How do professional operators (also called general partners or sponsors) complete a syndication?
KMR Multifamily is committed to making investing in multifamily commercial real estate simpler for our investors and partners. We have a deep understanding of the multifamily market and the unique needs of our investors, and we are dedicated to providing them with the highest level of service and meeting and/or exceeding their expectations, in terms of ROI (primarily with conservative underwriting and awareness of market trends).
More specifically, how do operators/syndicators invest in multifamily commercial real estate?
- Selecting strong, solid markets around the United States.
Search for markets that have a strong potential for growth. Look at various factors when considering new markets, including population density, average income levels, and the overall health of the economy. You might also look at trends in the real estate market to identify areas that may be ripe for investment. - Studying & engaging in those markets to locate value add investment opportunities.
In order to find the best value-add investment opportunities, it is important to study and engage in the markets that interest you. By doing this, you can learn about different areas, sub-markets, and what makes them appealing to investors. With this knowledge, you will be better equipped to find lucrative opportunities that offer the potential for high rates of returns on investments. - Developing a boots-on-the-ground team of industry professionals.
Technology has made it possible for businesses and operators to operate remotely. However, it is essential to have a boots-on-the-ground team of industry real estate professionals. Why? A boots-on-the-ground team can provide valuable insights into local markets and trends, and be on-site within a day’s notice, when needed. - Rallying together a group of investors and working with lenders.
When financing a real estate investment, there are several strategies to consider. The most popular is rallying together a team of investors and work with lenders to secure the financing. This includes both equity and debt financing. Equity financing is when you raise capital by selling shares in your investment property. This can be done through private placement or public offering. In a real estate syndication, this is done through a private placement offering.
Debt financing is typically in the form of a mortgage, which can be obtained from a bank or other financial institution. Equity financing, on the other hand, comes from passive investors who provide capital in exchange for an ownership stake in the property. The general partners develop a business plan and pitch it to potential investors. If interested passive investors are convinced of the profitability of the project, they provide the necessary funding. Once financing is in place, operators search for properties that fit the investment criteria previously identified.
- Contract a third-party property manager to operate the property.
When hiring a property management company, operators should have reviewed similar properties in which the company has managed, to better gage their experience and capabilities. They must discuss the company’s policies and procedures on reporting and key performance indicators like rent collection, maintenance and repairs, and evictions, etc. It’s important to be comfortable with their approach before signing any contracts. - Provide investor income/distributions first.
As a real estate investment firm, we pride ourselves on putting our investors first. We know that their success is our success, and we go above and beyond to ensure that they are taken care of.
One of the ways we do this is by making sure that investor income and distributions always come first. After expenses like the mortgage have been paid, our number one priority is getting money back into our investors’ hands. This way, they can continue to grow their portfolios and reach their financial goals.
We believe that this commitment to our investors is what sets us apart from other real estate firms. When you partner with us, you can rest assured knowing that your success is always our top priority.
For many of us, the reason we work is to manifest our unique passions.
Investing prudently allows us to retire with confidence, knowing that our hard-earned dollars have been put to good use.
Whether your passion is financial, legacy-based, or philanthropic, being smart with your money can help you advance to the next level in your career, life, or personal pursuits. With careful planning and execution, you can make your dreams a reality – and enjoy a comfortable retirement along the way.
So how do you get started? The first step is to consult with a financial advisor who can help you develop a prudent investment strategy tailored to your specific goals. With their guidance, you can make informed decisions. The next step can be found in one of our articles/episodes where we discuss ……. Lastly, an investor should become familiar with real estate syndications overall.
If you’re looking to build wealth through real estate multifamily syndications, there are five steps you need to focus on: sourcing, analysis, due diligence, operations, and profit.
Sourcing deals is all about finding the right opportunity. You need to look for a property that has potential for high returns and is in a good location. Once you’ve found a few potential deals, it’s time to do your evaluation.
Various operators search for real estate deals in cities and metros, based on their preferences. We tend to like markets with populations of 150,000+ and strong population and migration growth. We look for strong market growth indicators and proven markets that are business-friendly and landlord-friendly. Our typical investments are B or C Class apartments that offer value-add opportunities and meet our strict, conservative underwriting criteria. Some operators might only view Class A apartments. Some operators have preferences like the type of roof and whether it’s pitched or flat. Some investors look at sub-markets and tertiary markets due to the limited amount of competition and/or familiarity…The list goes on and on.
Evaluation – When syndicators discover and prescreen a potential real estate opportunity, they will often run it through a strict underwriting process that can include more than 100 criterion. This process typically employs forecasting models that can vary in complexity depending on the preferences of the deal sponsor. The important thing is that these models provide a certain degree of certainty and accuracy when determining projections, based on certain assumptions. A rigorous and data-driven approach is important when evaluating real estate opportunities in identified targeted markets. This helps syndicators to identify only the best investment opportunities and avoid overpaying for assets.
Also, it’s important to focus specifically on evaluating the existing cash flow of each property. This is because we believe that this is the best indicator of a property’s potential profitability. By looking at actual financials and pro formas, one is able to get a clear picture of a property’s cash flow situation.
When you have experienced professionals who are experts in reviewing real estate data, you can be confident in the sponsorship team in making sound investment decisions that will generate strong profits and rates returns for our investors.
Due diligence is all about making sure the deal is as good as it looks. You need to examine the financials of the property and make sure there are no hidden risks. If everything looks good, it’s time to move on to the next step. Due diligence is a critical step in the investment process. Operators work with a team of real estate professionals, sometimes, including the new property manager, to inspect and evaluate all aspects of a property, including its financials and physical condition. This allows syndicators to identify potential risks and opportunities for their investors. They should only move forward with a purchase if the property passes their thorough evaluation process.
Operations is a critical part of business, and syndicators have to be focused on achieving the financial / business plan for properties under their management. To accomplish these goals, tenants must have quality, affordable housing and a desirable place to call home. This sound customer-centric approach leads to foreseeable cash flow and appreciation. Operators’ approach and method may include key performance indicators (KPIs) which should be concentrated on strong financials, occupancy, and quality standards. Through value-add strategies, operators can also increase the value of assets by creating a greater net operating income (NOI). This is typically accomplished with strategies like reducing expenses, raising rents, and improving the property’s curb appeal, and even creating additional income sources in alignment with the market. By following these simple yet effective methods, operators can generally continue to provide tenants with the high level of service they deserve.
Operators should consider their fiduciary duty to investors and be committed to maintaining the highest standards of transparency. Their operator should set expectations and communicate the frequency in which updates on their investment will be provided. For example, syndicators might provide monthly or quarterly reports to keep investors informed on the status their investments.
Profit
Syndicators must focus on profitability for investors and work to minimize the risks of diminished returns. There are several ways to do this – like with conservative underwriting, finding solid properties in strong markets, low-leverage, and a strong deal sponsorship team. It is important to look for opportunities that will increase gains and distribute property cash flow regularly. This cash flow also drives revenue, positioning the asset for a profitable exit strategy. It’s important to strategically look ahead, make asset improvements where necessary, so to ensure that the next investor/owner has ample opportunity to add value to the property upon disposition (sale).
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By Kelsie Mans-Ray
KMR Multifamily Acquisitions / Syndicator
NOTE: This information is of a general, educational nature and may not be construed as tax, financial, or legal advice pertaining to a specific offering, exemption or situation.
