Hi Chihiro,
Thanks for the call out but I wanted to clarify a few points around "operators" vs "syndicators". Syndication is the pooling of assets from investors to go purchase something that is hard to do on one's own as commercial assets are often far more expensive. There are very sophisticated syndicators who don't operate anything. In fact, most investment firms don't. The sponsor / syndicate carefully vets markets, niches and operators, then select the long term operator partners that they feel will help them and their investors preserve and grow their capital. It's great for investors to have choices, diversification by geography, niche and operator.
Some of the most famous names you know in investment world do just that. They do their own due diligence, have their own analysts, do their own modeling, create their own PPM, marketing materials, tour the property w/the operator to understand clearly the business plan, making suggestions on strategy, maintain the relationship with the investor base over the entire life cycle of the deal, creating reports, answering questions, managing distributions, K1s, etc.
They have input to the operator but they don't operate the project. Their reputation is on the line every bit as much as the operator so they must know everything about the project, deal, team, etc. Simply suggesting that folks engaged in working with investors, educating them don't know much about the project, are not educated, don't do their own due diligence, are not close to the operators or exercising a key role on the team is seriously missing the point.
In my experiences (20+ syndication deals), sponsors can also bring even better value to their investors than what operators provide. We have institutional operators we partner with that have $500K minimums with tremendous track records. Most of our investor base would love to have exposure to work with them so we syndicate the deal for our investor base and give the operator a check for $5M to $10M but while lowering the minimums to say $50K or $100K. We also can arbitrage deals where the operator has a 50/50 split but we negotiate better terms because we can provide one large check and may get a 70/30 split, then turn around and give our investors an advantageous 60/40 split. We manage everything on the back end including reporting, accounting, investor relations, etc. You step back and say, hey, aren't you capital raising, heck yeah, but doing a significant amount of other roles, most importantly adding great value to our investors.
Bottom line, we have to know everything that the operator knows because where do you think the questions come from? It's Investors. Who answers them? The sponsor. Who's closest to the investor? Who's reputation is on the line, the syndicate and the operator. Are we team members, you bet. Are we part of the operators GP agreement, you bet. Is it all on the line, reputation, results, you bet.
If you are contemplating raising capital as a critical role in a GP or sponsoring deals or syndicating deals and selecting operators, you need to have an attorney trained in SEC and your state laws to understand what you can do. I won't go into all the details here but my point is to highlight a bit more what's happening in the industry and ensure folks know its a team sport, that there are clear distinctions between an operator / sponsor and sometimes they are one and the same, and that the person who may be raising capital should both practically and legally have a broad based role in the GP partnership. You should vet both the operator/ sponsor whether they are one and the same or operating as separate companies. Here's some tips on vetting sponsors / operators you may find helpful.
https://www.biggerpockets.com/blogs/9145/53959-vet...
