It probably goes without saying, but finding properties is pretty critical for a syndicator. Without a property, there’s nothing for us to talk to investors about or sell them. Properties are the raw materials that syndicators work with. So how do we find deals? Here’s a four step system so you’re not left to the winds of chance.
Four Step System
Step 1:
It all starts with the Founder’s Investment Theory. The founder investment theory is the backbone of what we do as syndicators, because that’s how we identify our properties. It’s how we talk to investors and decide what we invest in.
If you recall, our Founder’s Investment Theory had three questions. Number one was our strategy. Number two is our niche. And number three is our risk profile. When we’re trying to identify our property, we should reference our Founder’s Investment Theory.
If our strategy is development, we’re looking for raw land, or underutilized property. If we have a value-add strategy, we’re looking at high vacancy or deferred maintenance, or missed opportunity. If we’re doing a stabilized value-add, we’re looking for expiring leases or below market rents. If we’re using an undervalued strategy, we’re looking at below replacement cost. And if we’re using a cash flow strategy, we’re looking at either appreciation potential or rent escalations.
It’s possible that you’ll be going after more than one, but it is not recommended to go after two or three based on your strategy.
Then we’ve got our niche. And within our niche, we’ve got our property type and our location. Now why am I going through this because it’s critical that we do this right. Then we’ve got our risk profile, which answers the question, how risky is it? Some of that answer will come out of our financial analysis, but for the time being, just think about the risk profile in terms of that gut sense about how risky it’s going to be.
Once we’ve identified our Founder’s Investment Theory, we go to our existing database.
Step 2:
If you’re a real estate agent or property manager or somebody in the industry, you already have a database, but if not, you’ll be building it over time. Within your database, start building a list of what fits the founders investment theory. Then you simply make contact with all those owners, and see how well they take an offer.
As an aside, what what you’ll notice, especially if you’re a real estate agent, and you start having these conversations with owners, even if they’re not interested in the offer that you’d make, you’re actually starting the confirmation conversation, where you may end up with more listings than you originally had thought of anyway.
And number three, you follow up until you have details. Here, we’re talking about rent rolls and operating expenses. Then you do your financial analysis.
And finally, you make an offer. Some syndicators like to just make offer after offer, even if they don’t think that it’s likely they’ll make income. I wouldn’t recommend doing this. It’s underhanded. It’s either a good deal or it’s not.
Step 3:
The third step to find properties is using agents. Now why would you be talking to other agents if you’re already a real estate agent? Well, they may be competitors in the sense that you are competing with them to get real estate listings. But this is a whole different ball game.
It’s a wise idea to build out a comprehensive list of who all those agents are anyway, understanding who they are, because you may need them for yourself or one of your projects at some point. Alternatively, they may very well have a buyer for you the next time around. Agents tend to be a congenial community as well, who can do deals together as well as be competitors. As a syndicator, avoid looking at other agents as adversaries. If another agent has that perfect property, don’t hesitate to let them take the commission in exchange for you getting to buy it and syndicate it!
When working with agents, start by building a list of the big players in that property type, location, or whatever your founder investment theory strategy is. Then make contact. Explain exactly what you’re looking for. Avoid having the conversation about fees from the very beginning, because they’re likely to be confused on whether you’re calling because you want them to be your agent or because you are just looking for deals that you’re going to shop to your own people. Be clear, saying, I am a syndicator, you are welcome to leave your fees in the deal or not. But you can represent us and the syndication firm in exchange for finding a really great deal that we’d like to syndicate. Then you keep following up with them trying to find that deal.
After that is the financial analysis and hopefully making an offer.
Step 4:
The fourth step is your, your CIE’s, or commercial information exchange (think Catalyst, Loopnet, Costar, MLS, etc.) For your property type and your location, you need to know which CIE’s are more prominent than others. Build out searches that are consistent with your founder investment theory. Then save them.
It’s a good idea to keep poking around for more, inquiring with agents until you find a property that’s a good fit. Ask agents what they have. Everybody needs to know what you are looking for. And then regularly review.
That’s the process! These are the things that you should be doing on a weekly or even daily basis, continually checking your list.
Are you ready to get started with your own syndication and need a private placement memorandum? Moschetti Law Group is a real estate syndication law firm and we’d be happy to meet with you to put together your Reg D PPM from a syndication attorney and guide you through the process of launching your own offering.
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Tilden Moschetti, Esq., is a highly sought-after syndication attorney with nearly two decades of experience. His clientele ranges from real estate developers and startups to established businesses and private equity funds. Tilden’s expertise in syndication law comes not only from his knowledge of syndication and securities law but from real, hands-on experience as an active syndicator himself in every real estate product type and nearly all markets in the US. His knowledge and experience set him apart and established him as the Reg D legal services leader.
