214: What to Know About “Capital Calls” As Multifamily Syndications Get “Squeezed” w/Brian Burke and Mauricio Rauld

On The Market

BiggerPockets

News, Investing, Business, Education

4.8 • 820 Ratings

🗓️ 6 May 2024

⏱️ 50 minutes

🔗️ Recording | iTunes | RSS

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Summary

Multifamily syndications are getting squeezed. With short-term financing coming due and mortgage rates at multi-decade highs, syndicators are calling on their original investors to raise more money so they don’t lose the deal. The problem? If you’re an investor, how do you know if your additional investment will ever be returned? Could a syndication simply burn through your money without making any promising changes to the investment? What should you know BEFORE you put up the cash for a capital call? We brought two syndication experts, Brian Burke and Mauricio Rauld, on to share their tips for navigating capital calls. Before we start, let’s clarify this isn’t exclusively a syndication or multifamily problem. Much of the commercial real estate market is facing financing problems as loans come due and mortgage rates stay high. However, this problem has become a lot more common for syndication investors since rates started rising. In this episode, we’ll break down what a capital call is, why syndications do them, whether or not you’re obligated to invest more, and what investors MUST look for before putting up cash. If a capital call comes your way, we have the exact questions you should ask the syndicator to ensure your money is being used correctly. Plus, if you’re a syndicator or plan on being one in the future, we share the steps to pull off a capital call the right way and make your investors whole. Making the wrong move could cost not only your investor’s money but also your money and lead to serious legal consequences. Don’t get stuck in that spot; stick around! In This Episode We Cover: Capital calls explained, why they happen, and why they’re becoming common in multifamily Syndications 101 and the reason they’ve become popular among passive investors Commercial lending problems and the bridge loans that are squeezing multifamily investors What investors MUST look for when a capital call comes their way and the questions to ask The right way to execute a capital call and the steps every syndicator should follow And So Much More! Links from the Show Find an Agent Find a Lender BiggerPockets Forums BiggerPockets Agent BiggerPockets Bootcamps Join BiggerPockets for FREE On The Market Join the Future of Real Estate Investing with Fundrise Connect with Other Investors in the “On The Market” Forums Subscribe to The “On The Market” YouTube Channel Dave's BiggerPockets Profile Dave's Instagram Kathy's BiggerPockets Profile Kathy's Instagram BiggerPockets' Instagram Recent Episodes with Brian: On the Market 71 - The Multifamily “Bomb” is About to Blow, Here’s What You Need to Know On the Market 147 - Top Multifamily Investors’ Advice for Buyers in 2023? DON’T Do It! Real Estate Podcast 900 - The Truth About Real Estate Investing in 2024 (What Investors NEED to Know) BiggerPockets Money 219 - Syndications: Everything You Need to Know BEFORE You Invest Connect with Brian: Brian's BiggerPockets Profile Connect with Mauricio: Mauricio's BiggerPockets Profile Book Mentioned in the Show: The Hands-Off Investor by Brian Burke Jump to topic: (00:00) Intro (03:24) What’s a Syndication? (08:05) Multifamily is Getting “Squeezed” (12:57) Why “Capital Calls” Happen? (16:20) What Investors MUST Look For (22:25) Sponsor Loans and Raising More Money (28:26) Ask THESE Questions (37:56) The Right Way to Capital Call Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/on-the-market-214 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected]. Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	Syndications are high-risk, high-reward types of investments.
0:04.0	If you're not familiar with this type of investing, it's basically when a group of investors
0:08.5	pool their money together to buy large commercial assets, like a hundred unit multifamily
0:14.3	property or something like that.
0:16.5	And when syndications go well, they can go really, really well, like 20 plus percent returns, but
0:22.5	sometimes they go wrong. And with commercial real estate in such disarray right now, I'm hearing
0:28.3	of more syndications gone astray, even going so far as the dreaded capital call.
0:35.1	A capital call is never good. It's basically when the syndicators run out of
0:39.1	money and they need to ask their investors for more capital in an attempt to salvage the deal.
0:44.4	And today we're going to learn all about this. We're going to understand what happens when
0:49.1	syndicators run out of capital to complete and exit a project. What if you've invested in a deal and will you
0:55.7	have to give more money? And if you don't give more money, will you still get the same return?
1:00.5	So we're going to be digging into all of this today.
1:08.2	Hey, everyone, I'm your host, Dave Meyer, and today I am joined with Kathy Fecky. Kathy, thanks for joining us.
1:14.5	Thank you. And today we're also going to be bringing on a couple other people, Bigger Pockets fan favorite, Brian Burke, who actually wrote the Bigger Pockets book called The Hands Off Investor. It's on syndications.
1:25.6	We're also bringing on Mauricio Ralt, who is a real
1:28.7	estate attorney, who focuses specifically on syndications. Before we bring on Brian and
1:36.1	Mauricio, Kathy, I think we should probably spend a minute just giving some definitions to everyone
1:41.9	about some terminology that we're going to use here. Specifically,
1:46.1	let's define LP and GP. You want to take them? Yeah, sure. Usually when doing a big deal like this,
1:53.1	you open up an LLC, a limited liability company. And within that, you have the GP, the general partner,
1:59.7	who's managing and running the deal.
	...

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