What do you think of syndicate sponsor Goodegg Investments?

[Steven Rosenfeld]

I am starting to get into syndicate investing and have been reading Brian Burke's "The Hands-off Investor" which is a pretty in-depth guide to analyzing real estate syndications. He says it all starts with the sponsors so I'm looking to get feedback from the BP community on sponsors that I'm researching. First up is Goodegg Invesmtents. They look to have some success with taking deals full-cycle and currently have a sun belt multi-property offering that I'm researching. Has anybody invested with them who can provide some valuable feedback?

[Greg Scott]

I have no experience with this group but just visited their website.  Here are just a few comments

A syndication with 5 levels of membership is a pretty complicated beast.  Most have only 2 levels.  Be sure you are comfortable with the math and know exactly how much you should be getting depending on how the property performs at different levels.   Be aware that 5 levels of membership can create divisions within the ownership group because the same investment at any point in time can behave differently for each class of investor, so motivations may not be aligned.  For example, let's say you are guaranteed a 7% pref and the property delivers exactly that, but then sells with a capital gain.  The capital gain may be eaten up by those with a 10% pref, and you get nothing else.  While that may be good for the 10% pref investors, you may have been better off holding another year and getting another 7%.

Related to this, I generally don't like preferred returns as a passive investor.  Syndicators do this because most passive investors are not sophisticated enough to realize the "security" of the preferred return means they usually are giving up the potential for massive returns if the deal does well.

This next comment would apply for all syndication.  I would read the PPM carefully, and understand how the Syndicator is getting compensated.  Some syndicators have so many fees (acquisition, construction management, asset management, capital event, disposition) the syndicator is going to get rich even if the deal produces zero return for its investors. Now, if they are following SEC regulations, these should be spelled out in the PPM, but they might not all be in some glowing, highlighter-green table.  You may have to dig through the minutia to understand them.