All Forum Posts by: Brandon Wong

Syndication is a team sport but it’s also a form of temporary marriage. Marrying the wrong person/people can lead to a very, very long 3-5 year holding period. Fortunately there is an amazing way to help you find and vet potential co-sponsors and it can be described in 2 words:

Underwriting Parties

It’s pretty much what it sounds like.

Round up a group of people that you’ve had some positive interactions with that have already made significant investments of time and money into themselves. This helps you understand their level of motivation.

Talk is one thing, but where you put your time and money is another. Then set up a regular group underwriting session with them. It’s not perfect but it will tell you a number of things about them.

1. Communication Style - Because of how important communication is throughout. Are they overly dominating the conversation to the point of irritation?

   That’s frankly a huge turn off for me. Do they respond to texts? Do they not contribute at all to the conversation? Learn these things early.

2. Strengths and Weaknesses - Some people will know these about themselves, others you will discover them through your interactions with them. If you don’t know them I encourage you to take the strengths finder test.

   What resources do they have access to? Experience, Time, Net Worth, Liquidity, Market/Broker Proximity, Capacity to Raise Capital, etc… Be transparent about these things.

   Bankruptcy can impact your ability to get a loan and you don’t want to learn this when you have earnest money on the line.

3. Risk Tolerance - Underwrite too aggressively and your deal will underperform. Underwrite too conservatively and you will never get a deal. Underwriting together will help reveal if you are on the same page fairly quickly.
4. Overall Culture and Personality Fit - Are they a positive but realistic team player and on time to the meetings? Are they greedy or generous? Do they share your values and have a reputation of doing what they say they’re going to do, even on a small level? Do they put themselves or investors first?
5. Shared Ambition - Talk about your long term vision. Are they content with 1 or 2 deals a year or want to bast out of the gates and do 10 their first year? It’s helpful to be on the same page so no one feels left behind or held back.

After spending a few years leading marines, I noticed a phenomenon we called “gelling”. Whenever I put together a new team there was a 1-3 month period in which they worked together at ever increasing levels of efficiency until they “gel”.

They began to interpret and understand one another at higher and higher levels and could anticipate one another's next moves on patrol with few or no verbal cues. The same goes for any team. Give yourself a gelling period. Date before you get married.

One thing that is more difficult to assess is how they handle stressful situations. People can flip when bullets start flying and that can be problematic but by getting a feel for them beforehand you can help avoid this.

Fantastic list.

It's a stretch but I might add a potential re-capitalization. This would be the GP's syndicating a new fund and purchasing the property from themselves with fixed rate debt. Depending on when they bought and how well they operated, existing investors might break or take a haircut but its better than a total loss.

I've seen some lenders want cap payments above the line and others below the line on the PL. Not sure their reasoning but we roll with what they ask. It definitely doesn't belong above the line but we're following their guidance. 

This came up recently and I agree with the others on this. For sure read the operating agreement but its typically first right for GPs, then LPs, then 3rd party. 

If you elect to sell 3rd party you might have them sign an NDA before sharing financials with them as well as the current business plan so they can determine their offer based on their projected yield. 

The discount will depend on how many buyers you present it to and how well the deal is doing. 

I have a colleague out of CA who has expressed interest in purchasing shares on one of our deals so I know there is a secondary market for shares of private equity. 

A buyer may want to review operating documents, know about the management team, investor reporting structure, and asset performance, etc... Have an attorney put something in writing and help you handle the exchange. I would sell to someone sophisticated and avoid giving them any sort of valuation and let them come to their own conclusion.

Hope this helps!

All great feedback in here so far. One question I would ask is if you have a business plan/idea of what you have for the property and what market and stabilization level it's currently in. 

Fannie and Freddie are the Cadillac of non-recourse multifamily loans but will only lend on nicer stabilized assets and often don't offer the amount of leverage many operators need to be able to purchase. You also need to fund all your own renovations. 

Banks and Bridge Lenders are less stringent and may also present viable options based on your resources and business plan/horizon. Some big players are still using floating rate debt but they're getting solid rate caps and raising like a year or two of interest reserves.

We have bridge debt on two properties (283 units) and are in the process of refinancing into fixed due to the rates and uncertainty. 

The key would be underwriting your acquisition vs your current holdings to ensure its actually a good move in terms of risk/return and like one gentleman mentioned earlier looking at your total DTI.

If you are open to partnering with other folks, you might also spread load risk a bit to buy this or a bigger asset and go non-recourse where the biggest concerns are the performance of the property and the net worth/post closing liquidity of your team. Basically the net worth of the key principal would need to be at least the loan amount and have enough liquid assets in the bank to cover say 6 months of payments. 

A good commercial mortgage broker that does volume could take a look at the situation from a number of angles and through different products to find the best fit for you for this acquisition.

Hope this helps. 

I believe your best bet would be to identify a competent operator in your market and ask for insight/mentorship. Maybe just follow them around and do work for them on their projects. If they're making the kind of money that you want to make, the way you want to make it, then they're a good candidate and you might even offer them some sort of compensation or exchange of value/skills for sharing their knowledge with you. 

If you go to enough real estate investing events these people will reveal themselves to you. I'm in DFW but I have a colleague in LA that is a competent operator if you would like an introduction. He does both flips and buys multifamily on properties in LA. 

This is how I got started and it helped me avoid a lot of newbie mistakes. 

Hope this helps. 

I'm in the DFW market and cap rates have compressed to the point where larger multifamily deals will not support the 1% rule or 10% cap rate. Most multifamily deals are trading in the 4-6 cap range and paying investors about that much in quarterly distributions from the cashflow of the property if they haven't paused distributions. I'm not saying 10% cashflow on multi's doesn't exist in today's market as there may be other folks on there able to generate that but they're typically on more heavily distressed assets and we haven't been playing in that space or something super creative and outside the box (subject-to/seller finance with an unsophisticated seller). However you would be looking for the rare exception and not the norm. Returns tend to be heavily weighted generated on the exit price/exit cap with lower cashflow.

From a functional standpoint, if you were to invest using 1031 money into a larger deal, there is often a portion of the equity that will need to be raised via a syndication. Your company that is providing the 1031 money would partner with the holding company as a TIC and you would need to sign off on any large capital events like a refinance or sale alongside the syndication group.

My advice here is that if you don't yet have a deal under your belt I recommend finding and partnering with a seasoned multifamily investor and lean on their experience to help the broker build confidence in you and send you a few deals. 

Brokers get paid on commission only and want to maximize their time, if they don't think you can close they will likely send your their crap deals if any at all because they won't really take you seriously.

This is a team sport so get at least one seasoned person who is willing to bet on your and show you their underwriting process to get your foot in the door and start underwriting deals. 

I believe 20-30% for finding and leading the deal/putting the team together to close and operate would be appropriate. 

The amount would be a function of the size of properties you are acquiring. There are a number of hard costs to purchasing one assuming you are doing a single purpose entity (close ended single property offering) including:

-Paying an SEC attorney 15-20K to draft the PPM documents. 

-Earnest money (often non refundable day one) between 100-200K depending on the deal size. 

-DD which could be 10-20K depending on scope and size. 

The good news is that multifamily is a team sport and this doesn't need to be all you. In fact I've met several investors that offer to be loan guarantors and put up "risk capital" like the EMD, etc.. in exchange for a fee and/or percentage of the deal.

Starting an open ended fund, while it sounds attractive, can come with it's own set of problems and associated costs/management and is not typically a place to start if you haven't purchased any multifamily before as you would be asking investors to wire money based on a vision of the future rather than a hard asset. 

Hope this helps you.