All Forum Posts by: Mike Iger

 Less traveled but not alone. For sure if a GP can almost never lose capital or very little, it's not quite as aligned as it could/should be. The biggest push bback will be from the GPs in the arena. Feel free to share finds with me. I'd love to add more to my monitor list.

I'm looking at more and more syndication investments, because it is a personal interest of mine. 

And it really rubs me the wrong way when a syndicator puts together a deal in a way that has very little of their own capital in the game, but raises money from other investors in a huge way.

Example: 

Syndicator purchases $100M in real estate. Syndicator raises $35M in equity. Syndicator invests basically nothing (less than $1M) of their own capital in the deal.

In this deal, the syndicator, will make, in fees, something like the following: 

- $1M acquisition Fee (1% of asset value)

- $2M in management fees (2% of equity per year, for 5 years). 

- $1M disposition fee (assuming property value at exit does not change at all)

- $0-5M+ carried interest (20-30% of profits). 

Look, this model has been around a long time. I get it. And, if the syndicator delivers, it's a win/win for investors. No issues there. 

But, what really makes me scratch my head is the fact that if the syndicator does not put in a meaningful chunk of their own net worth or a meaningful percentage of the equity, then there is almost no downside to them for raising this deal, other than perhaps their reputation. 

If I lose everything I invest in this deal, then I feel the syndicator should come out with a negative as well. Net of all fees, net of everything, they need to lose if I am wiped. 

There is no real incentive to protect downside risk in some situations, because everything is upside for the deal sponsor.

If it does really well, then they make $4M in fees, and another several million in carried interest. If it does poorly, then they make $4M and lose little to nothing. Heads they win, tails they win.

As an LP, I'm not interested in playing a game where the syndicator can win and I can lose.

Any syndication investment that does not involve a meaningful percentage of the syndicator's wealth (10% of their personal wealth, excluding any acquisition or deal related incentives) in the deal is a non-starter for me personally going forward. 

And no, investing the acquisition fee does not count. A sponsor "Investing" the $1M acquisition fee earned just by buying an asset with my money does not count as an investment. I want to see someone who is pitching me on a deal putting their own capital to work in a meaningful way, someone who believes in the deal so much they will put their own money where their mouth is. 

I'm listening if 10% of their personal wealth is in the deal. And specifically in The deal that I am being invited to invest in.

I'm interested if 25% is in it.

And I know that they at least, truly think they are for real when they approach 50% of their wealth in the deal. 

What do you think? Is this a reasonable stance to take? Do you feel as uncomfortable as I do about giving a syndicator a "free spin" on their next deal, and will you throw out investment opportunities that do not have the sponsor committing a serious chunk of the pie? 

Or, am I being unrealistic and idealistic, as has been the case many times before?

I second @Chris Seveney and @Eric Gerakos.  We are buying real estate debt.  Sold 75% of our real estate at the "peak" 18 months to 24 months ago.  Probably won't be buying any real estate for a while, maybe 6 months, maybe two years, we'll see...

There might be some opportunity in home building (high interest rates are causing sellers to hold on so new construction might make up a lot of what potential buyers have to choose from), and smaller multifamily (the ol' "tired landlord" or owners with maturing debt and no way out).  And single family flips if you can find them.  

If you're really ambitious, office to residential conversions and if you have an iron stomach, office is in "buy low" mode--question is whether it goes even lower and how long will it take to be able to "sell high".  And how empty will you be in the meantime.

I think that will be a problem in some areas. Not a problem at all in other areas. It most likely won't be as bad as it sounds, either. Many of these units will never see the light of day because financing will be a challenge for those projects that don't already have it. These numbers come from approved permits, not from number of units actually under construction. A more important metric is the construction/absorption ratio. This measures how many units get leased relative to the number constructed. And looking at that ratio on a submarket basis tells a far better story than looking at a National or state statistic.

Only if they disobey the waterfall rules.

In your second scenario, when they refi, you would get $65,000 back which returns the rest of your capital.  Then the rest of the refi proceeds drop to the next tier (iii), in which you get 70% of that. So if there was enough to send you $100K in your first scenario there would be enough to send you $100K in the second scenario as well.

The only difference is what you call it.  In the first scenario $100K is return of capital. In the second scenario, $65K is return of capital and $35K is return ON capital.  

If the property blows everyone away with amazing cash flow, you’ll share in that benefit under either waterfall scenario.  Just slightly less with the way it’s currently written. Most likely nowhere near as dramatically as you are thinking, I suspect.

This all assumes that the sponsor is actually calculating the waterfall correctly, of course...