Apartments "Syndication" not really Central Austin

[Matthew Teifke]

I'm currently looking at a 50 unit complex to purchase here in Central Austin. The cap rate is 5% and there's a lot happening in the immediate area which is why I'm bullish on this complex.  My question here is with all of the syndications that take place have you heard of people putting money together to finance a deal without a sponsor taking a set percentage off the top ? I'm considering taking the lead on this complex and managing the property but I'm not taking any kind of preferred return. The idea is that my investment is in the same position as yours. The only difference is that I would be paid a commission and a fee on the management.    

[David Thompson]

Hi Matt,

First of all you should discuss w/an attorney before you start thinking about syndication, structure and investors.  There are certainly things that can be shared but this is a serious endeavor you want to do right from the start.  To some of your basic points:

1) Preferred returns are common but not required.  You will entice limited partners w/a preferred return which essentially means up to a certain point, the LPs would get 100% of the distributions up to a set # say 8% before the GP gets paid the split.

2) Splits range from 20 - 50% for the GP...usually depending on experience level, whether you are confined to a club (rules), etc.  

3) Common fees for the syndicate are 1-3% of the acquisition fee paid at closing for all the effort to find the property, conduct the due diligence and put together the deal (costs include all the properties and time to reviewed and analyzed that you did not purchase).  The other is asset mgt fee of 1-3% typically on the monthly revenue generated from the property.  If you are starting out, going lower is most common and as you gain experience 2% is industry standards but can go higher.  The asset mgt fee is for overseeing the property manager and ensuring the business plan gets executed.