Pros of Syndications

Here is a short list of some of the major impacts we have faced so far:
1) At least 5 documented fires (three of which burned down the structure – here was one of them that we eventually sold for 129% Total Return or 2.29X Equity Multiple – over the 2.5 year ownership period, that equated to an IRR of 32%)
2) Two full front hurricanes
3) Multiple tornados (these are the easiest and the least of our worries because they are the simplest claims and isolated incidents plus there is much city support when it happens)
4) One tree falling on a roof, taking out a dozen units
5) And a freak ice storm in Texas – who knew!

In progress rebuild of our our Irving property that burned down. Upgraded from 1990s to 2022 standards!

Consider the following:
1) We carry adequate insurance coverage. Even more so than we would feel is cost-effective but is mandated by the uber-conservative bank to over-insure the asset where they have the greatest amount of interest in the capital stack.
2) As with all disasters, we carry commercial-level insurance which includes loss rents. The only trouble here is paying for costs out of our operating account in the period between when the insurance company checks are cut to us the owner. This is why we have adequate working capital, cash reserves, and the sponsors are personally well-capitalized to minimize the chance for a capital call. Even in that extreme circumstance, we have countless ways to cut costs which is why we invest in this type of asset class. In past cases, units have been out of service for weeks or months however in a way we are “off the clock” racking up our loss rent checks even though the units are not occupied.
3) We always get third-party claims adjusters to maximize the claim paid to us. In our experience, we have gotten up to 2-3x what the claim settlement was originally proposed. Most amateur operators would accept these… I know when I was a single-family home investor from 2009-2015 I would have done just that and would not have the capital to pay for a claims adjustor plus the claims adjustor would not want to work my small claims anyway. In many cases, we come out ahead of where we started before the unfortunate incident! Once we were able to use a “hail storm” to get brand new roofs with just the $5,000 deductible on our already perfectly fine roof. Although we are not thrilled when any instance takes place because it stresses our asset management team’s bandwidth temporality. (it’s our job, we know!) We are cautiously optimistic that we can come out ahead!
4) When we had the unprecedented ice incident in Texas in 2021 and all the little mom and pop amateur landlords were frantically bugging their overwhelmed property managers who were trying to find any plumber in town, we were knocking out our own work orders with our in-house maintenance staff. This was a great example of our staff’s ability to be self-sufficient, of course, we do share human resources and some supplies if needed among assets in the same metro.
5) One of our fires burned down an entire building under construction. In this circumstance, it puts us in a better position because at that point, the GC owns the delivery of the final product and they are ensuring the completed product. Although it is not our job as the owner, Lane’s attitude when he was in the construction industry was that every contractor/owner wants a completed project to move on to the next one and as the owner we want the contractor to complete the project in such fashion to make a fair profit so we can do business again. It comes down to honor. So we do our part to ensure contractors are not cutting corners to ensure a properly paid insurance claim (which would probably result in a huge loss or bankruptcy by the CG) by doing the little things like recommending and in some cases paying for wifi security cameras to keep an eye on expensive materials like lumbar, quality assurance to ensure safety protocols are met, and communicating with municipalities site impacts we feel its the right way to do business and that we are all accountable to a project that is on time, on budget, and meets expectations. Lane spent 12 years as an engineer mostly on the owner’s side overseeing construction and unfortunately, a lot of it was on the boring side ensuring the project was covered insurance wise, documentation, arguing unforeseen conditions with contractors… or in other words a lot of the stuff that had to be done due to the existence of lawyers and natural disasters/acts of god/human factors errors.

Overall, passive investors should not worry about specific events, and why we always recommend diversifying your portfolio with not more than 5-10% of your net worth into any one deal. By doing that you can relax and let your GP (who is incentivized to achieve the same goals) do the stressing and leg work that is necessary to manage the asset (and property management team) to maximize the returns.