The choice is yours. You can go with a syndication management team with a proven track record or one with little or no experience and a professional-looking website. Real estate syndications are a complex investment vehicle, lasting 3 to 5 years. Sometimes longer. This means either you get it right or you don’t. By conducting due diligence early and making the right choices, the chances are you’ll make money. Skip the due diligence process, and you may find yourself disappointed and possibly minus your investment.
Brian Burke, an experienced and well-known multifamily syndicator and author, tells us about the team surrounding the syndicator or sponsor. In his book “The Hands-Off Investor,” Burke states that “not all syndicators are created equal. Some have every angle covered by a core group of highly experienced executives while others have assembled a loose-knit compilation of partners and advisors, who may or may not have a true stake in the outcome… and that no element of this business has a greater impact on the outcome than the team.” Burke has it right!
As a Certified Fraud Examiner whose been called upon to investigate matters of improper actions by the property management firm, many including myself believe that oversight once the deal has been cemented is just as important as conducting proper due diligence before investing. Experience has taught me that many investors fail at one or the other. When this happens, the consistent receipt of distributions can be interrupted by either a notable decrease in the amount received or the distribution itself becomes nonexistent.
Let’s begin with due diligence. The savvy investor will want to know as much as possible about the syndicate’s management team. The experienced syndication sponsor will have several deals successfully executed to completion or are at least well along their life cycle and performing as projected. While historical performance is never a guarantee of future success, going with a syndication team with a solid history of prior successes can be viewed as a step in the right direction.
Conducting proper due diligence includes finding out all there is about the management team’s background and experience. The degree of such knowledge learned is dependent on several factors and forces one to ask:
What is the professional background of the leadership team? Does it align with real estate syndications in areas of real estate acquisition and finance, legal, tax and securities regulations, and construction management, property management, etc.?
How many deals has the sponsor executed?
How many deals of this particular type has the sponsor executed? Success in multifamily residential does not necessarily equate to expertise in commercial office space.
How many deals has the sponsor done in the target real estate market, and how familiar are they (or an underlying team player) with the market?
If a team involves multiple players for acquisition, construction and maintenance, property management, and other services, have they worked together as a team in the past?
Should you suspect wrongdoing, such as embezzlement or the misappropriation of funds following your commitment, contact us so we can discuss your options. Ipsen Due Diligence is experienced and available for financial investigation and litigation support.
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