Syndication advice in Dallas Forth Worth area

[John Ki]

I am considering investing in real estate in Dallas Fort Worth area or surrounding suburbs. Either buy a home (may be new home) and rent it out - but property tax going up, home insurance going up (30%), mortgage rates high, property prices high, then have to manage anything breaking down and I am not good at fixing things so I need to know reliable companies which don't over charge or let management companies take over but they charge 10% and already worried if there will be cash flow in current market.

I was suggested to invest in syndication and have attended few investment presentations. All of them look and sound great on power point presentation. I don't' think they let you see books to verify the numbers being presented especially as a single LP.

Are there any third party advisors/syndicators to evaluate the deal/presentations and help you with what questions to ask to help evaluate a deal, to find out more about track record of GPs running the deal (other than stated by them) and see if it's worth investing?

There is a newly built Class A 47 unit rental property  Sky View at Crawford ( lease up from 0% to hopefully 100% and value add by garage parking, valet trash etc ) by ​Skyview Capital, a DFW based Commercial Real Estate Development and Acquisition company as General Partners. Plan to lease up new property, have tenants with positive cash flow and then sell in 3-4 years as cash flowing business to get buyers once few years data becomes available for the buyers.

GPs are https://www.skyviewre.com/

 Does anyone know the GPs? Any feedback? What due diligence should I do? Can I post terms/details of the deal?

[Bruce Lynn]

So all the things stopping you in single family are still true in multi syndications as well.

Mortgage rates don't make sense for many or even most deals, but coming down some, so more deals will pencil.  Still a spread between where owners want to sell and buyers want to pay.  Taxes and Insurance have probably both gone up 30% over the past 3 years.  Hopefully we'll at least see some property tax breaks for a year or so, with pricing resets.

Cash flow on single family or even multi is always a function of leverage. So right now in the better single family areas we're seeing 30-40% down payment to make them cash flow as the rents have not currently kept up with sales prices.  Same for multi- 65% leverage is pretty common right now, but I even see some pitched at 50-55% leverage.

I will say almost everyone lies on the syndication presentations, or they make it look really good.  Everyone says they use conservative projections, but so many are paying distributions right now, so they weren't conservative enough on their pitches or underwriting the last couple years.  I saw a pitch the other day that said it was close to SMU...Ft. Worth deals say they're close to TCU.  The Dallas one was 13 miles away from SMU in a submarket that will likely not draw one student, one faculty member, or even one employee from SMU.  So they put crap like that in the presentation to make it sound better, or they don't have a clue.  Some will list major employers, but often none of the residents work for any of those employers and likely never will due to income or location.  So be very very careful paying attention to the pitches.  Chances are they're not turning a C/D complex to A at A rents, but I've seen that pitch.  Make sure you go visit any of the complexes they're pitching in person.  Go shop the office.

Don't invest with amateur GPs.  Right now you need great PM and great AM to make most deals work.  Amateur GPs are normally NOT good at this and many have lost all their investors money.  People forget to read the PPM where it says about 10x you can lose all your money.

47 units is very tough to manage.  Go for bigger deals.  47 units will likely not support full time PM or maintenance.  New or not, you'll likely have to have part time people and that presents challenges.   There is a ton of new/newer construction around there that has come online the last 2 years in the medical district and most of those buildings have had real challenges. Great area, rents are decent, but I expect the amenities they can offer will make a small building tough to compete.   Go visit all the other new/newer buildings around there to see what amenities they offer like dog washes/automation/business centers/fitness centers/package lockers/etc and compare the rents.   Where would you want to live?

Not to say it is a good or bad deal, but I expect it will be challenging.  There are 1000 syndicators in DFW I expect, so they're just one of many.  Ask to speak to investors in their other projects.  Have those projects had capital calls, are they paying distributions?  Have any of the principals lost money in other deals?  Have they had any go full cycle where they were the GPs.  Go visit their other projects?  Is there a leasing office?  Is it staffed?  Does anyone answer the phone or call you back as a prospective tenant.  Get out there around 5pm-6pm and walk around the block, talk to residents if you can and see what they have to say?   Do they like living there?  Vet the heck out if it and don't invest money blindly.

Good luck and best wishes.