All Forum Posts by: Jesse Meyer

Right on the line between c and b class. Delinquency. 

I wonder what right do LPs have, if any, in this situation.

Thought I would update with current return. 

At the beginning of 2023 my current annualized rate of return is 0.0091%. Syndicator proposal was to unload property after 5 years (next year) and that seems like a pipe dream now. 2 years without a distribution and now on the 3rd PM. Again this is the real performance from a huge syndicator with a podcast and huge online presence. 

To be clear, I understand this was a flop but to go this bad is something else entirely. The transparency is also gone as well because pointed questions get vague answers. Financial statements have not been released to LPs in over 6 months. No timeframe of when property will be potentially generating cash flow again. 

Real world numbers 3 years into the syndication I invested in:

COC return 2019 = 1.6%
COC return 2020 = 1.0%
COC return 2021 = 1.0%

This is with occupancy of 95% plus, remodeling units, and pushing rents higher.

Don't expect large big name syndicates to return 6-7% COC on their reputation alone. Before you make any commitment, have a clear understanding of what happens when projections are missed, budgets are broken, and unexpected items occur. Require clear transparency on where NOI is dispersed.

Don't provide an interest free loan for someone else to build up their brand and get the lion share when it's time to exit. 

Originally posted by @Paul B.:

@Jesse Meyer

I find it hard to believe that a GP collects no cash flow. Usually it's split between LPs and GPs, with the GPs taking anywhere from 10-50% of it, which means they certainly have an incentive to improve operations of the property as soon as they can. Furthermore, you should be getting a cut of the proceeds of the sale (again, GPs will take 10-50% depending on deal structure), so even though cash flow is disappointing, you should make something on the sale, if the GPs manage to get a good sale price.

The GP collects cash flow in the form of a quarterly administration fee (or asset management). In my deal, 2% of NOI goes to GPs before LPs get their cut.

Jonathan has a great explanation of how anything less than stellar management will leave a limited partner with little or nothing to show for it at the exit. 

To be clear, I am not saying what is happening to me is wrong(illegal) or even out of the norm of normal unexpected hiccups when working in multi-family real estate. What I am saying is that if you are like me and think single family will not scale fast enough and see multi-family syndication to fit your investment risk (7-10% COC and 15%IRR), be careful. Not that simple. Lack of experience, oversight, or attention to manage the property efficiently will kill your returns quicker than you might think.

Knowing what I know now, I would not invest with anyone that puts on any seminar or provides paid coaching. Those individuals are running puppy mills to suck you into an investment that you think is cute but after a year you are going to wake up next to a dog you really don't want. 

In case anyone else finds this thread, a word of warning about Nighthawk or any other large syndication firm with an associated social media influence. 

Media personalities (Nighthawk Equity/Micheal Blank, Rand Partners/Jake and Gino, Rod Khleif, Simple Passive Cashflow/Lane Kawaoka, etc..)will use their influence to build their brand/name first. Objectively the process works like this:

1. Use their media (podcast, blog, etc.) to pool capital from listeners/viewers to gain access as GP on deal
2. Create equity group as a standalone business
3. Transition to a syndication coaching service 
4. Use coaching service (students) to bring deals to the equity business

Where an investor needs to be careful (I invested with one of the above), is how this translates to risk the LP takes on when they partner with the equity business. In my deal I thought the track history of multimedia personality would equate to lower risk on my first syndication investment. Not the case. Quite the opposite. 

What I know believe to have happened is that a coached student brough the deal to the "face" of the equity group. Then the teacher, experienced member, face of the group will present it to investors as a deal they stamp their name and reputation on. What really happens is that seasoned GP members are there in name only. The inexperienced member(s) of the general partnership that brought the deal are left to manage the deal. The more experienced general partners see this as passive income stream. The general partners are not active in the deal post closing, they are there only to advise when things go wrong. 

And wrong they went for my deal. I won't name the company but holding group I partnered with held over 75M and 2000+ doors before I decided to jump in with them. Here is a list of the issues that transpired with my deal:

• They pushed Closing date multiple times. Leaving investment money dead for two months by not doing anything.
• First distribution was one month behind
• First distribution was severely under Pro Forma (5K in utility overage)
  First quarter operation saw overages in CAPEX (Pro Forma was off 10x actual figure)
• Second and possibly third distributions canceled due to more utility and CAPEX overages (issue is still not resolved with property)

Initially, I thought this was just bad luck, and I acknowledged this kind of risk when I signed up for it. Now, I have changed my mind. The syndication now admits proper due diligence before closing was not done (they got ONE bid for repair work on a multimillion dollar property!). And they are in no rush to solve the issue. I'll tell you why. 

It doesn't affect the general partners. Not one bit. Most syndications will advertise decent COC returns (mine was 7% at aquisistion moving towards 10% when property is unloaded) for the LPs and GPs get their cut on the exit. For my deal the occupancy is at 100%, reno is on schedule, rents are getting pushed, and capex items are getting addressed. Great for when the property is sold (again for GPs not LPs). But the mis-management hurts the LPs on the path to 5 year hold and release. My 7% (said to be a conservative figure) COC is now an actual 1.6% after one year. 

I would have made more money by just putting my money in a online high yield savings account. 

Maybe my experience is not typical, and I hope so but Bigger Pockets needs more truth on real estate. Even if you work with a team, some memebers will get the short end of the stick while others will profit exponentially more. 

Originally posted by @Kapil Patel:

Can we not take the course and just invest in syndication deals with Michael as a passive investor?

Yes.

Here is link to article.

Wondering what BP crowd thinks of the recent news tha the Federal Housing Finance Agency announced Tuesday that Fannie and Freddie will both be shutting down their single-family rental pilot programs and ending their participation in the single-family rental market, outside of their previously existing small investor programs – Fannie Mae’s Multiple Financed Properties and Freddie Mac’s Investment Property Mortgages.