How to Evaluate a Syndication Deal

Not all syndications are created equal. Here's a framework for evaluating deals and sponsors before committing your capital.

Evaluate the Sponsor First

The sponsor (general partner) is the most important factor. Ask:

**Track record:** How many deals have they completed? What were the actual returns vs. projections?

**Experience:** How long have they been operating? Did they navigate the 2008 downturn or COVID?

**Skin in the game:** Do they invest their own capital alongside investors?

**Transparency:** Do they provide regular, detailed reporting?

**References:** Can they connect you with existing investors?

Key Financial Metrics

Cash-on-Cash Return: Annual cash distributions divided by your investment. Look for 6-10% annually.

Internal Rate of Return (IRR): The annualized return accounting for the timing of cash flows. Target 13-20% for value-add multifamily.

Equity Multiple: Total distributions plus sale proceeds divided by your investment. A 2.0x multiple means you doubled your money.

Preferred Return: The minimum return investors receive before the sponsor takes a share of profits. Look for 6-8% preferred returns.

Analyze the Deal

**Purchase price per unit:** How does it compare to recent comps?

**Occupancy:** Is the property stabilized (90%+) or in lease-up?

**Value-add potential:** Are there clear operational improvements or renovation opportunities?

**Market fundamentals:** Job growth, population growth, supply pipeline

**Debt terms:** Fixed vs. variable rate, loan-to-value ratio, interest-only period

Red Flags

Projected returns that seem too good to be true (25%+ IRR)

Sponsor doesn't invest their own capital

Lack of transparency or vague reporting

Aggressive rent growth assumptions (5%+ annually)

High leverage (80%+ LTV) with variable-rate debt

No clear exit strategy

Pressure to invest quickly without time for due diligence

Questions to Ask

What happens if the business plan takes longer than projected?

What are the fees (acquisition, asset management, disposition)?

How is the waterfall structured?

What's your worst-performing deal, and what happened?

Can I speak with existing investors?

The Bottom Line

Take your time, do your homework, and never invest more than you can afford to have illiquid for 3-7 years. The best sponsors welcome your questions and provide clear, honest answers.