All Forum Posts by: Brian Freedman

Hey @Gino Barbaro. Would a counterargument be, though, that if you have $100k of equity in a building, if it pays you $1k in steady income, that 1% return, although steady, isn't a good return and you'd be better off selling your position (if possible) and buying a CD or a treasury bond. Of course, it depends on the interest rates and other factors.

Thanks @David S. and @Chris Seveney and @Gino Barbaro and @Chris Seveney  for your insight.

I'm wondering when it would ever make sense to join a syndication as Limited Partner with a buy and hold strategy? What would be the rationale? To me, it makes more sense to realize the gains in appreciation after improvements by selling in 5-7 years, with the intention of rolling that return into another property. That's the goal of most syndication deals, it seems. If you invested 100k into Deal 1, you can now invest let's say invest 150k in Deal 2 if you're total return was 50% on Deal 1. And hypothetically, if you're getting a cash-on-cash return of 10% in both Deals, now you're getting $15k instead of $10k. Eventually, I'd understand holding a property once you hit an income benchmark. Let's say your goal is $50k in passive income a year. So you when you get to Deal 10, and it's paying $50k in passive income, or maybe it's Deal 10 + Deal 11 combined, then sure, you can be less concerned about ROE.

The more years you hold a property, the lower the annualized returns become given that the bulk of the appreciation happened in the first few years. If the idea is to hold a property, then the ROE has to make sense, I'd imagine, regardless of what your basis is. If I'm in Year 20, and my equity value in Deal 1 is $100k, and my income from Deal 1 is $1,500, and I couldn't get the equity out because I'm an LP in a syndicated deal, then wouldn't that be a bad place to end up in?

@Chris Seveney Thanks for the quick reply. It's a syndication, not a fund.

I'm looking for advice on how to properly measure/understand the return on investment as a Limited Partner in a syndication deal with an indefinite holding period.

I'm considering investing in a Syndication with an indefinite holding period. The sponsor is trying to build a big portfolio of buildings that will provide cash flow to investors, and selling is not part of the strategy. As the Limited Partner (LP) and if the project goes well, I'll get 50% of my capital back in Year 3 and 100% of my capital back in Year 10. Any profit distributions are at a 70/30 promote. In addition, I'll get a 6% preferred return on the capital I have in the deal at the moment the calculation is made. Once all my capital is returned, my equity is reduced by 30% as part of the promote given to the sponsor. Should I view this as a sort of loan whereby I get compensated with a 6% return AND equity? And the risk of getting my loan repaid is the financial health of the building; versus say if I loaned my friend $50k with 6% interest, the risk would be the person? Furthermore, since my basis is zero once all my capital is returned, how do I calculate a return on my equity in the building once that happens? For example, if my equity is $100,000 and I'm only getting $2,000 per year in cash distributions, wouldn't it be better if I could somehow take that $10k out of building? Or is that cash all gravy, so to speak, because my basis is zero. Syndication returns are a lot clearer to me if the building is sold in 5 years, but in the case where it's held, it's confusing to me how to properly measure success.

If the building is held for 30 years, for example, is it fair to ask whether it would've been better to just put that $50k in the SP500?