Our portfolio of syndication investments currently includes assets in which we invested over the past four years. During that period, we have steadily invested in what we perceive to be high-quality assets with operators that we believe have a good track record, good values, communicate well, and generally are aligned with how we want to invest. Most have been single-property deals in multifamily apartment buildings; we also have a few in funds and a bit in self-storage, industrial, office, and other real assets.
Not all of these investments have gone according to plan. As we have previously written, one of them already had a capital call in fall of 2022 (30% of invested assets had to be re-invested in order to avoid being crammed down; some but not all LPs met the call, apparently). One has been threatening a capital call but has not done it yet--we have cash set aside on the assumption that they will (that one will be 20% of the invested capital, apparently, if and when the call comes).
A few of these investments continue to do better than projected. Where the interest rate is fixed and low--a few deals from 2020 have ~3% debt, interest only for 10 years or so--and where the value-added parts are done and rents have risen, these deals look to be on easy street. They are showing "gains to lease" compared to the pro forma rents. One of them appears to have pre-paid an expense at the end of 2022, perhaps to lessen the tax burden they will show on our K1s after a good year?
And those in the middle seem to doing OK. Several of these "middling" deals have sent out word that they will not be paying out distributions as often (two firms switched from monthly distributions to quarterly) and others have dropped the amount of the distributions projected. A couple have said they are doing fine and expect to be profitable in 2023 even with rates rising--but they are likely to hang on to all the cash this year. Almost all of these "middling" deals used floating rate debt that has gone up. All, fortunately, have caps--and all seem to have hit the ceiling. (One wonders what will happen when the cap expires and the next cap is priced higher than the previous cap; perhaps that will be a blog post for another day.)
All-in-all, the portfolio of deals and a few funds seems in reasonable shape in early 2023, but the outlook is certainly foggier for the year than in the recent past. We expect that we will see how skillful operators are as the complex market continues to evolve--once again reminding us all that it matters with whom we partner.
In the meantime, we watch the market closely, hold plenty of cash at the ready, read all the monthly reports we get about our existing deals, and consider with care the new offerings from operators we have come to trust.