Syndication / Crowdfunding Deal Analysis

[Rick L.]

I've been approach by two investors trying to syndicate a deal. There's no concrete deal in the pipeline YET, but they're working with me to determine the blueprint of a potential deal and what are reasonable return expectations for myself and other investors.  

I guess the reason the're approaching me is because we became acquainted as they had solicited me to invest in another business venture.  Although, I wasn't interested they know I invest in buy & hold real estate and  as an accredited investor I had express my interest in moving beyond 1-4 unit properties and into larger 20+ unit apartment complexes.

I've what they called a general outline of what they're proposing. For instance, in the hypothetical instance a 30% down payment, I would invest 5% and we would raise the other 25% providing investors a return plus potential additional returns (appreciate, rent increases, etc). I would maintain at least 50.1% control of the property, they would collect a 1-3% acquisition fee, and 1-3% on-going fee.

Essentially, it should be a win-win for all parties involved. Investors receive a guaranteed return plus the likelihood to receive double digit returns, they receive acquisition fees and on-going income, and I'm able to acquire a large scale property with little money down and maintain control/possession.

I do plan on reviewing this with my attorney and accountant, but we're in what I like to call the "foreplay" stage.  This is where they trying to get me excited and sell me on the deal structure.  I'd really appreciate it if others who have more experience in this more complex deal structures would share your experiences and opinions.

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[Nick B.]

Rick, appreciation of an apartment complex comes from either an increase in NOI or reduction of cap rate or both. There is no reason to show appreciation on a separate line other than to make the numbers look better.

If you want to see a better structured proforma, request an offering memorandum from Marcus&Millichap or any similar broker. Another good example may be found in Steve Burges' book "Buying and Selling Apartment Buildings".

Nick