All Forum Posts by: John Sayers

 This above post for sure!  I'd add that too many sponsors don't really, really, "know" the debt risk & analysis part. They defer and/or assume a lot about future liquidity and rate impact.

"ONE thing" seems not possible...Underwriting assumptions:
If they are not clearly enumerated, ask for them, or pass. Often one has to extrapolate or reverse calculate to get what should be clearly stated upfront.

Also, don't let a stress test /sensitivity analysis chart mislead you as the parameters can be from the super rosy to average range and then don't really include a real bad case scenario. Look at the ranges closely as they may have embedded assumptions that are not close to the dreaded word all use...conservative.

On the specific secondary question on "totally lost all i paid for HOA lien", to me that's the hated "It depends" answer. I would still get professional council from one that works in that arena. There are various options/variables to consider and too easy to miss a key item.

Back to the question; an auction sale to me does not 100% mean you will by default lose what's invested (could even maybe have a surplus situation), but assume I am wrong, and pull in a legal specialist.

Interesting one! 

I'm with @Bruce Lynn as seeming to be SOL if they redeem; if someone pays on a mortgage they are not on, it's basically a gift to the borrower that they would have no reason for reimbursing. Does the code specifically override that concept; so far nothing shows it does. Other code(s)?

It seems wholly outside the HOA foreclosure process and the 209.011 enumerated reimbursements requirements do not say they have to. The HOA foreclosure seems subject to the first, or having zero impact either way on the 1st.

Having said that (even with some lawyer jumping in with free input) I'd get a local RE lawyer familiar with foreclosures,court processes, timing, backlogs etc., and for a few hundred $, I would be more certain of a path before shelling out thousands that I could seemingly lose if redeemed. If the bank is talking some (payoff), getting a payoff each month can indicate a hint about the status on the loan overall and thus some insight on how close they are (or not) to initiating a foreclosure, thus how much time I have to work with.

BP is useful, but for certainty in such items, I would pull in legal.

Oddly quiet.

If nothing else than 5 words; communicate clearly, fully, openly/transparently. Some are looking for the most open vs just the pretty return #s than can often be overly optimistic in pro-forma. Some don't read much either, but it still sets a foundation.

Be 100% clear to the investors about what phase the deal/property is in (Research, due-diligence, Acquisition (LOI, PSA etc.), acquired, entitlements etc.). If rezoning (or any approvals) is needed but not yet approved, note it; don't gloss over the facts with "pending", "finalizing", "few weeks" etc.

If the Investment Offering LLC is acquiring the land from a sister LLC investment (vs a non-related 3rd party) and a chunk of profit goes to the parent LLC on day 1, just state it clearly. Generally no one mentions that the parent LLC grossed millions in profit day one while the Investment Offering LLC took on most of the remaining risks going forward. Be transparent. It likely won't impact attracting investors, however the hint of leaving something out on purpose can erode trust with some. In bad times, it can also, ever so slightly, open doors for cases that no one wants to see as they can be lose/lose.

Those that strongly compare glossy projected development returns, AAR, multiples, IRR, ROI etc, to NON-development deals can imply the GP is possibly (yet not necessarily) targeting slightly less sophisticated investors by conflating (accidentally or intentionally) the types of investments as if they carry the same types of risks, risk levels, timelines, etc. Put another way, a developer that mostly promotes the deal based on returns being higher than non-dev deals, but yet not near high enough to account for all the additional risks involved, can trigger an alert flag for some. "Risk adjusted" is used a lot, but less often substantiated.

Try to enumerate an many plan assumptions, risks, risk mitigation plans, stress-testing scenarios etc as possible, yet without overly dwelling on it either. Investors accept all sorts or risks, so it won't scare them. Sure won't bother the speculator / gambler. Not mentioning risk mitigation plans and forward thinking planning may remove a few potential investors who may wrongly think/assume the GP is just not aware of all the risks, or is afraid to mention them, or is maybe willing to take risks the LP is left unaware of. Either way they bow out, and may never ask a question.

 Having said all that blah, blah, the frenzied current market will still have investors that invest like hungry bass on an attractive lure. Though maybe many of them they are not investors at all and more Vegas type.

I was wondering the same thing as @Lucia Rushton  "...if the property hasn't been picked up in the last ( very busy ) year, I would ask why."

Some very good input!

Worst deals and how the responded is a good one.

Pick the operator first. it is the hardest part.

Are the business plan assumptions overly aggressive or not ? ALL operators will say they are conservative, but that is not possible so some are confused... or worse.

I differ some on the last item... to some extent as I see the points too. For sure the return is very important.

" The things I would focus less on are: Splits or fee schedules. At the  end of the day what is important is the return the investor is getting.  Would you rather get 20% IRR and a larger piece of a smaller pie or 28% IRR with a smaller piece of a larger pie? At the end of the day, the return is all that matters for an investor and often I see investors choosing lower returns for the good feeling a better split or fee schedule brings. At the end of the day you are investing in a worse operator, with lower returns."

Too many splits, hurdles, tiers, fees is an automatic alert flag for me. Projected IRRs are not worth the paper they are printed on, and it is impossible to invest in hindsight mode. Forward looking projections are always a risk gamble so putting weight on it too much can be potentially problematic.

What to consider in splits, fees hurdles is who (what parties) has what at risk when you run a Stress Test / Sensitivity Analysis. How the OA is written will determine if you are selecting a deal that has better alignment of interest vs another. A few words can make all the difference so READ the dos carefully. If an operator gets paid day 1, & throughout, & handsomely at Refi and more at sale ( lump fees before you get a dime), andn then the promote; while it may be customary to some to have all, is it really aligned to the risks that you think you are taking? If you can see a path where the operator will just about never lose, but you can lose even on a technically profitable sale (seen it), the papers are not really aligned even if the parties really think they are. It's all good/ok in an up market, but can be very bad in storms.

@Greg Scott has some good points for new investors to consider in general for any syndicated deals.

On "Some syndicators have so many fees (acquisition, construction management, asset management, capital event, disposition) the syndicator is going to get rich even if the deal produces zero return for its investors"

It sure is buyer beware or investor be-aware! Many a syndicator is setup to, in general, be "heads we win, tails you loose" when you look at all the tiers/falls, flows, fees and OA rules. The OA/PPM need close reading for the rough seas days.; few care when it's sunny.

@Steven Rosenfeld On Goodegg, no direct interaction here; they seem to maybe have limited full cycle experience in the GP/syndicator role. I could be wrong due to glancing and it is only noted here as some investors may evaluate deals with that as a factor. Some don't care at all as many are in that position. Overall they do present themselves as quite successful, established with experience and connections.

Mentorship is listed. That can mean a lot of things to different people. A Plus, a neutral or maybe even a negative to some. Mentioned it, as a new syndication investor may not be aware it could be viewed different ways. 

Multiple properties listed on the website portfolio appeared to be ones they would possibly not have initiated the LOI/PSA/sale as the properties are known to be bought/run/sold by other entities/syndicators. How is that possible? It is not uncommon for syndicators to list properties they were passive LP investors in, and for sure to list properties they were/are also a part of GP, with limited/minimal active management roles. A bootstrap of investor cred as entities evolve into their own footprint. Some will notate which was which role. Additionally, some syndicators are mostly in the middle-person role of sorts; partnering with others who do the primary LOI/PSA/operation roles. Some on them will do their owe due-diligence on each deal and don't rubber stamp the primary operator. That additional review layer definitely can add value in oversight and deal selection. A fee well spent for some types of investors.

Why mention a hybrid flavor? Just so those newer to syndicating (like OP noted) are aware that there many flavors of syndicators, and that "who" is running a deal may not be who one thinks it is, depending on how the items are enumerated. Some are very clear what their role is and some are not. If one were to look at the list of portfolio properties presented on various syndicator websites and think that the syndicator listing them was the one that found, secured, purchased and asset managed all the listed properties, then one might arrive at an inaccurate conclusion for numerous syndicators. Of course, if one wants to know which is which, just ask the syndicator if they were the day-to-day sole decision making operator who interacted directly with the PM, lender etc.

Good points by @Paul Moore.

Percentages can be tricky tools in the sense they can obscure some things that people either never think of, or just don't look at the big picture with the correct lens.