Kim Lisa TaylorSecurities Attorney, Founder, Syndication Attorneys, PLLC · Corporate Securities Attorney, 2x Best-Selling Author, Nationwide Speaker | Private Placement

Why Lenders Are Key to Your Syndication Strategy

1 Oct 2024 · 1 min

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In this segment, the speaker addresses a common misconception among developers who prefer to self‑fund their real‑estate projects to avoid dealing with lenders. He explains that for syndication deals, attracting external investors is usually necessary, and that lenders provide the cheapest source of capital because they demand a lower return than equity investors. Typical equity investors expect mid‑to‑high‑teen cash‑on‑cash annualized returns. Relying solely on equity (100% investor‑funded deals) often makes it difficult to meet those return targets while still leaving enough upside for the sponsor. Consequently, incorporating lender financing can improve the overall economics of a syndication by reducing the cost of capital and helping achieve the required investor returns.

Chapters

We get a lot of people that come to us and say, oh, well, we want to self-fund the whole deal. You know, we don't want to deal with lenders, especially a lot of developers. It's like, oh, there's so many rules and it's really hard to find them. But the reality is, in order to syndicate, you usually have to bring in investors. You're trying to get money at the cheapest possible rate, and the lenders are always going to be that. They're going to want less of a return for their investment in your deal than your investors. And sometimes it's a third or a half of what you're going to have to pay investors, individual investors, to invest in your deals. Typical, you know, cash-on-cash return, annualized return that people are looking for is somewhere in the mid to high teens. You've got to be able to show them that they can get that. But if you try to show that your project with 100% financing from investors is going to have a sufficient return to be able to get them an annualized return in the mid to high teens, plus have enough left over to give you something, you may come up short.