Originally posted by @Alex T.:
Thanks guys. @Joe Fairless your bullet #1 keeps going through my mind as well. As far as I know, the syndicator isn't putting his personal money in (although the PPM says he reserves the right to - I think that's just a standard agreement). And that makes me wonder about the alignment of interest as well. Sure, we both benefit from the upside, but only one of us would fear the downside.
@Joseph Gozlan When you say failing management is more common than syndicators would like to admit, how common? Is it in the double-digits in terms of percentages? Are there any patterns that lead to this? Also, when you say "negotiate", isn't that more relevant when number of investors is small and/or they negotiate together?
As for voting I was told each investor gets 1 vote, regardless of equity. Actual property management is handled by a different person, who managed a few local hotels in the past. I should also mention that both individuals seem very punctual and organized, which speaks favorably about their ability to manage this.
But as I said, not being able to see who else is in the deal does concern me a bit, so I wanted to see if that's standard or not. However, I should also mention that one of the advisors for this deal is an experienced syndicator who even came to do a talk here in a local university a while ago, and I was able to speak to him on the phone, he spoke favorably of the deal as well. So all in all, I'm more concerned with me evaluating the deal correctly and getting the promised return rather than some red flags it's raising.
If I had exact numbers I'd be making millions from those syndicators for my silence :-D
I heard of multiple cases from lenders and brokers I've worked with. They don't tell you that in the seminars. Did they even mention the fact that it's possible? probably not.
As for the voting, read your syndication documents again, a syndication, by definition, is not a democracy. The syndication leader is the one calling the shots. Having a 3rd party PM is great but they still have to get direction and permissions from the syndication leader. If said leader decides he want's to defer all maintenance in favor of cashflow you probably won't even hear about it. After all, the reason you agreed to let him take free equity, "asset management" fee, acquisition and disposition fees (and whatever other fees your specific syndication group likes to charge) is so he will take these decisions and worries off your hands.
You should also keep in mind, most syndications promise the investors IRR which is heavily dependent on the resale value of the property. Without good, strong leadership the property won't gain the value and the resale won't meet the promised goals.
Back to voting for a second, even if I'd take that notion of 1 investor 1 vote (if I invest $200K why shout the guy that brought $25K to the table have the same influence as I do?), my original point was that if you DO get to a voting situation, organizing 25 investors to vote a certain way (or vote at all) will be challenging. Even more so if you don't know who they are...
I want to state again that I have nothing against syndications. I do have something about syndicators that don't educate their investors enough and act in an obscure way.
My only advice to you would be to trust yourself. If you don't feel comfortable with a specific group, partners, KPs, or the syndication leader (most important) just walk away.
There are many syndicators our there these days and YOU have options (and the money).
