop due to the restrictions related to public solicitation, you won't see 506b offerings advertised out in the open. However, if you read between the lines, you should be able to find sponsors like that here on BP. You can also get recommendations to 506b sponsors locally in the Phoenix area from other investors, accountants, attorneys, and real estate brokers.

With that all said, keep in mind the most critical variable in your experience as a passive investor will be the PEOPLE you are investing in, not just the deal you are investing in. As you connect with sponsors that resonate with you, take the time to develop a relationship with them. Trusting the sponsor will be paramount to you sleeping at night, and I can't stress that enough. It does no good to place capital with a sponsor who has an attractive pro forma to find out later they can't be trusted. Making sense of the deal and understanding their track record is important of course, but I believe you should develop TRUST before you invest. Developing that trust with someone you don't know may seem like a challenge, but if you approach it correctly, you should be able to achieve a pretty solid foundation of trust.

The best way is to target sponsor who use professional 3rd party administration that verifies the sponsor, their background, their track record, and their performance. Essentially, their role is to be the neutral party "referee" who's job is to ensure accuracy and report transparently.

Another way is to talk to others who have had an experience investing with the sponsor already. Simply ask the sponsor if they would be open to connecting you to their existing investors who've known and invested with them for a long time. There is nothing that replaces a live conversation with someone who has already built that trust with the sponsor over time. If a sponsor will not allow you to talk to existing investors, that should be a red flag to you.

Also, one of the most often overlooked components of a syndication is the reporting. When you find a sponsor you like, do yourself a favor and get clear on what your experience will be like AFTER you have invested.

Does the sponsor have a communication plan? How often will you receive reporting? How are they delivered? What will the reports cover? How often will you see financials? When will you receive tax documents? How often will you receive distributions? Historically, have the reporting and distributions been on time? Also, who does their accounting, and are checks and balances in place to prevent misappropriation of funds, cooking the books, or human error? 

Your overall experience with passive investment involves much more than the yield you could achieve. If you take the time to gain clarity on those items, you should get a pretty good handle on what your experience is going to be like.

The purpose of investing passively is to leverage the sponsor's time, expertise, and ability to source great deals, but if the experience is going to cause you to lose sleep at night, any return you might make simply will not be worth it.

All the best,

Jack