Does the BP community prefer private loan or syndication deals?

[Josh McCallen]

My newest deal is a rare opportunity. It is a historic winery + hotel + restaurant + golf course. And it is bank owned and selling at 25% the replacement cost. Also the team we have is one of the best in the country at hospitality turnarounds. So, as I meet pros in the BiggerPockets community, should I offer this investment opportunity as a private loan or as an equity investor in our syndication?

[Mike Dymski]

Originally posted by @Josh McCallen:

@Alina Trigub excellent point! Our project is lucrative for the equity investors, so we were wondering if a possible Prefered Equity model would work well for all. Our understanding of a Preferred Equity structure is: investors join us on the equity side for a set period of time, say 5 years. For that, they could earn 8% annual returns + they are fully recapitalized in full in the 5th year. We would also be able to add an additional payment at the end of the 5th year to increase the IRR for these investors. That way we could benefit from having the investors on the equity side for the deal structure, but also have them fully repaid and compensated by the 5th year when we would be able to recapture our equity position. Have you seen this type of deal on the BiggerPockets community?

No prudent investor would take on the early equity risk and then agree to get taken out when the risk is mitigated later.  And a development deal to boot.

I do see syndication offerings where equity investors get taken out at a refinance and they are usually from inexperienced sponsors who don't take a long-term approach to fostering a loyal sophisticated investor database (i.e. they are targeting investors who don't know any better).