This video goes through what is involved in a syndicator’s life after the money has been raised and the assets have been acquired, what things take place, because I think that when you understand that it becomes a compelling future in order to go forward and put together your own syndication or fund. Now, this particular video comes from some coaching that I did several years ago. But the ideas are absolutely valid today, just as they were then. At that time it was for a group I put together called the Altitude Syndication Founders Club. As part of that it was obviously for real estate, because we’re talking a little bit more about real estate in those videos, but the material applies just as well across asset classes. So I’m sure you’ll find this video useful.
Today, we are going to go through one special topic. But to get there, I’m gonna go a little bit of a roundabout way. So I’m going to start really, really high level, and we’re gonna go through what those things are, and then we’re going to zoom in on one tree, and it’s not the trees that you’re thinking I’m probably going to do, it’s the trees that are out there in the future. Sometimes I know that I personally get stuck when I don’t know exactly what’s coming and what I’m getting myself into. And maybe you feel the same way. Maybe you feel like if you do a syndication you get the idea of founder investment theory and putting that together, you understand finding properties, finding investors, but maybe it is something that’s out there, and you can’t really envision what that life is like being the syndicator after the deal’s done. If that’s the case, then this is the episode for you because we are going to zoom in on that set of trees.
There’s really four things that a syndicator or sponsor does to take care of and manage syndication that’s ongoing. This is before the sale, but this is after your property has already closed, and you are in it. My idea is that by setting that future vision of where you’ll be after it closes, that it will be compelling and magnetic for you to go to. So let’s go ahead and start with the forest view. Now I know we’ve gone over this many many times but we’re gonna do it again. So here we go.
Cutting to the whiteboard, and even though we’re doing it again, please don’t turn off this video. This is important stuff. So we start with founder investment theory. You know, though it’s extremely important and the basis of everything we do, for the purposes of this, it really is just one tree, it’s just that big great oak tree that stands in the middle of that nice yard and that is really calling it out. So it’s the tree of life if you want to use Viking terms, it is the tree that all things take place and flow from and so it is critically important, but it is just a tree.
So we have our founder investment theory and that builds the basis of our funnels. And for here I just mean one specific kind of funnel, I just mean the funnel that starts the process of filtering out exactly what you’re doing. So we’ve got this funnel here and then we’ve got financial analysis here as our other tools and in this toolbox, we put investors right – investors go in there and properties go in there.
What comes out of that process? We’re loading investors in there, we’re talking about our founder investment theory, making sure that they understand, doing our financial analysis with those investors in mind. So we know whether they’re deals that they would be interested in doing. We’re also finding properties – properties that meet the founder’s investment theory, and then doing the financial analysis on those properties to make sure that it complies with both the investors and the properties and what they want.
Out of that process, you find a property. You find that perfect property that you want to syndicate. And here we go through the rest of the analysis. So this is the analysis of what it looks like to put this as a syndication package together. And so here, we’re talking about our alphabet soup. Which most of the time is going to be 506(c), but not always. And then we’re doing our private placement memorandum, we’re doing our operating agreement, and our subscription agreement.
Those are necessary before we really go to the investors and say, “Hey, I’ve got a property that is locked up, please give me your money.” They may have very well already been talked about it in this step right here, where we’re talking about what is important just to sort of say, “Oh, this one looks like it’s gonna be good” and then just testing the waters seeing if investors are gonna like it. But once we finally decided that the property is good, we go through this analysis here. And this is where we are marketing to the investors, we’re latching them, and we’re collecting funds. And at the end of the day, we close escrow with a great big smile on our face, because everything’s great. All right, we’ve syndicated this property, we’ve done it, we’re done, done, done. Right? No, not right at all.
So the next step that we have to go through is a circular system. Right. So out of here, we are coming away up here, and we are circling, circling, circling. So yeah, I’m gonna do this. There we go.
We’ve got this whole big process right here that goes around and around in a circle. And this is the part that we’re actually going to talk about today, this part that goes around and around and around. But I want to go through, we’re gonna go through the whole map. So we’re very, very clear what the forest looks like, before we paint the picture of the individual scene, so you can think about this as all background, and then this piece is going to be our foreground.
So in this piece, we’ve got investor communications. We’ve got Asset Management. We’ve got property management. And we’ve got distributions. Depending on your hold period, this is your life for this particular syndication in the next five years, seven years is in this quadrant here.
But let’s finish going through just what this whole thing looks like. So then an event happens – boom. Right. And it triggers us to say maybe this is time to sell this property. Whatever that event is, maybe the pricing looks great, maybe whatever it is, suddenly, it looks like it’s time to sell. We’ll put boom, as the big idea that, hey, it’s time to sell.
And then we’re coming back. And we are going to be closing this. And so first we need to decide if it’s time to sell this property. And then we need to vote most of the time on whether it’s time to sell this property, then we need to make our final distribution. And then we need to close that. Ultimately, if you remember, in the core after this point, so another party here, because you’ve just made some money, most likely. But you’re also taking those same people back all the way back, and making them your investors for the next deal.
So let us now zoom in on this piece here. That is so important. All right. So we’re gonna do cut, then we’re going to play it so we’re going to clear the canvas, then we’re going to paste. Almost worked. Remember here oops.
That’s what I’m missing. Alright. So investor communications, asset management, property management and distributions. So that was the forest. So these, those were the things that takes place. So and they’re all these different time cycles, right? So you’re finding properties, you’re identifying your initial investors, those sorts of things. Typically, it’s about a three-month cycle. So that’s about three months, now we’ve got our next cycle is the funding and going through escrow getting the property bought, that also is about three months. This next piece, like I said, is the long cycle, this is where you actually are earning your money also as a syndicator, because you’re holding that property and you’re managing that asset.
So I think that we need to come to this world with the idea of investors first. And investor communication is paramount. So we’re gonna go through what exactly that investor communication looks like. So that way, it’s kind of crystal clear what’s important and what’s not. Now this is that you’re going to be sending these out and probably you’re going to be sending these out every quarter. You might be sending it out every year. You might be sending it out every month – every month is a bit much. Actually let me – we’re gonna go kind of off my plan here. And to show you how investor communication works, rather than drawing it I’m actually going to share it so let me just set that up real quick.
I know that half screen is dark. Just bear with me for one second.
Here we go. All right, and looks perfect. Alright, so this is basically a template that is used for making and sending out a notification about what’s going on in any particular deal. But this is a great way to tell your investors “Hey, I know exactly what’s going on in my property.” Now, I don’t think I can draw directly in there. I can. Oh, sweet, sweet, sweet, sweet. Okay, that’s great. So I’m going to give myself a color pen. Give myself a green pen today.
Alright, so this section here at the top, this just reminds them what property they’re talking about. Now, when you’re doing multiple properties, you’re probably going to have some investors who are in different properties, you’ll find that investors print these things out, that they keep them and that they save them, or they just keep them in their inbox. But you’re gonna find that they may get a little confused as to which property we’re talking about, if it’s not called out for them at the top. So that’s why I like this section here.
I put the year-to-date – that’s mostly so that all these other calculations here can make sense in terms of what is important, right? Because we have here year-to-date collected income, things like that. I find the year-to-date to be kind of important. Investors do tend to think about, well, what’s it made so far? Or what’s it made this year or things like that. So I think year-to-date is a pretty good way to look at it. We also put longer-term metrics in there. But I think looking at breaking it down on a year-to-year basis makes a lot of sense.
The next part is very important. And this might even be the most secret, subtle, important thing about this of all time. People tend to think in terms of colors, and in terms of pictures, and in terms of images. And that’s what this does. What am I doing here? Why is it so front and center? Is it to make it look pretty? No, it has absolutely nothing to do with it looking pretty. It has everything to do with this right here. Oops, that shouldn’t actually say acquire date. So let’s put what it actually should say. And I’m glad that’s called out because this will be more memorable for you. So it’s not acquire date, this is images. Let’s change it to photos. Photos taken. Oh, photo taken. Photos Taken December 2020.
That’s the most recent time that you’ve taken the photos. Now, I haven’t updated this sheet for just a little while. Like I said it’s in development. And so we haven’t spent much time just actually updating it to anything that’s useful at all, but or at least any of the captions any of this text part. They’re just not important for what we’re talking about. So why is this so important? Because it’s saying to them, “Look, I’ve been to the property every month.” So let’s change it to actually what it would be – October 9, 2021.
Now imagine getting this in your inbox today on October 12, 2021. From a syndicator, who you’ve trusted $100,000 with – photos taken October 9, 2021 tells your investors “Hey, I take your investment very seriously. I am on the property all the time, or I have my property manager take the photos and I know what is going on with boots on the ground.” That’s why this is so important. This is how you build up trust without even having to say trust me, trust me, trust me or anything else. It’s very clear you are doing your job just because you put two pictures here.
How do you get these pictures taken? If it’s not near you, you have your property manager take them. You have the cleaning crew take them. Anybody that you’re paying can take them. You could even pay somebody – an agent in the area to, you know, pay them a couple hundred bucks to take photos for it. It is well worth it, probably not a couple hundred.
Alright, so then the next section that we’ve got is this section here – the cash flow summary. So I like to give just sort of an idea about how what our accounts are. So they see that I’m on top of everything. So we’ve got our year-to-date gross collected income, that’s all of our rents, all of our other income. We’ve got all those pass-throughs collected, because I’m not counting that as income, per se. Depending on the type of building it is – if it’s an apartment building, I’m not collecting pass-throughs anyway, but maybe I would put something like laundry income collected, or if there’s any other form of income, what that looks like. So they can see that that’s another bonus kind of money that they’re getting to put in their pocket.
And then I do the year-to-date expenses. Now they put a percentage there to give them an idea about what percentage of the total amount collected is. And I subtract that off, and that obviously gives me the year-to-date net operating income. So that’s a section. This section right here, I want to let them know what is coming up in the future. So what are those notable expenses, if we have a new tenant moving in, and we’re doing tenant improvements, or we got to pay brokers or we’ve got to be restriping the parking lot, whatever it is, so that way they know exactly what they’re going to be paying in the near term. What are those fees? What does that look like?
Let me just check them. Okay, perfect. So exactly what does that look like? So in this case, here, I probably should have explained it a little bit better, you know, D’s lease will expire in two months, meaning that we probably will be paying within the next three months after that we’ll be paying broker commission, equal to approximately 3 to 6% of our total rent value plus, we’re looking at tenant improvement costs of approximately $10 a square foot, whatever it is, so that way they know ahead of time, that’s what’s coming in. And when they see that reflected in your the rest of the document, in the subsequent months or quarters, that will all make sense to them, it will reconnect, it’ll close that loop, and it will let them know that you’re doing a good job.
Our occupancy, obviously commercial real estate lives and breathes on its occupancy. So I like to talk about what that occupancy looks like. Right now we’re at 100% occupied but next month, because unit D is leaving, that is going to change our occupancy to 85%, or whatever it is. This is just a projection about what that next month looks like.
We’ve got our rent delinquencies – our rent delinquencies are our rent delinquencies. Let them know who’s late. You know, during times of COVID, when I had to send these it was, you know, these two tenants are late, this is what we’re doing in order to stop that or in order to collect.
Cash reserves. So remember, we keep the reserve account. I like to keep a reserve account that’s fairly large and cushiony, depending on what the expenses are. I mean, really, I’m trying to target somewhere around maybe $100,000. Even though that creates drag on the investment. So you don’t want it too high, but you want it to be able to cover anything that’s unforeseen. We’ll talk a little bit about that when we talk about distribution. So what it does is it creates that drag there, but I’m always putting money into it. So I like to fix mine either on NOI or on cash flow, like 1% of cash flow into the deal. So that way, it’s always being added to, sometimes more. There may be times where you will suspend distributions and all that money is going into reserves.
And then just sort of an overview to remind them of what that deal looks like. So what the building cost. If there was a capital event, like you sold off a billboard, you sold off something, you know what that capital event looked like. Because they forget, right? So they forget that you gave the investors $250,000 back in this scenario. And so suddenly, it’s like wait, the property is worth $3 million, you know, 3.2 million but we paid 3.3 – I don’t get it, does it go down? No, didn’t go down, it went up because of the capital event. You can even put it in total basis and then put down here estimated new value or something like that – estimated value, right, so you can even put that there just to let them know that, hey, this thing is making money, you know, especially if their basis – if the value is over their basis.
The last two parts of this are also important, really everything is, but the pictures I think actually are the most important. Well, second only to sending this at all. A lot of syndicators don’t send anything, they just keep quiet and it drives the investors completely bananas, because they just gave you $50,000. They have no idea what’s going on, and nothing’s worse than not knowing what’s going on.
So key investor metrics that I like to share is what our monthly net distribution looks like. What our net income looks like roughly, what our monthly distributions look like, the estimated value per share, so they bought in at some certain dollar amount. What’s that per share? And then our calculation of our yield. So our current net operating income yield, pro forma net operating income yield. So where is it going, and then what is our current distribution yield?
Lastly is suddenly as the property updates. So this is a narrative section where it gives you a chance to really kind of explain and dive deep into that explanation. Doesn’t have to be very long. I mean, here, it’s kind of two paragraphs in Latin so that nobody can read it. And then it really is a chance for you to expand on. This also builds trust, because it tells them, even if they don’t read it, tells them that you know what’s going on on the property. And in the market. Now, we’ll definitely talk about market. And so some of these, I did some of these things in property update. Also, we’ll talk about as it relates to the property management and asset management piece of this puzzle.
Let’s go back to the whiteboard. So that is the investor communication piece. The next piece is your asset management. In asset management, you are basically keeping an eye on the property. Now there are certain things that you do as an asset manager that are just those things that you have to do as an asset manager. One of them is investor communications. Obviously, another extremely important one that only happens once a year is your K-1s. Your K-1s is a partnership tax distribution like a 1099. And lets the IRS know basically what that income looked like for every investor, it is a necessary part. There are situations where you are doing 1099s instead of K-1s. Primarily if it’s formed as a corporation, rather than an LLC being taxed as a partnership. Most people, 99% of you will do K-1s for much of your career, and maybe have a few deals that do 1099s but not that many.
So you’re doing your K-1s, you’re also just looking for opportunity. So in our last call, that was so good, when we talked about the founder investment theory, and we lined up founder investment theory with how we do the different strategies and coupled it with what our value-add components look like. This looking for value-add components is part of what you’re doing as an asset manager. What can I do to bring more cash to my investors? And that’s really the main part of asset management. Maybe it’s even, you know, is it keeping an eye on – is it time to refi the property? Is it time for us to do something more like with our taxes like cost segregation? Is it time to do something? Should we sell off a piece of it? Is it time to sell? Asking those sorts of questions is the asset management component.
But the so the other piece of it is property management. And I put property management here because even if you are not doing your property management yourself, you are acting as a property manager. In the sense that you’re overseeing the whole property, and what the property manager themselves is doing. So here, we like to look at the really kind of all of the strategies that take place within property management as a puzzle, right, so we were looking at the property itself. We’re looking at the market. We’re looking at the leases. And we’re looking at the finance. And then we’re looking at projects and decision making about those projects.
Now, in the core, the videos that are already uploaded, we go through each one of these and to do that, I really pulled that from the IREM, or the Institute of Real Estate Management’s guidelines for what their property management template looks like. So again, I can send that to you. Actually, we’ll put that – it’s a great piece to have, it’s a really clear cut example of the things that you need to be knowing as not just a property manager, but really as any owner of commercial real estate, you need to know those things. And you really need to know how to manage those things. So I’m gonna put that in the show notes with this video, because it’s so important, and that will really kind of break things down. But as part of that, in the core, we also have videos on each of these elements. So they do go through that because that really explains like how you do a market analysis, how you do lease analysis, how you just look at the finances and how you make decisions about what projects come first and how you prioritize what those projects are in the property management context.
All right. The last piece of this – let me see.
Well, last piece of this is distributions. So in your PPM, you made a decision that distributions will be made every quarter, or every month or every year, right. So those distributions need to happen, and they need to get paid out. So to make distributions happen the right way, first, we need to ask ourselves how much cash have we got?
Right, how much money is in the bank? And I don’t mean just the amount in reserves, I mean, just how much is sitting there for us based on the rents that have been made, the expenses. Then the next question is, what expenses are coming up?
What are those expenses and what do they look like? And when are they coming up again? So am I going to be needing to make a tax payment this month and I haven’t made that yet. So I need to make sure that I have enough money put aside for it. So it tends to look maybe a year out maybe six months out and analyze based on that. So we subtract this out.
Then I want to look at reserves account. How much money is in reserves? How much money would I like there to be in reserves and do I need to start putting money in there? And then we make a decision on how much to distribute.
And so I’m not sure how this diagram is gonna work. But let me give you two scenarios.
So this is Q1, Q2, Q3, Q4, Q5. This is $5 for the dollars. Actually, I was doing it by month. Let’s use more realistic numbers. So let’s say $15, $12, $9, $6, $3. All right, so here we’ve got a simple graph, let me copy this because I said we’re gonna do two.
Alright, so this is option one. This is option two. All right. So now, that’s funny that it left. Now I see where those got left. Right. So let’s say in option one, you’re paying out $9 a share in Q1, you pay $6 a share in Q2, then you pay $15 a share in Q3, realizing Q4 you kind of overpaid and are back down to $3. And then ultimately, you are at $12 in Q5, right, so you’ve got this, you’ve got this thing where boom, boom, boom, boom, boom. Right? So you’re kind of all over the place in terms of what your distributions look like.
So what if instead, you paid – and I believe it will work out to be exactly the same – what if instead, you just stuck with the $9 a share?
Right, so you stuck with the $9 a share. Now, how are your investors going to view these two distributions? And this is kind of the art of distributions. Because what you want to do is you want to be doing like option two. Option one is going to sink you. People don’t like suddenly they get $15 a share. And suddenly now they’re getting $3 a share. I mean, imagine if you’ve got $100,000 sunk into this thing. And you’ve got – so you’re getting, you know, you’re getting $1,500 in one quarter, and then the next quarter, you’re getting $300. I mean, it’s terrible. Doesn’t make any sense. So that would kind of piss you off. It’d be like, I have no idea how much money I can rely on coming in. This guy probably doesn’t know what he’s doing.
But if I’m paying out $9, $9, $9, $9, $9, I’m suddenly safe until the point when suddenly it’s like okay, I’ve got enough cash now. I’ve added enough value that now I can start paying $15. You’re gonna have – I mean, since you spent the same amount you’re back up to 15 still for the next month. You know, great for you, but your investors don’t have any trust in you whatsoever at that point. So the distributions part of the circle is really coming to something that makes sense. That’s nice and steady, and that conveys trust.
So here is what we’ve done.
Alright, so we zoomed in, in this discussion on this cycle, on this cycle of what we need to do, this is your life for the next five years or seven years, and it’s not that much work, really, it’s just work that needs to get done. And it will take maybe, I don’t know, it could take as little as 30 minutes a month, an hour a month at the most, in order to just to run through these things. Now, there will be times where you have to do more than that. But most of the time, they’re just fairly simple things.
As we get to the your investor communications template, you’re gonna see all you have to do really is plug the numbers in and suddenly, it’s not that difficult. And choosing your distributions, there’s an art to it. But it’s not really that hard to do. If you build out a spreadsheet, that’s got all of your investors laid out, all of the waterfalls, all the distribution channels, and you just put in how much money you’re going to be distributing that month, you can kind of just play with it and tweak it until you say, okay, yeah, we’re gonna be paying $15 this quarter, if that’s the number, or $9 this quarter, to use what we used before.
The property management piece, yeah, it takes time and you’re getting paid as a property manager to do it, if you are choosing to do it that way to do it yourself, which is great. If you do, I do want to say I do encourage you to manage your own properties, at least a little bit, because it gives you a better boots on the ground feel for what it’s like to actually run these things, if you haven’t run them before. So it’s useful. But it also could be just that, you know, you have a property manager in place, but then you’re looking at those sorts of decisions that are going in, and then you’ve got a process for making the bigger decisions like when to make capital expenditures, or how they go with leasing and what that looks like.
And then really, it’s just your asset management piece, which really doesn’t take much time at all. You’ve got to get your K-1s done, which means you submit all of your information to your accountant, because you should not be doing K-1s yourself, it is too much work and not pleasant. And you don’t want to make a mistake, you want to get it done as quickly as possible. But you’re also looking for opportunities to add value and just kind of getting a sense for the property. And this is what you do, this is what life as a syndicator is like.
So once you’ve crossed that threshold, and that syndication is funded and closed and going, it’s really not a lot of work. And it’s actually kind of fun. So now it’s the communicating with investors, every now and then an investor will call you and you’ll talk to them about what’s going on in the property. And you’ll feel good after it because you know what’s going on on the property. And they’ll like it, because they’ll feel like, wow, I got to talk to the main man himself, you know, right away, and we talked to him, and he told me everything that was going on, he knew what was going on. And so they think highly of you, they’re gonna want to be in your next deal. This is the cycle.
So as you can see that forest through the trees concept of looking at this huge process. And suddenly you’re doing all this hard work up front, you’re finding the properties, finding investors, latching investors, doing your private placement memorandum, your operating agreements, your subscription agreements, all that work that takes place to get it going. It’s not that much more that you have on an ongoing basis. So really the most work takes place in that beginning stage. And then even more in that second stage where you’re actually getting the deal so it can close. And after that it’s really not very complicated. Even the closing stage isn’t that much work in terms of what you actually are doing. Even if you’re acting as the broker yourself. You’ve closed properties, you know how to get it done.
So with that said, we’re going to cut the meeting a little bit shorter today because I have this cold but I hope that explains it. So what’s ahead for you is not scary and it should not be holding you back. And I’m hoping that seeing that sort of like this is what it is out there, you know, this is what I’m holding, it just draws you to it. Because it’s not complicated, you’re getting money for it. And the sooner you get started on that, the better.
Now that you can see what that goal looks like. So when the money is raised, and once you’ve acquired the assets, now you can see what the context is, right? So the work that gets done up front is very heavy, and it’s that raising the money, closing the assets, all those things take place. And then you’re in this period where you’re going to be running that fund or running that syndication. And that’s what this video talked about, right? So it gives you that context of, okay, now I understand the beginning of it, and how that I’ve got to find assets, raise money, and then I close on it, and then what? So I want to fill in that gap for you. And that’s what this video did. Because if you see the start and you see the end, and you can identify, look, I’m gonna make a lot of money doing it, it becomes kind of a no-brainer in order to do these to start your own syndication or fund, which was the whole point of this.
So it’s not a difficult process. It is a very involved process. But none of this work is actually very difficult. And I hope that’s what this video helped convey to you and put into context about when you get started, what exactly are you committing to?
My name is Tilden Moschetti. I am a syndication attorney with the Moschetti Syndication Law Group. If we can help you put together your own syndication or fund, whether it’s in real estate, like as being discussed in this video, or for raising money for your business or some other asset class altogether, we’d love to talk with you, help make you successful as well. We take care of all the legal documentation. Of course, that’s what we do. We’re a law firm, but we also go the extra mile to make sure that what you’re doing is both investable and will make you money and so that ultimately you are successful in the project or fund that you are putting together.