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  • Real estate syndication question

    I was offered the opportunity to invest in a multifamily residential property.  I'm going to pass for a variety of reasons, but I don't have much experience with these kind of deals.  I was curious if this pay structure is typical.  I was offered class B shares which have a higher floor/lower ceiling for earnings.  The person who is putting the deal together is claiming all of the class A shares.  Is the higher earning potential for class A shares an appropriate reimbursement for doing the legwork of putting the deal together?

    1. 8% annual, non-compounding preferred return to all investors.
    2. On an annual basis, after the preferred return, any distributable cash flow is split 50/50 between A and B.
    3. Distributions from a sale or refinancing will be made to pay any outstanding preferred return first, followed by a 70/30 split between B/A until Class B members have been paid a 1.7x in the aggregate. After the 1.7x any cash flow thereafter will be split 20/80 between B/A.

  • #2
    That would be a highly uncompetitive split (unless you're getting class A shares). Simply put, run away, this is a joke.

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    • #3
      Thanks Wonka.  The sponsor is putting up 22% as class A shares and the class B shares make up the remaining 78%.  What would be a more appropriate waterfall? 30/70, A/B?

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      • #4




        I was offered the opportunity to invest in a multifamily residential property.  I’m going to pass for a variety of reasons, but I don’t have much experience with these kind of deals.  I was curious if this pay structure is typical.  I was offered class B shares which have a higher floor/lower ceiling for earnings.  The person who is putting the deal together is claiming all of the class A shares.  Is the higher earning potential for class A shares an appropriate reimbursement for doing the legwork of putting the deal together?

        1. 8% annual, non-compounding preferred return to all investors.
        2. On an annual basis, after the preferred return, any distributable cash flow is split 50/50 between A and B.
        3. Distributions from a sale or refinancing will be made to pay any outstanding preferred return first, followed by a 70/30 split between B/A until Class B members have been paid a 1.7x in the aggregate. After the 1.7x any cash flow thereafter will be split 20/80 between B/A.
        Click to expand...


        Typical splits are 80/20 and 70/30 after the preferred return. So 50/50 doesn't seem great. Nor does 20/80!
        Helping those who wear the white coat get a fair shake on Wall Street since 2011

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        • #5




          Thanks Wonka.  The sponsor is putting up 22% as class A shares and the class B shares make up the remaining 78%.  What would be a more appropriate waterfall? 30/70, A/B?
          Click to expand...


          If the sponsor is also an investor, he should get the same terms as the other investors on that capital.
          Helping those who wear the white coat get a fair shake on Wall Street since 2011

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          • #6
            Originally posted by topher View Post
            but I don't have much experience with these kind of deals.
            This is a problem I am facing. The mathematics and economics of these kind of deals aside, I am struggling to find a safe investment for more syndicated real estate investments. Where are people going to find these kind of investments? Is it more of brokers offering it up-front?

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            • #7
              Is this residential property already built? Because I wonder if part of the investment is hidden fees going to the contractor and developers.

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