When we are assessing a potential syndicator to partner with, our selection criteria move from (1) trustworthiness on to (2) experience.
When we look for experience in a syndicator, we want to see that the operator with the decision-making power on the deal has been through the process plenty of times before. They need to have seen different market cycles, know the area, understand the dynamics of financing, have mastered the art of working with onsite management, and have a knack for working with limited partners.
We need to know that the syndicator we are working with has the experience needed not just to acquire the deal but to finance it and manage it, through thick and thin.
Before we turn over our investment capital, we need to know: Is this their first deal in the space, their 10th, their 25th or their 50th?
If you are friends with the person and really want to be the guinea pig, that is certainly your choice. And everyone needs to get their shot to start.
But one of the huge risks of this time period is that the syndicator is fresh off a "guru" course. We're not interested in "first deals" from someone who has just finished a "guru" course or a "mastermind" and is out on YouTube raising money. That is a recipe for losing money and having a terrible experience, potentially. There is no reason that someone just starting out can't invest as a Limited Partner (LP) themselves, pair up with experienced investors, learn the ropes the right way and over time, earn their stripes, and build their own firm based on that shared experience. That slow and steady approach to getting going as a syndicator is for us--in fact, it is the only route for us. There are plenty of people with plenty of experience offering deals. Why choose a syndicator with little to no experience?
In fact, the deal that we think is probably the worst in our portfolio--where the communications are terrible, they've been threatening a capital call, the cash flow has dried up--it was an early deal for the syndicator in a market they didn't know as well as they should. That syndicator had a local partner who had done a few deals in the area, so we thought they should be good. But where we fault ourselves on this one, it is not asking hard enough questions about track record.
Here are a few questions you might consider asking:
- How many deals have you done overall in the multifamily [or fill in the blank if you are investing in another type of syndication: self-storage, mobile home, etc.] space?
- What is your overall track record?
- How many deals have gone "full-cycle" from purchase through to sale and return of capital plus return on capital?
- Can you tell us about a deal that didn't go they way you expected? And how did you handle that?
- How many real estate cycles have you been active through?
- Have you ever been an LP yourself? What was your experience like as an LP?
- How well do you know the specific geographic market in which you are investing?
- Is this deal new and different in any way for you and your firm? Is it bigger or more complex in any way than ones you have experience with?
- How much experience do the other General Partners (GPs) have?
- Who gets to call the shots when things get tough or into a crunch period? Does that person have the experience they need to make the good call at that moment?
- What is your "why" and how has that affected your experience to date as a real estate syndicator?
Let us know if you have other questions you like to ask of GPs when you are assessing their experience.