Are you interested in multi-family syndication and understand that doing the larger deals
with larger apartment buildings is the more efficient investment vehicle and the smarter
way to invest?
If so, you’re probably wondering how to get started.
You’re thinking, “I don’t have a track record. I don’t know if I can raise the millions of
dollars required to take down these projects. How do I get started?”
Progressing your investments from a single family home, to a duplex, a five unit, then
10, 50, 100 unit buildings—that can take years and may not be the best path for you to
build the future you desire.
How do you accelerate your investment career? By working smarter—still working hard,
but making smart decisions that deliver the most results out of your hard work, finding
the right people and resources and making your own valuable contribution to significant
projects. This makes that steep climb into something much more attainable.
And it’s exactly what we did.
We started in 2015 with zero multi-family units. And now in 2020, we almost have a
portfolio of 9,000 multi-family apartment units. What we did to be able to achieve that is
we brought value to experienced multifamily operators and formed strategic
partnerships with them. We were able to form joint ventures and co-general
partnerships to be able to partner and participate in taking down these large apartment
buildings years before we could have done it if we were going solo.
Back then we didn’t have all the systems like we do now. We didn’t have the track
record like we do now. But by leveraging the experience, the track record, and the
systems of others, we were able to scale at a rate much faster than if we were just
doing it on our own, one small deal at a time.
There’s an incredible amount of benefits by taking this approach when you don’t have to
have the staff or all the resources set in place like you do when you’re an actual
full-scale operator. And by not having to have all of those systems, it opens up a lot of
bandwidth to focus on what you are the best at. You should be focusing on the best use
of your time and skills and not trying to dabble in every single aspect of the multi-family
No one can do it all themselves.
It’s not just finding a deal and raising money. It’s actual operations, the day-to-day tasks
that are essential in order to effectively execute a multi-family project.
Finding an Experienced Partner
The first thing you need to understand when you’re looking to Co-GP or form a joint
venture with an existing multifamily operator or syndicator is that you need to find one
that has a track record and strategy that’s aligned with your interests and those of your
Your track record and reputation are on the line. You need to be working with someone
who is completely trustworthy and a moral person. That means taking a relationship
with a potential business partner slow. You don’t want to get into a partnership or
relationship too quickly.
You need to know the individual and their company. What do they stand for, what do
they represent? You need to be fully confident because you’re going to be basically
entrusting that operator to take whatever you’re bringing of value and shepherd that in a
way that you feel comfortable with, just as if you are the one that was totally running the
If you’re going to be partnering someone to
leverage their experience and track record, you
need to make sure that they actually have that
experience and track record.
You may find someone who has only done a couple of deals and would really
appreciate your work, but you want to maximize your chance of success. You should
find an operator who has that established track record. They’ve done not just multiple
deals, they’ve done multiple successful deals.
At the same time, if you’re looking at large groups, when they have, you know, 10,000
units or many thousands of units, they may be able to raise all the capital they need.
They have all the systems and they may not need to bring in a partner. You want to find
individual(s) with experience, but they’re not so big that what you can bring to a deal
has real value to them.
What you can bring to them is a creative contribution to what they can do. So, you’re
not going to be duplicating anything. You’re going to be bringing something to the table
that they could do better or they just don’t have.
Finding the Right Partner for Your Goals
You also need to make sure that the strategy that the operator that you’re going to
partner with is aligned with your own.
If you are more interested in severely distressed real estate, buying unoccupied
property and doing full repositions, you need to find an operator who has the same
strategy. Conversely, if you’re focused more on stabilized assets that can put off cash
flow from day one, you want to find an operator that you know is aligned with that
You should also think about the hold period that you’re most comfortable with. If you’re
trying to get in and out of a deal within one to three years, you need to find an operator
who has that same time horizon, or if you or your investors are looking for more long
term holds, you need to find that operator who aligns with that time frame. You want to
make sure that everybody’s interests align: Your interests, the operator’s
interests, and most importantly, your investors’ interests.
Again, your entire track record and reputation is going to be based on the deals that you
do. It could be detrimental to your reputation with your investors if you sell them one bag
of goods and they receive something different entirely.
You can’t turn around and say, “Well, our operating partner, he made these decisions,
and I don’t agree with them.” You must be on the same page with your partner.
You need to be sure that everyone’s interests are being met and that everyone is
incentivized in the same way. So if the operator is getting a ton of fees that you’re not
getting or investors aren’t receiving, and if the operator is not incentivized by the
overall return of the project, that should send up some red flags. Again, you want
to do a lot of research, take time to get to know your partner, and make sure that they
are of the same moral character that you are.
Building Your Track Record
But why is it so important to leverage one’s systems and experience? Again, you’re
building your track record by leveraging another person’s track record. It’s great
to be able to go to potential investors and say, “these are all the great reasons to invest
in multi-family and this is why this deal is so great,” but for most investors, their first
questions are going to be, “have you done this before? What are your past projects that
are similar to this project? Where have you been able to execute and be successful?”
More likely than not, potential investors will not want to pay for your multifamily
education by making a risky investment in your project. On the other hand, if you’re
partnering with an incredible operator and the “sponsor group” that you represent
manages thousands units and has successfully executed many deals then your
presentation is going to sound like more of a sure thing to a potential investor. They
want to hear about your partner who has done 10 multi-family deals. They want to know
all the projects that have been successful, the typical metrics, how their projects are
doing, and their vertically integrated property management team construction operation.
When you find a successful partner, you’re a part in
that general partnership group or sponsor group
with all of that experience.
Even if you’re just starting out, you can speak to their experience, and then highlight
your own background as you explain why multi-family investing is such a good strategy.
You want to get to the point where you can speak with authority about where you
fit into the whole process and what your partner is bringing to the table.
You want to be able to say, “I understand how the business works, I’ve done the due
diligence, we’ve put together a best in class team and this is why this project will be
At the Ground Level: Property Management
The biggest aspect beyond their track record and experience is the systems and
operations. Who’s going to be managing the property at the property level itself? Who’s
going to be doing the asset management and controlling what the property managers
You need to look into the details of property and
asset management and really understand the
overall strategy of the business itself.
You should look for a partner that is more substantial than one person who’s just
making decisions here or there while they’re also raising capital and looking for deals.
Your partner should have a dedicated team that’s solely focused on operations.
You know, if you’re just getting started, I highly doubt that you have the asset
management team and property management team in addition to the ability to raise
capital, find deals, guarantee the loan, and all of the other aspects and cogs in the
machine that make a multi-family investment successful.
So, if you don’t have that, finding someone with all of those pieces in place will allow
you to speak with authority on those topics. You can get your potential investors
excited about the idea that you have all of these systems through this entity that
you’re partnering with.
It’s just an incredible way to scale your investments.
Bringing Value to Your Partner: Raising Capital
You’re probably thinking, “OK, this sounds great. Now, how do I bring value to an
operator? What’s accretive to the investment itself? I may not have a lot of capital. I may
not be an accredited investor. What can I bring that they need?”
In fact, there are several different ways that you can bring value to an operator that will
allow that operator to be able to do more deals, expand their bandwidth, and get more
Now, the most obvious and what I’ve been touching on mostly throughout this
piece is the ability to raise capital and then bring that capital to a project.
It’s not that the syndicator or operator can’t raise that capital themselves, but it might
mean that they’re not going to have to tap their investor pool as much or push their
investors to invest more than they would typically. It may allow them to do another deal.
And again, it’s additive. It’s accretive. You’re not taking away or duplicating. What
you’re doing is expanding. You’re contributing to something that is greater than the
sum of its parts.
Bringing Value: Finding Deals
If someone can raise as much capital as they need, they may not need you to bring any
capital at all, but they may need something else. Maybe they’re looking for deals.
They’ve got all the capital they could ever raise, but they’re looking for the projects to
allocate this capital towards. If you can find a good deal that fits their investment criteria,
that is certainly worth something.
Your level of involvement, and how you are compensated, relates to how the operator
values your contribution. Maybe it’s only a small percentage of the general partnership,
or maybe you’re getting a fee for your services. Maybe it’s huge, maybe it’s small but
gets your foot in the door.
Maybe you can negotiate a large percentage of the general partnership because you’ve
gotten a deal under contract, and you can still assign it. In this case, you are, in a
sense, wholesaling the deal, but as opposed to being compensated and getting a
one-time payment, you might want to be in the general partnership group for 5, 10, 15,
or 20 percent. It comes down to whatever you can negotiate and how the potential
partner values what you’re bringing.
Bringing Value: Loan Guarantor
If you have the resources, another way to bring value to an established operator is by
being a KP (key principle) or a loan guarantor. The way that these deals get done,
typically the general partnership that is sponsoring the project has to have loan
guarantors that have a combined net worth equal to the loan itself.
If you’re purchasing a $10M dollar deal at 75% loan to value, and you have a $7.5M
loan, you have to have a net worth equal to that loan. Now, a lot of syndicators may be
building their net worth still, they may not have a seven and a half million dollar net
worth. Additionally, most lenders require the sponsor group to have enough liquid
assets (cash, stocks) that equals up to a year of debt service, taxes and insurance
payments. In that case an operator may need to bring in someone who does have a
substantial balance and liquidy sheet to close on the loan and the deal itself.
If you look at the deals that are more in the $25M range, that can be a pretty steep
climb and it becomes essential to have a significant amount of net worth and liquidity
available to get the loan secured and the deal closed.
What often happens is an operator will bring in a partner, who is usually a high net
worth individual, with a substantial balance sheet – the bigger the better. That balance
sheet will be added up along with the other sponsors for an aggregate net worth of the
This does add slightly more risk compared to being a passive investor or limited partner
because you are guaranteeing that loan, and while typically that loan is non recourse
there are additional liabilities at stake if the deal goes bad (that’s why it’s important to
partner with the best!). However, with your added percentage of the GP or other forms
of compensation, if you’re also an investor, that goes to accelerate your returns
significantly. You’re taking a little bit more risk, but you’re not having to do too much
more work. There’s a couple of forms you have to fill out. You have to provide some
financial statements, a schedule of real estate, and do a credit check. A little more
work, slightly more risk, much higher returns.
If you’re getting 15%, 20%, 25% of the GP group for just putting up your balance sheet,
that turns a 15 percent IRR (Internal Rate of Return) into a 20%, 25%, even 30% IRR
because of your share of the general partnership. And you’re not really having to do any
more work after the initial paperwork and due diligence. So for someone who’s not
necessarily looking to build a career doing syndication, but you are a high net worth
individual and have a large balance sheet, this can be a great way to accelerate your
Bringing Value: Asset Management
There’s many ways you can bring value. And again, it’s all what the operator(s)
themselves value in what they need. You could provide asset management for the
project. Typically an experienced operator, they will be doing asset management
themselves, but there are plenty of reputable partners who could benefit from extra
A relatively less experienced operator, for example, may have a solid track record with
all the capital ready to go, but they don’t have all of the systems in place. You can
provide one of those systems, such as asset management or even property
management, and then be able to be a part of the GP.
Other Ways to Bring Value
As you can see, the complexities of these deals create many opportunities to bring
value to a potential partner. Raising capital and finding deals are relatively easy to
conceive areas, but so many different things have to happen before, during, and
afterwards to ensure the overall success of a project. It’s worth making the effort to
figure out the best way you can help a potential partner and what kind of work you
can do to provide that help.
It all comes back to what the operator needs.
Maybe you have a construction company. Perhaps you can oversee the rehab or the
You can come to them and say, “Look, as the GC I’m going to cut my fee to essentially
break-even. I’m more interested in the success of the project than making money off of
my development fee.” From there you can negotiate for 5%, 10%, 20%, etc, and get cut
into that general partnership group. If you’re also an investor you can accelerate your
returns. Or maybe you don’t even have any money in the deal and you are getting a
return based on your time.
You may not see significant cash flow from your promote because typically investors
need to be paid back what they’ve invested before a GP group sees significant amount
of cash flow, but it’s a great way to build wealth, to own a piece of a large multifamily
building without having to put up any of your own money at risk and without having to
put all of the pieces together all by yourself.
Maybe you’re an attorney. Maybe you can provide some legal advice. You can help
prepare documents. Now, this may or may not be very meaningful to an operator.
Having an attorney in the GP group, if anything happens or just as a resource, that
could be worth a couple of points of the GP.
Maybe you’re a marketing expert. A lot of syndicators, they’ve got the asset
management, they can find the deals, they can raise the money, and they can execute
the deal itself. But maybe that little bit of help in the marketing department could really
move the needle for them. Maybe they could raise some more capital and get their
name out a little bit more with your help. Maybe the property itself needs a little help
with marketing and needs a new website. Again, that’s going to depend on what the
operator needs. It’s one more way that you can bring value.
Maybe you’re an accountant, a CPA. Perhaps you can do cost segregation analysis for
the project. You can provide audits and financial services at cost or at a reduced rate
and negotiate to be in the GP group to add a little bit of your insight. Again, it comes
down to what you can negotiate.
Play to Your Strengths
At the end of the day, if you’re interested in scaling your multifamily investment career,
you’re interested in syndicating, and you’re looking at a way to get your foot in the door,
pick one of these strategies that you could be successful at.
The most direct route and what is typically the most
accretive to an operator is the ability to raise
So let’s say you know 10 investors, and they would all be interested in investing one
hundred thousand dollars in a project. By approaching an operator and saying, “Look,
I’ve got a million dollars I can bring into your deal, but I’ve got two other operators that I
really like and I can bring into their deal as well. How much is that worth it to you?
Would you be able to give up five or 10 percent of the general partnership?”
Laws and Regulations
I do have to give a little bit of a disclaimer. You need to work with an attorney. These
investments are regulated by the S.E.C., and there are a lot of laws, rules and
regulations that govern how one can raise money for a security. For example, you can’t
be going out bringing capital to a deal and just get a fee unless you have a license as a
But if you are a sponsor who is raising money for a project of which you are an
owner/member, that’s what a Co-GP is. You can get around this regulation and be
compensated through interest in that company itself because you’ll become an owner of
that management entity that manages the property that receives the promote from the
investment. So, it’s worth spending a couple hours speaking to an attorney, making sure
what you’re doing is 100 percent above-board, and tying in your operating prior to
making sure the way you’re structuring everything is 100% above board.
Starting as a Co-GP is one of the ways that we were able to scale quickly, and we are
committed to sharing the experience and information that will help you share in our
We send out weekly research reports, aggregate news articles, and point to a lot of
things that are going on in the multifamily commercial real estate industry that you may
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Gray Capital Investment Team