MFH Syndication investment

[Carlos Suarez]

Where to look for a solid MFH Apartment syndication investment? I have been getting multiple offers, most of them look good on paper, but I am not able to differentiate a good from a bad deal.

Is it more important the deal/place rather than the reputation of the Syndication group?

Thank you!

Carlos Suarez 

[Brian Burke]

The experience level and track record of the sponsor is the key component.  The deal is secondary, but still important. If you are investing with a top-drawer sponsor they would most likely be bringing good deals to their investors.  Inexperienced sponsors suffer from the same problem you have—recognizing a good deal from bad.

If you search on the BP blog for “Multifamily Myths”, you’ll find several articles I’ve written on things to look for when analyzing multifamily opportunities and some common misconceptions.

One way to help you sort out good from bad is to evaluate a number of offerings from a number of different sponsors without investing in any of them.  Your goal is to learn over time what a good offering package looks like and how to make sense of the underwriting.  You’ll soon start to notice which are thorough and make sense and which are pipe dreams or simply not based in reality.

An important point is that the best deals aren't the ones forecasting the highest returns. The best deals are the ones underwritten with reasonable assumptions that the sponsor can explain and back up with data. I can take the worst real estate deal and make it look like an amazing investment opportunity by manipulating the assumptions. I wish I were saying this to just talk theory, but I actually see this happening in the real world as I look at offerings out there. Just the other day I saw an offering that looked great if you are shopping for return—almost 20% IRR, 8%+ cash-on-cash year 1 and over 2x multiple in 3 years. But when I looked at the underwriting and the assumptions I can see very quickly that the chances that the sponsor will be able to deliver that performance is less than zero.

Quality sponsors are the ones that use realistic assumptions which is why sponsor selection is so much more important than the deal.