February 2026 Meetup - Syndication 101: How CREI Partners Structures Deals for Investors

All right, well, we just had a great networking event. We are at our monthly virtual meetup. And tonight we're going to Talk about Syndications 101, how CREI partners structures deals for investors. And so I'm going to do a broad brush over commercial real estate passive investing. And then as we go through, you'll see pictures of properties that we are lead general partners on, and we'll discuss, like, how, you know, things are structured, whether it's LPGP or different equity splits and such. So for those that are on this call, definitely feel free to interrupt or ask questions, or at the end, I'll ask for questions and then we'll go from there. So we have been a meetup for, I don't know, four years now. It's something that I saw was needed in the space where people who were interested in meeting other active and passive investors virtually. So this has been a really good, successful meetup. So definitely encourage you to tell your friends and family or whoever you feel like could benefit from this. But we meet on the fourth Monday of every month. We'll have meetup or breakout groups. So depending on how many people show up, we'll break out rooms virtually for the first 15 minutes. And it's really just break the ice, build a relationship, see where everybody's from, where everybody started in real estate, or if they've not started in real estate, you know, what they're doing. And then we'll go into the topics, and then every month we'll have either I'll speak or others will speak. And it's really just about providing information. It's not a sales pitch. There's nothing other than hopefully educating passive investors to, you know, analyze and look at deals a little bit more sophisticated than they would have if they hadn't, you know, taken the time to join these type of meetups. So a little bit about myself. I'm based in Central Texas, College Station. Brian College Station. But I grew up in Austin, went in the Marine Corps 2003-2007, and then in 2007 joined CBRE, where I worked for them for 16 years. For those that don't know CBRE, it's a big, you know, large commercial real estate company. And I was heavily focused on the asset management, property management side. And so 2019, I started CRIA Partners. And then in 2023, so I was working, you know, doing, I would say, like my 9 to 5 was playing for my 5 to 9. But in 2023, we. I left CBRE and went all in on CREI partners after we had built, you know, a sizable portfolio. And a big reason for that is being full time all in on our investments. We now have four full time employees and we're continuing to grow primarily in multifamily, but there's other investments as well and we'll talk about that during this presentation. One of the great team members that we have added to our team a little over a year ago is Shelby. She's actually getting married this weekend, so she'll have a different last name, but as of now, Shelby Whitaker. She handles a lot of our chief of staff type role, but she's also our main investor relations contact. So for those that are interested in learning more about CR Partners or have questions, I'm always a resource. But Shelby's going to also be a great resource and a contact during the investment life cycle with CRI Partners. So want to talk about exactly what we do? So from a syndication standpoint, you know, we build wealth for investors. CRA Partners focuses on acquiring and developing commercial real estate in Texas. But a lot of people don't understand what a syndication is. So before I go into like the details of how we structure things, I want to go into, you know, just the basic premise of syndications. And ultimately we raise money to buy assets. We invest in the deal, but we'll buy assets that we could not have purchased on our own. And the way we do that is through syndications. By pulling money together, by building teams and partnerships and a business. We go out and we buy and acquire value, add real estate. Once we've purchased the real estate, we execute the business plan. And if that business plan has distributions, you know, in the plans, then we'll be distributing if it doesn't like. A lot of our stuff is development as well. So there's not a lot of cash flow until it's fully developed and stabilized. So depending on the business plan, you know, we will focus on executing that and us being full time and having the team that we do, we are really, really focusing and investing in, you know, quality output for our investors. But we do distribute returns to our investors through quarterly distributions. And then also at exit, you know, there's, there's a split of that as well. And we'll talk about those type of splits later on. But whether it's the quarterly distributions or the exit strategy, the investors that are investing in the deal, they're wanting a return on investment. And so that is what CIA Partners is, you know, focused on. So what we're going to talk about today are several things it's not just how we're structuring our equity stack, but I want to define commercial real estate and passive investing. Why invest in commercial real estate? Types of investors, risk profiles, financial metrics, general versus limited partner, and then closing. How to learn more. So all these projects that you'll see on our slides, these are projects that CRM Partners leads on. Like, this is a property we developed, it's a 20 by 50 storage in Bryan, Texas. We also own another one of these in Huntsville, Alabama. We opened up about a year and a half ago. We're right now 78% occupied. And so, you know, I expect this year will be fully occupied. These units are leased by businesses, RV owners, personal, you know, reasons to have, you know, a large thousand square foot space. So we really love this deal and we'll be distributing cash flow in 2026 to our investors. But let's go back to defining commercial real estate. So commercial real estate is intended to create profit either from capital gains or rental income. Commercial property includes office, medical, hotels, malls, multifamily, if it's four units or larger, farmland, warehouses and garages. So going into our next one, we're going to define passive investing. So the strategy of placing your capital into a real estate syndication that is managed for you. So passive is active up to a point where you wire and you sign documents. And what I mean by that is like right now you're on this call or you're listening a recording at a later time. So you are actively getting educated. You're actively learning about real estate investing on a passive side. So in doing so, you're obviously learning the lingo and you know, the overall syndication structures. But then you're also going to be reaching out and looking at syndicators, you know, who I, you know, are the jockey on the horse. They're the sponsor, they're ones that are running the business plan. You'll be networking, you'll be doing all these things, doing market research or at least looking at markets that you may be living in and determine like, hey, this is somewhere I want to invest. But a lot of that work is done up front. And if you think about like an iceberg, you know, all the work that happens below the waters where passive investors sit. But once they invest, then all that hard work that the sponsor is doing is a lot of that above the water type work. So, but that's passive investing. Once you've done all the hard work and determine like this is an investment you're ready to invest in, once you wire and Send those documents. Then, you know, you're able to sit back and enjoy what you likely enjoy more, doing more of. Because real estate is a pain in the butt. Like it is stressful. There's a lot of work, there's a lot of ups and downs and a lot of people just want to focus on what they do best, but their unique ability is and let professional, other people do what their unique ability is. And for our unique ability, it is, you know, managing and operating commercial real estate. So that is passive investing from a high level. Why I invest in, you know, commercial real estate, it's a big part of, you know, I bought my first single family home when I was 21 in the Marine Corps. And actually I was. Sorry I said 21, but I was 19 when I bought my first home. I sold it in 20 when I was 21. But, you know, it's always been in my blood. It's something that I have passion about. But when you look at the overall cycle of real estate, I like that it's a brick and mortar. I like that it's pretty focused on a particular area. It's tangible. I don't have to worry about what's going on overseas or geopolitically, geopolitical events, etc. You know, real estate over the years has stood to be a very tangible, you know, investment. Now we are invested in stocks and other investments personally. So I'm not going to have the go all in on real estate, you know, be diversified. But I do like the real estate and that's what we're experts at. So I'm heavily on our portfolio going to be focused more on real estate. But when you look at over the years, you know, there's been more positive returns than not. And so a lot of us, and I say us to include myself, you know, we've seen the ups and downs of multifamily over the last five, 10 years and we know that these are cycles. So for myself, you know, being in the industry almost 19 years now, you know, I've seen the cycles and know, like, hey, yes, you know, these were tough times. But overall real estate has done extremely well. And so staying in the game is, in my opinion, you know, important. Just like investing in the stock market, there's going to be ups and downs. But one of the things that I love about investing in real estate is depreciation. And so as passive investors, your passive losses offset passive income. And we're going to, I'll talk a little bit more about what that really means, but say you buy a property 25 unit apartment building valued three and a half million. You, you know, the land itself is 750,000. You can't depreciate that. But the remaining 2.7, 2.75 million is in normal depreciation. You take that 2.75 million divided by 27 and a half years and then you'll depreciate that 100,000 per year. So if you made 100,000 in income, you know, you could potentially offset 100,000 each year because that's, you know, a normal depreciation cycle. Well, when you do accelerated depreciation, the straight line depreciation, there may be things that instead of doing a full 27 and a half years, you may say, well, cabinets and you know, flooring and these other, you know, products that are within the structure, they don't have a full 27 and a half years. During that time you're gonna have to replace it at some point. So you want to do, accelerate depreciation. And you can do that through cost segregation. And you can do that on a single family rental. But a really, really ex, you know, ex. The exponentially increases with multi family during, and you know, office and such. But you know, in my case, I love multifamily. So but think about all the cabinetry, all the flooring, you know, all the, all the improvements that are within that structure. The engineering firm that does the cost segregation, they can determine like, okay, this is a five year life, seven year life. And also instead of doing a 27 and a half year, it accelerates that depreciation. Now as of January 19, 2025, we're now back to where we were before in that is having 100% depreciation. So if you were to invest 100,000, do you get a hundred thousand depreciation? The answer is no, because going back to one of the examples, there's land that's tied into it. So instead of, you know, 100%, you'll get about 75% ish, but then the remaining depreciation will occur years two to five. But that 75% is still really, really high. And so a lot of people think, oh, if I get 100% depreciation, if I invest 100,000, I'm gonna get a full 100,000 write off. And no, that's, that's never the case, but you still get a much more substantial bonus depreciation. Now that will offset passive income. If that passive income is not enough in year one to offset all your losses, then years two to five you know, as you grow your portfolio, those can be used for later years or when you sell the asset or when, you know, the property is sold, those gains can be offset by those losses. This is a huge thing in real estate. And if you know someone in your family is a Realtor or an active real estate person that spends over 750 hours on real estate, you know, there's other tax benefits as well. So I want to mention that for CRI Partners, we do cost segregation for all of our properties and we will provide a K1 by mid to late March. That's our focus to do on that. So more reasons, investing, you know, return on investment, you know, quarterly distributions, market demand, you know, I'm big on, you know, supply and demand, you know, population growth, declining home ownerships, all that's driving multifamily. I'm very bullish on multifamily. Even though, you know, some people, a lot of people have left the space. There's been some great opportunities for us to buy leverage and appreciation, amortization. These are all reasons why, you know, real estate is, you know, these are good investments to diversify in. This is one of our passive investors, Dr. Singh. He makes, you know, six figures plus in passive income from us. And one of the things that I love the most with him is that he, he gets all these passive losses and he's like, I benefit, you know, he's retired cardio cardiologist and he, you know, he just, just a great person and love helping him, you know, get that passive income and see those losses on a paper side help offset his taxable income. But there's two types of investors. There's passive investors and there's going to be active investors. So the passive investors are what I had mentioned earlier. You know, you're doing a lot of your research on the type of deal, type of area, maybe doing some networking with other investors. You being on this call, you're getting a feel for me as a sponsor. But you're, you're going to be placing your capital into a real estate syndication that is managed for you. And the benefit is, is you get to benefit from all the real estate benefits without having to do any of the heavy lift or do any of the work. Whereas the active investor, you know, we're outsourcing deals, underwriting constantly, you know, putting earnest money down with the risk of losing that earnest money if due diligence doesn't go well or the loan doesn't get approved for whatever reason, we're, you know, raising capital and then executing on that business plan and during that five to seven year hold, whatever that term is, you know, we are actively involved with managing and operating that asset to the to its fullest potential to meet our business plan. And we're updating our passive investors and we are distributing the cash flow to our passive investors. So those are the two big extinctions. There's not a right or wrong for those on the call. There are, you know, active investors and they found passion and love for active investing. But you know, majority of our investors or all of our investors, because they're passive, you know, they enjoy other things in their life but they want the benefits of the depreciation for tax purposes and they want that passive income. And so they stay on the passive side and you know, let us do what, as I mentioned earlier as our unique ability. So there's risk profiles and CR partners. We sit around this value add opportunistic. So we go back and forth. 80% of our portfolio is day one cash flow multif family. It is not, you know, properties that don't cash flow. Day one where we have to wait a few years to renovate. It's all day one cash flow with a strong debt service coverage ratio. We sit here, we are all about two to three base hits. If you think about baseball, like we're not looking for home runs. And in doing so we haven't, you know, lost investor capital. We've not missed distributions. We've, you know, hit our business plans so far, knock on wood. So that's where we sit. And we've stayed very conservative on the value add portion. Now the opportunistic standpoint, the opportunistic side is where we have like 20, 25% of our portfolio and that is developments. And you know, right now, you know, we're focused on a multifamily development in Brian, but also doing a office retail that we're about to start raising capital for. And then we're in the design phase with our hotel that will be a Marriott Spring Hill Suites. So that is a big, you know, opportunistic type development project. Three phases for our development. We've done a build a rent community and that we're doing right now outside Lafayette, Louisiana. We've done storage developments. So for our portfolio, I like that 80% or so of our portfolio is day one cash flow. But I also like that our opportunistic that there are investments that give us opportunities to have a much higher return. And if you think about it from a stock standpoint, like the lower risk stocks are going to give you a lower return, where the higher risk stocks are going to give you obviously a higher return. So think of like core. When you look at risk profiles for institutional capital, maybe like TIA Craft or JP Morgan, you know, large institutional groups that may have a lot of retirement funds, they're going to be focused heavily on core assets, likely like downtown, newer properties, they're not going to have the biggest returns, but they're not going to have, you know, a lot of the, the risk that comes with, you know, more of a value add type deal. Right. And then, you know, Core plus is just a step up, you know, from core. And then value add, you know, is, like I said, it's where we sit in our profile. There's not a right or wrong. And honestly, it just depends on where you sit as an investor in your life cycle, as an investor. So depending on where you are, you may want to be doing some development deals or you may want to say, hey, you know, I'm more focused on cash flow and depreciation and, you know, focus on the value add piece. So as we go into the next piece, and that's financial metrics. So, you know, cash on cash. Like for CIA partners, we invest in Texas. So our cash on cash typically for year one is typically 4%, going up to 5, 6, stabilized around 7% cash on cash. But you know, each quarter, 1% year one is typically what we do on cash on cash. So from a minimum standpoint, when we're underwriting, we want to feel comfortable that we're at least doing, you know, solid cash on cash year one. And for us it's about 4%. And then you also have depreciation. Now, internal rate of return, you know, a few years ago, you know, people were doing 20% plus IRR. We've always been around that 15 to 18% IRR. And it goes back to like, hey, second third base hits. We've never tried to do like a home run type project. So our. But if you think about, you know, a 15, 18% IR is still extremely, really good. And that's where we align. But there's different definitions of this, right? So cash on cash. If you put $100,000 in and you get a 7,000 return for the year, then your cash on cash is 7%. Well, the internal rate of return, it's basing all the cash flows that are given during the quarterly, you know, quarterly distributions and the exit and making it, you know, time value of money, you know, determining like the IRR as of today. So the Longer a prod money's in a project, the lower the IR is versus you know, the shorter term. And then I look at equity multiple and this is pretty simple for me because if it doesn't hit at least a 1.8 multiple over a five year term, then you know, we're not moving forward on it. So from our side, cash on cash, internal rate of return and equity multiple are the three financial metrics that CRIA Partners looks for that could be different from every different sponsor and such. But these are three metrics that you know, if you're still, if you're starting out on passive investing or like, hey, it's a good refresh. These are three. To look at the other thing about internal rate of return, it's also very heavily dependent on like what the exit cap rate is. Right. And if you, you know, if you're not familiar with an exit cap rate, think of it like when a, a business is sold because all these are businesses, just real estate, when they're sold, there's a multiplier effect. So net operating income divided by the value or the cap rate gives you the value of the asset. So cap rate in other terms is like a business multiplier effect evaluating a property. It's also like hey, if you, if an investor were going to do all cash, you know, that would be the yield that investor would likely be willing to pay for that risk of investment. This picture here is a, it's animated but it's our build to rent community. All three bed, two baths. Pretty awesome. Think of like horizontal multi family. There's 98 single family homes and we manage it like a traditional multi family. So 92 homes and we've got 56 that are built and 56 that are leased and we're continuing to finalize the remaining homes. So that's a pretty great project that we're working on. Other things to be mindful of is a credit investor and 506c offering. So there's different regulations. CRIA Partners, we focus on 506C deals where 506 regulation, it all comes from the Security Exchange Commission. And so they require that all of our investors are accredited investors. And that typically means that they at least have to have 200,000 income year one or if they are filing jointly that they'll have annual income of 300,000 or more or they have a net worth of 1 million excluding their primary residence. So this is a definition by accredited, you know, by the SEC about an accredited investor. So as you look for sponsors, you want to Know, you know, what type of deals are they doing. Whether if it's 5 or 6B offering, you know, that means they can allow for non accredited investors or 5 or 6c in which case they do allow for accredited. So this is another important thing. CR Partners, 99% of our stuff is 5 or 6C for accredited investors. We have done one project a year, typically where we allow 5 or 6B for two weeks on a deal and then we close it and then we go into 506C. So some of the returns here, this is just an investment of 50,000 over a five year hold. Typically, you know, you'll see, you know, year one, three, $500, year two, 3750. So every project's going to be different, right? And so this is just an example. But when you do the webinar, you get more information, you'll see what the distributions are. And as I mentioned, typically what we'll see is about 4% year one and then at exit where you see like year five, there's a capital event, whether it's refinance or a property being sold. And so when you look at all the cash flow and year five, whatever the exit year is, then you can see what your IR and your equity multiple is. Typically 5 to 7 year hold on properties. A big reason for this is due to loans ballooning in commercial real estate either at five or seven years, some go to 10 years, they're amortized over 30 years, but there's typically a balloon side. All right, and just a few more slides here. I know it's a lot of information at once, but general versus limited partners a lot. I get a lot of these type questions. So general partners are the active investors. You know, they're the people that are signing on the loan, finding the deal, executing on the deal. They are raising capital from investors. Limited partners are those that are coming in as a passive investor. So you've done all that hard work in, you know, analyzing a deal, determine if that sponsor is going to be a good jockey, good or bad during an investment. And those limited partners are going to or those past investors are going to sign a company agreement where they are the limited partners. And so this little diagram here shows, you know, general partner manages the entire deal from start to finish. The limited partner contributes the majority of the funds to finance the deal. So general partners, we typically do 5% combined into the deal and then 95% of that is LP investments. Big part of that is to stay liquid for other deals that come up. But also so we can put money into the deal as needed. Expectations though we're expected to implement the business plan. Ongoing communications, we do monthly communications as CRA partners, including the financials. And then you know, from a financial consideration, LPs are only their risk is the investment they put in the deal.

Right.

And so the GP is liable for, you know, the deal's debt and you know, the success of, of the investment. So something we've just created is CRA Partners or building passive income. So this is a podcast that we have. How do I explain it? So CRI Colin, we created Sierra Colin to be our investor education guide. So he's an AI person. We've also have CRI Tina who also is our tax person and the content and everything we go through the what we're trying to communicate for that month and then we'll curate it and then you know, CRI Colin will do the actual podcast. So definitely check it out and give it a five star review, help it grow. I appreciate it. It's something we're really putting a lot of time in and making sure it's of good value. And then our website, serial partners.com we've done a full revamp. There's a lot of information with blogs and obviously podcast, but there's newsletters etc that hopefully will be useful. The other thing we've created, this is a couple years now, but the passive investor coaching program, it's free. We don't make any money off of it. All we're trying to do is just provide more education. So a lot of people do these monthly meetups which is great and we want to continue that. But a lot of people then were like, hey, I want to accelerate my learning now. So I don't have. It doesn't take us 12 months to get comfortable. And so they do this, you know, five hour course, take as your own leisure. And that's passiveinvestorcoaching.com so with that said, I'm going to put it on the screen and see if anybody has any questions and I can also read anything in the chat box if anything comes up. I know that was a lot of information for those on the call, but any questions or anything that stood out.

Wayne, this is a very interesting 101. I have been passive investor for quite some time for since five years, since COVID hit. You know, there's a lot of opportunities that turn and obviously, you know, that was a good time. Interest rates went up and you know, some of them I'm not getting any distributions but that some Some I'm getting it, that's just giving my background. But in your investment portfolio, what is the percentage that you are able to give distribution or you give all your properties you're able to give distribution?

Yeah. So this is a great question because if you're talking to any real estate investor, active real estate investor, and they have had an, you know, perfect batting at this investment cycle, there should be some red flags. If you've been in the business long enough, there's always going to be a, there's always going to be something that has challenged you and you know, caused, you know, some heartburn. And that's just the reality of any investment life cycle. So the only property we've had, one property that we bought in 2022 and that property we, we still own, it would have been easy to, you know, foreclose, give back the keys. We did a modification with the lender and we're working through a receivership right now. But the biggest thing for us is to hold title on that asset. That property, you know, we bought it at a time where we felt very strongly about the value and the opportunity. It was from a long term owner who had owned it for many, many years. And we were buying in, you know, the Galleria Submarket of Houston and you know, we were going to renovate and do all the things to make it a, you know, more of a deeper value add. So that one has aged me like 30 years. And that's a big reason why we, I don't do properties that don't cash flow day one. The rest of our portfolio has distributed as, as it needed every quarter. We, you know, provide those monthly and financial updates. So I'm sorry, you know, if you had any of those investments because everybody's been hit during the cycle and I don't haven't met anybody who's been totally immune to it. But we did find like during that 20, 20, 2021 time frame, I didn't buy any properties because it, there are things that were just overly, it was just overly frothy. Like I would just put an offer on a deal and it would be $1 million over, you know, someone would get the deal. And yeah, I just couldn't make the numbers work. And so 2022, we bought this property and I felt really good about the deal. But when insurance doubles and interest rates, you know, go up 2 to 3%, it just, it's just tough. Right? But in today's market, we bought two properties last year in San Antonio. One of them we bought for $3 million less than they had purchased it a year ago. And so, you know, that's another example of, you know, a deal that didn't go well. But because we didn't overload or overextend our portfolio, we were able to take it, you know, an opportunity, let's say take advantage because that's didn't sound good. But, you know, take that opportunity to buy a property for our investors that was massively discounted because we were in a position to buy. And then another deal we bought last year in San Antonio, you know, it was a solid asset that, you know, has just been strong cash flow. Day one, high occupancy, great maintenance. So there hasn't been a whole lot of capex. So we've really liked that. And we have two other properties in Houston have done extremely well. We've got a storage development that will be cash, you know, we'll be distributing this year. I mentioned we're 78% occupied on that. It's been open about a year and a half. That property is going to do extremely well. There's very low expenses in that type of storage. And so the noi and cap rates on that type of stuff will do extremely well. The build a rent community that's a development deal. And then we're doing this office, retail and multifamily and hotel development. And Brian, all three of those projects will be shovels in the ground this year. So I don't know if that was a long winded answer to your question, but I think if anybody's telling you that they have a perfect track record, dig a little further. I'm always willing to learn and talk about, you know, our black guy.

No, that's, that's a reality. Right. I'm very fortunate. I put a lot of money, very fortunate that I didn't have a cash call on any of these properties, although I'm not getting distribution some of them. So, you know, some of my friends who invested in different portfolio, yeah, they had cash call and they were like, I want to walk out of this.

Right.

It's very. But you know, like you said, high reward, high risk. You know, there are several ways of looking at this kind of investments, but due diligence is important, I think.

Yeah.

And you can also see like what the jockey or the sponsor is willing to do. Like there's plenty of people that I've talked to on that particular property. They're like, why don't you just get back the keys? I'm like, well, if we get back the keys then we're 100% sure of, you know, losing. And I just, until that day comes. So like you just got to, you got to have people that are fighting every single day and that grid is strong. And so those are important attributes. You want anybody on this call or listening that you want to find in that sponsor. When tough, when times get tough, are they putting their, you know, we've with my accountant today and the money that I put in that deal last year, I'm like, I'll never see that money back. But it's like, you know, we're just, we're putting money into that deal because that's the right thing to do to, you know, have a chance, you know, with our investors to return capital. So anyway, so that's a great question and I'm glad you brought it up. I think that as part of syndications 101 is there needs to be, you know, the balanced approach of, you know, the risks of investing.

Thank you.

Hey Wayne, building on what Prem had asked, first of all, thank you for your service. I know you mentioned you're in the Marine Corps. Definitely thank you for your service and also thank you for your honesty in sharing what you just what you just did. Now granted the example you gave about people paying way above what the metrics justified or what the numbers supported as far as when you run the NOI and the calculations and that in part has, that's a major reason why we're seeing, I guess what we're seeing in the market today in terms of many properties being at the point where people just want to give back the keys. Are there things that could have been done or I guess a two part question, are there things that could have been done to sort of reduce this outcome we are seeing? Or on the other hand, was there a way to predict that this was going to happen or was this kind of one of those things as part of a cycle that just comes out of, you know, left field?

Yeah, I love this question. Such a good one. So when money is easy, when money gets really easy and people are just, you know, a lot of capital is flowing and stuff, things can get artificially price high. And in doing so what I was doing is I was looking at what the lenders, what I was saying with the lenders and mind you, like I had been in the business, you know, wasn't coming from another industry and coming into commercial real estate like this has been my whole life. But what I was seeing was, is this bridge debt. Now bridge debt is a tool and we Used it for that property that I mentioned. We modified it to a fixed rate debt. But it is a good tool to have that tool is to buy an asset that is in distress. It was poorly managed, it has a lot of renovation issues like it. It needs a bridge loan to bridge you to point A to point B, which is point B is refinancing it into agency debt, long term debt, whether it's Fannie Freddie or fixed rate debt. Loans that were deals that were not able to get fixed rate debt because of debt service coverage ratio and typically DSCR requirements is 1.25. So for every dollar of DSCR or debt service, there's 25 cents left over for expenses. What we were seeing were deals that were happening at 0.75 DSCR, 0.5 DSCR, 0.8 DSCR. They weren't even able to hit the, the 1.0 DCO that's required. So what was happening? They were using bridge debt for that, you know, big reason, right? Well, bridge debt can be used as a tool to allow you to finance capital projects, you know, to get that property renovated and leased up. And there's usually has to be some type of value element that is going to be injected in the property to get it to a point where it can support a higher income to get you to that fixed rate, longer debt. The problem is, is that a lot of people were using bridge debt without that value component. So they did, they bought these properties and they used bridge debt because they couldn't get fixed rate agency debt. But then they found that there was no, like there wasn't a real big value push. Right. Like for our property, like it was, it needed massive amount of work, but other properties didn't need a massive amount of work. Well, interest rates increased, they weren't able to refinance, rents weren't increasing. So the income was sustained, stagnant. And that's where you've seen a lot of people get in trouble. Now are those sponsors bad? No, I'm never going to kick any of these people down because it takes a lot of people to bless a loan and bless a deal. You know, whether it's the appraiser, the loan, you know, analysts, you know, it goes all the way up to, you know, whoever is the final, you know, stamp on on the deal. It goes through a lot of different levels of underwriting. But I saw that very clearly and that's why every time we did a deal we were typically a million dollars off. And I had brokers tell me like, hey, this deal that you're passing on is probably going to be your biggest mistake or your regret in your life. And I was like, okay. And now I'm just grateful that I have one black eye and not completely stabbed because a lot of people unfortunately are hurting. And so, you know, just something I think that was the biggest thing is if you're investing in a deal that has bridge debt, just really make sure that it has true value. Like really what is, what is going to be the work to get the income to a point where they can get into a longer term fixed debt. So that's what I saw a lot of and it was just people battling to get, get the deal done, which meant highest price. The other thing too, and I'm being long winded here, but we don't buy any properties that are on market. That, that is something once and brokers know that about us. Like once it hits the market, we are not going to be buyers because we don't want to be the best and final offer. With that said, brokers will come to us now because we have a track record and we're easy to work with is they'll come to us and be like, hey, we're about to do this deal. Do you want to look at it before it goes on the market? Yes, we'll look at it that way. But most of the deals that we do don't even have a broke, you know, a BOV or any type of om. Well, it has a bov. They've had to do that for their customer or their investor, but there's no offering memorandum. So that's another thing that you know, I think is important too is you know, being selective on the, on once it hits the market. Are you the, you know, the highest bidder? So long answer.

Thank you.

Hopefully that helps a little bit.

Great answer, great answer.

Bridge that is. And you know what's scary? I'm so glad you're on this call. I was at a conference late last year and the guy on the stage who's a well known sponsor and I'm not going to say this was saying that he's buying properties with bridge debt and I'm just like, oh man, the cycle, it's already, it's already turning so quickly and lessons learned have, are not happening. So just be careful with bridge debt. That's all I'll say. Sorry, I'm getting a little. Any, any other questions? I love this. We could talk. You know, this is stuff that I, I love doing.

I've got a question just regarding underwriting Wayne, is that something that you do? Do you have a, you know, any of your team help with that? How did you develop kind of your particular matrix or formulas that you use?

Yeah, that's a great question. I'm an Excel nerd. I love my Excel spreadsheet and yeah, I typically would do the initial underwritings as I'm focusing more as we're growing as a company. A couple things that we've done as a company is we hired Shelby to focus on the investor relations. It's to me extremely important to make sure our investors have a great experience with their investment and having somebody who they can call, um, that was, that was a strategic hire with, with Shelby. After that hire, we hired Will Swenson, who had a lot of asset management experience. So as we've grown the portfolio, it was important for me to find somebody who can operate and asset manage the portfolio because I'm been focusing heavily on the development and finding new opportunities. And so I've been the one that's been underwriting and sourcing deals and. But now we're at a point where by the summer we will hire a full time analyst. And the interesting part is I'm seeing that a lot of people are using AI to do it. And I think that is a tool. But I don't want AI, you know, to, I don't think they replace the analysts. I think that that is an important, there's a human element that needs to happen. But using AI as a tool and we're, you know, just even showing up on my podcast, AI is definitely being implemented within our company. But right now, you know, I underwrite. And I think the thing about underwriting is that it's like an art. It's not black and white. It's not like you just punch in numbers and whatever the results are, are what they are. There are things in there. And I think this is when you invest in a deal, understanding, like what are the levers do they have they pushed? And what levers are they conservative on? Because if you're conservative on every single lever, you're never going to buy a deal in state, right? And that's just the reality. If you're conservative on everything, then you'll never buy anything. And there's so many people that are just sitting on the sidelines because everything is so conservative. There are some things where I'm like, okay, I'm gonna be a little less conservative, but I have this buffer. And that's where some people have a hard time when they're Analyzing a deal of seeing like all through the, you know, the different, I call them levers, you know, for it. But, but yeah, right now I'm, I'm doing the underwriting. Will is getting a lot of experience as well, but we are going to be hiring a full time analyst to our team this summer.

Okay,

thanks.

There's also software cash flow portal we use for our investment software, but RedIQ, we were using RedIQ and that also, you know, those are good software for entering a T12, which is the trailing 12 months and then also a rent roll, you know, uploading those and it will help, you know, guide the underwriting faster.

Sure.

But yeah, there's a spreadsheet that I've used for years and I've stuck to that.

Okay.

Any other questions? Whether it's a chat box or not? Yeah.

Wayne, I was wondering if you can get into a little bit of what you described. When you convert, I guess an offering from a 506B to a 506C. Do you, do you end that 506B offering where you can't even talk to any of those individuals that are maybe on the fence and you only have to move Forward with the 506C or is there a little bit of a gray area back and forth depending on what's happening?

Yeah, great question. Yeah, there's no gray area on 506B or 506C. Well, I don't know. I like to sleep at night and I see some people do gray area and it's like sometimes it's the wild, wild west. Like people investing in 2026 and saying that you can get full depreciation from 20 in your 2025. It's like, no, you did the investment and you did the cash in 2026. So it's wild, wild west thinking. Thinking you can, you know, do get 2025 similar thinking here in that. No, I just lost my train of thought. What was the question? I'm so sorry.

506.

So when you end.

Yeah, when you.

Yeah, so that's where like. Yeah, it's, it's very much black and white and there's no Wawa west to it. So for 506B, it has its own offering documents for the 506B. Now the 506B, for those that don't know, it's, it's, it's regulated by the Security Exchange Commission. What it allows the main sponsor to do is take 35 non accredited investors. Those 35 non accredited investors have to have a preexisting relationship before the deal. So if I met you tomorrow and you are not accredited, I can't give you an opportunity to invest on things I currently have in my portfolio. So you have 35 pre. Existing relationships are important. There's the, you know, the documents for the, the ppm that will state it's a 506B offering and, you know, go through the subscription agreement, the company agreement, all those legal documents. The thing about that is the sponsor cannot advertise. They can't go out to Facebook and say, hey, we're doing a deal. You know, all this stuff, because it is a 506B, it cannot be advertised. But 35 of preexisting relationships can join and then an unlimited number of accredited investors can join. Right? And so that's 5 or 6B. So when 5 or 6B starts, when I typically do it is there's, there's an offering date and then there's an offering end date. That end date, it closes it. If they weren't in on it. And I've had people like, oh, can I join them? Like, no, because that was the time frame of that 5 or 6B. Because if you ever audited by the SEC showing that you had a start and a finish and it completely closed. Now there's been arguments, I'm going to say arguments from discussions of like, how long between a 506B starting and a 506C starting. So once I close the 506B, my Security Exchange SEC attorney, which if you're doing this on the active side, you know, please get an SEC attorney, he's given guidance that there's no timeframe. So once we closed that, the next day we opened up a 506C with new documents based on 506C regulation. And then we were able to advertise, then we never go back. Once you go to a 506C, you can't go back to a 506B because you've already started advertising for the deal. So that is the reason, you know, for not able to go back and sort of blur the line. So.

Thank you.

Yeah, it's great. You know, I think it's a good resource. I find all of our, you know, our investors initially started off as, you know, some of them were, you know, not accredited. Well, they invested well. Then because of their net worth, they're not investing further because, you know, they're not. Their net worth isn't to a point or their liquidity is not to a point for them to invest on future deals. So it has a natural progression to just being all accredited that we're partnering with.

One last question for you. What are your typical equity splits between GP and LPs on your deals?

Yeah, that's a big part of this presentation, so thanks for asking that. I meant to bring it up. So every deal that a sponsor provides, you know, it could be a 60, 40, it could be a 70, 30, 75, 25. Typically the bigger number is for the limited partner split. On all of our deals we've done a 7525 split, so 75% limited partners, 25% GP. We've also done typically a 7 or an 8% pref return and then at 15, so it goes 7% or 8% prep return, depending on the investment in the deal, that's 100% is paid out to passive investors up to that 7 or 8 and then after that it's split 75 to limited partners, 25 to general partners up until they get to 18%, then at 18% is split 50, 50. So that's what we've done on every one of our deals and you know, it just has stayed clean. But it's not to say that one day it won't go to like a 70, 30 split, but we've kept it at 75, 25 up to this, you know.

Is that an exam preferred return?

Say it again.

Is that accruing?

Yeah, absolutely. So that's a great question. So like when you see a preferred return, it is an accrued return and a lot of people are not even doing preferred returns anymore. I, I don't like that because I don't feel like it's aligned properly. Because think about like, as I mentioned earlier in this presentation, the limited partners are the ones putting up majority of the risk, the capital. And so if they're doing that, then my opinion is they should get the first cup filled and then after that filling of cup, you know, it should split out on the LP GP split. So if it's a 7%, so I mentioned like year one, 4% preferred, well the other 3% or 4% depending on the investment class gets accrued to the following year and the following year and the following year and then it exit, it all reconciles itself. So it's, it's being trued up. Same thing on the storage development and multifamily in the hotel and all like, because you know, you're investing in that deal but it won't cash flow for, you know, two years or three years, it's accruing that Return that preferred return each year and then there's a catch up whether it's at a refinance point or at exit.

Wayne, are you doing something different with that waterfall, preferred return and everything on your development deals?

No, I've kept it all, all the same.

And that 18, you're saying that's total. Once they get to 18, return for whatever, whether, whether it took two years or three years, then your split changes at that point.

Yeah, it goes at 18 for us. It goes 50, 50. What I see a lot of people is they'll do for like 15, they'll go 50, 50. I've just, you know, I've kept it 18. Most of our, a lot of our investors are repeat investors. So just keeping the terms very similar has been good for us. But it's, that's what typically what we're seeing and what we do.

And, and do you have any kind of stipulation in your agreements where once an individual gets 1.8 or, I don't know, not 1.8, one one or one and a half or two and multiple. Are they out of the deal or they. Are they still in the deal?

Yeah. So last two syndications. So if we've done it like if we've gone out and said, hey, we believe this deal is a 20 IRR, I'm just rounding up, then there is a, we have added in our PPMS that if we're able to hit like 5% higher, so 25% IR, then that investor has the opportunity to be, you know, bought out or they can stay in the deal. So it's, it's an option for them. And the reason behind that, and I've shifted to the last couple deals doing it, and we'll do that on every deal moving forward, is because good deals are really hard to come by. And if you can find a good deal and hold that long term and those investors get an exceeding IR than they were initially planning, then it's a win win for everybody. Because what I had seen over the years is that like sponsors like myself, you know, the acquisition fee pays for the risk that we're, you know, we put a lot of money up front for earnest and due diligence and these things and then payroll, et cetera, where then it starts becoming heavily acquisition fee for a lot of people. Right. And I wanted to shift that where it's like, okay, well if we get to a point where we're exceeding our returns to our investors, then there's an opportunity for us to continue holding it. And that makes it less in my mind risky because you're not having to always be in transaction mode. So we've done that on the last couple deals and I think in talking to investors, they get it and they're like, hey, if you can get a 25% IR, we'll likely take our portion of our investment back, reinvest it in the deal or at that point, you know, see what their options are. So not every deal that's. I have not seen that on a lot of people's deals though. So I think that is a great question, but I'm not, I don't see that as often.

I had one other question just with regards to, I've been trying to get as much learned as I can with, you know, reading different business plans and, and some of the underwriting things. So when you are projecting out the exit cap rate, I mean that, what, what metrics do you use to have an accurate, an assumption as you can with that seeing as you're projecting, you know, multiple years out.

Yeah. So typically, so say if the current exit cap rate is 6, then in a five year period, you know, I'll have an exit cap rate of 6.5. So I'll do like 10 basis points per year. The other thing too is I'm also looking at costar. So costar has, it's expensive software but it does a lot of forecasting of where it forecasting or cap rates are over the next five years. Because as interest rates, if the thought is that interest rates are going to stay the same or decline, you know, slightly, then you know, cap rates should also be, you know, going the same direction. So a lot of times I'll look at their projections as well and just make a, you know, a good guess. But I think the important part, Christie, is that we always show a sensitivity analysis. So we'll say like, hey, this is, you know, we're underwriting, you know, six and a half based on where COSTAR is and you know, where we think the market's going to be. But if it's a 6.75 or 7 cap, whatever it is, these are the returns and so looking at like what that does to the investment. But you know, even at a 12%, 13% IRR, like I know it's not sexy numbers from what has been thrown out there in the last few years. But historically that's still like a really great return. Solid return. Yeah, I just think the, just setting the expectation that you know, when you look at the depreciation and you look at all the different types of investments. You know, it's, it really still is a solid return. So but I like the sensitivity analysis for that reason. Awesome.

Thanks.

All right.

Well, any other questions before we drop off? So one of the big themes that we're really pushing is let's talk. So if anybody wants to talk afterwards with Shelby or myself, you know, reach out investreipartners.com as a way to reach out or wayneraipartners.com and we can schedule a time if anybody knows anybody that may be interested in passively investing. We're also grateful for those opportunities to talk to them as well. We really try not to be, you know, we're not selling anything. We're just, you know, giving them opportunities and hopefully helping them diversify into real estate. So I hope everybody has a good evening. Last, last chance. Any other questions? If not, thank you all for joining us this evening.

Thanks, Wayne.

Thanks, Wayne.

Thank you.

Thank you.