All Forum Posts by: Scott Hutter

@Charles Seaman

I read Best Ever Syndication and It's a Whole New Business so I feel like I understand the fundamentals but I'd like to see how they're structured and packaged.

I've found I can learn a lot more from reviewing actual deal docs and can learn to pick out the major business factors of the deal rather than relying on summarized info from a book.

I'm interested in reviewing multifamily syndication offering memorandums to see how the deals are being marketed and structured in terms of sponsor fees. Eventually I'd like to get into working as a GP so I want to get a better feel for typical deal structuring.

Do you have any recommendations on how to find sponsors to request OMs from?

Given the securities laws and the headaches of Private Placement Memorandums it seems like most GPs are only marketing to their existing investor pool.

@Andrew Chung

I've worked with these programs before and yes they do exist.

Typically what happens is a developer received a grant from a Housing Finance Agency or Community Development Corporation (CDC) to build affordable homeownership units. These units are then sold to qualifying buyers at a certain Area Median Income (AMI). Usually these households have a gross take home pay that is 60 to 80% of the AMI. The buyer can purchase the home for a reduced price; however, the home has a deed restriction that limits the future sale price and could require profit sharing with the CDC. Usually the developer receives a developer fee of 10 to 15 percent of the hard costs.

While these do exist they're complicated and you do them 1) if you're a non-profit or 2) if you're very savvy with affordable deals. Otherwise I'd avoid these programs- too much brain damage for the returns.

@Anson Lau

I think there's positives and negatives to each-

If you buy you benefit from capital appreciation and the ability to further customize the space. If you go that route check out SBA financing- the interest rates are lower and the terms are much longer than a typical commercial loan (5-10 yrs).

If you lease then you have the benefit of having more cash to invest in RE or your business, you can move to where the market is (in case the node for automotive moves), and you can change your space needs if your business gets larger or smaller. Plus you benefit from expensing leasing costs instead of depreciating the real estate. That should allow you to bring home more on an after tax basis.

I'd consider both and determine what has the higher ROI. If that capital that spend buying your business's building only yields you 7% but you could get 12% in RE investing then it's clear you should continue to lease. Or vice versa if your returns are higher from investing in your business. Good luck!

@Tyler Bobo

Another good book to read is "It's a Whole New Business" by Gene Trowbridge. Gene is a securities attorney and does a very good job discussing the basics of syndications law.

It's not a replacement for getting a lawyer but I think it'd be a good start so you know the business factors to discuss with your lawyer and minimize their billable time explaining the process to you. Good luck!

https://www.goodreads.com/en/book/show/25647309-it-s-a-whole-new-business

@Cori Leste

These would pencil out but the investment looks a lot different than something with a higher cap rate.

The investment looks like:

- a 4.5% cap rate (assuming 30 opex ratio) -that would be debt service coverage ratio constrained so likely 40% equity and 60% debt

-low cash on cash rate initially (2% )

- high rent growth 4%+

- high exit sale price

The property won't cash flow significantly but the IRR much higher than the cap rate of 4.5%

It's a low risk, moderate return investment.

You're still making money but you need to be patient and need to wait to harvest value from the resale.