LossReal Estate Syndications (Limited Partner)

A sponsor's track record deck only shows the deals they choose to show

Consider a limited partner who commits $50,000 to a self-storage syndication after reviewing a deck listing five prior deals, all full cycle, all between 1.7x and 2.2x equity, and a PPM read closely twice. The obvious question that gets skipped: is this every deal the sponsor has done, or the five they choose to show? A common pattern is that it's the second. An LP update call surfaces three other deals not on the deck, two fine and boring, one a total loss where LPs received nothing back after a lender took the property. A sponsor asked directly will often answer honestly. The deals just never get volunteered. On the deal itself, distributions starting at 6 percent annualized, dropping to 2 percent when lease-up stalls, then pausing for the better part of a year, with a valuation letter putting the property below purchase price and a three-to-five-year hold pitch now assumed at seven, is a common shape for a syndication under stress rather than a total loss. The practical lesson: ask for a written list of every deal a sponsor has ever sponsored or co-sponsored, including the ones that lost money, and ask to speak with two LPs from the worst one. A curated list is information in itself, and it's worth having before any capital moves.

mikeoconnell7 SO3CPRO 12

Answer

nicole_adeyemi SS3APRO 13

Here is a track record ask that actually works, because "send me your full history" gets you another deck. Ask for it in writing as a table with one row per entity the sponsor has raised into, showing purchase date, purchase price, capital raised, current or final status, and total distributions to LPs to date. Every row, including the dead ones. Then ask, in the same email, for contact details of two LPs from the deal that performed worst. A sponsor who is comfortable with their record hands that over in a couple of days. One who stalls, or redirects to references they picked, has answered the question a different way. On @tashaford30's point, the subscription agreement usually has you representing that you did your own diligence and relied on the offering documents. That representation tends to cut against a later complaint that the marketing misled you, and how far it cuts is a securities question for a lawyer. Practically, it means the diligence is your job and nobody hands it to you. @mikeoconnell7, one more thing worth adding. A total loss in a prior deal is not automatically disqualifying. What matters is how the sponsor behaved during it, whether LPs were told early, and whether they ever put their own money in to hold the thing. Ask about the loss and listen to how they narrate it.

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nicole_adeyemi SS3APRO 13

4 replies

hannah_west29 SS2APRO 16

The number that jumps out is 1.7x to 2.2x on five straight deals. That's a run nobody produces without a market doing most of the work, and it should prompt a question about what years those exits landed in. Five deals bought cheap and sold into a hot window is one skill. Operating a stalled lease-up is a different one, and a highlight-reel deck doesn't test for it.

hannah_west29 SS2APRO 16

tashaford30 SG2CPRO 16

That's the exact thing worth worrying about before a first LP position, that the marketing is legally fine and still tells an investor almost nothing. Whether a subscription doc that says the track record was reviewed actually matters, or is just paperwork, is a fair question to put to counsel before signing.

tashaford30 SG2CPRO 16

diane_kowalskiServicePRO

Eleven months of paused distributions on a lease-up isn't necessarily the sponsor lying to you. It's often what happens when absorption comes in slower than the model and the lender wants cash held. The part I'd be annoyed about is the same as you, the missing deal.

diane_kowalskiServicePRO

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