thanks everyone for you candid feedback. we have experience investing in RE but this is our first syndication. As an Army vet and West Point grad, honor and integrity and of the utmost importance and I bring this to our new business ventures in RE syndication.
@Tushar P thanks for your responses and tagging of others to really open up this into a constructive discussion about strategies and operational considerations.
@Rick Martin yes, will be discussing the SPE with our RE attorney and ensure the language is drafted up correctly and in a manner that is easy to understand and transparent to all investors. totally agree the LPs are so important--we treat ours like family, like the partners they are side-by-side with us in the venture.
@Evan Loader thanks for adding to the discussion and brining in Brian Burke! Interested to check out your K1 Tax thread as well!
@Brian Burke all I can say is "wow, sir!" Such as wealth of education and context you provided here! I did not have the words for the strategy and now know it is a "recapitalization". I will update the title to this thread. Admittedly, it does sound strange to state it as "sell to yourself" and certainly raises the antenna of a potential scam. Our plan is to do exactly what you described:
"There's nothing wrong with the practice as long as the sponsor is disclosing what they are doing and they are recapitalizing at a basis that provides substantially similar economics to the investor as would an arms-length sale."
We purchased a 41-unit Independent Senior living apartment complex on four acres, two acres are open. this will be for active independent seniors 55+ Plan is to begin building a 36-unit on the back two acres for use as "Assisted Living", thereby creating an integrated "Senior Living Campus" to offer next level if care options, etc. The new construction will be under a Special Purpose Entity funded with debt, new capital raise and tax credits. Will likely bring in additional General Partners as well so it's not going to be the same group as the original syndication. At the 5 year mark, we anticipate the new building coming online and timed with the recapitalization of the first project. This will provide both type A and B investors solid options--all can cash out at year 5 with higher gains that if we just did a refi, and then the long term investors would be given additional incentives to redeploy capital into the new SPE.
Will definitely gather several BPOs and an appraisal at Year 5. Figured too that by selling to the SPE we can avoid the ~5% commission and fees associated with an arms length sale. At a projected $5M value that is not insignificant. As the GPs, we would not be taking a fee either at the recap.
I just retired from active duty Army after 22 years and plan on building our business full time now and grow to be a large sponsor with 10,000+ units. Alignment of interests with all parties esp the investors is paramount. We are focused on building meaningful relationships that will last . As a West Point grad, I am also part of the Service Academy Business Network (SABM) which has an investing group called LocalVest. Have already made solid connections with many and have our first deal posted there if anyone is interested checking it out--would to hear feedback pos or neg, it all helps!
Plan on checking out your other content and learning more about syndications. Look forward to getting more involved on these forums and provide value to others as well. Thanks!
