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  • Writer's pictureTomond Jack

Lessons From A Failed Syndicator

Updated: Jun 6, 2023

Recently, The Wall Street Journal (WSJ) published an article about a multifamily real estate investor who accumulated more than 7,000 units worth $500+ million in just 4 years, but lost over 3,000 of those units to foreclosure last month (read here

This investor grew his portfolio quickly using syndications. Prior to the WSJ article, this story has been quietly floating around the multifamily syndication industry for a couple months. But surprisingly it did not generate as much chatter as I would’ve thought. Possibly because this situation casts a negative light on syndications and many syndicators who grew quickly over the past couple of years are also on the same track to foreclosure. However, there are a lot of lessons to learn from this story.

A Backdrop To What Led To The Foreclosures...

When the US government responded to the Pandemic in 2020 by flooding the economy with free and cheap money, this sent real estate investors into a buying frenzy. At the same time, long-term, fixed rate debt and short-term, floating rate debt or “bridge debt” dropped to historically low levels. As a result, many multifamily syndicators began aggressively underwriting and purchasing properties using bridge debt without a rate cap. A rate cap is insurance to create a limit on interest rate increases for variable rate debt.

Bridge debt can have a fixed rate for about 1-2 years, then it converts to being a floating rate loan where the rate can change monthly or quarterly. Whereas, long-term fixed rate debt will have the same interest rate for the life of the loan. Bridge has its place and is not bad when used appropriately. Sometimes bridge debt is the best financing option for a project.

"Everyone has a plan 'til they get punched in the mouth." Mike Tyson

Since May 2022, interest rates have increased over 500%, putting many investors who used bridge debt without a rate cap in a tough predicament. I don't think anyone could have predicted how fast interest rates increased. This was the primary issue for the syndicator in the WSJ article. He used bridge debt to fund these deals, thus, the increase in interest rates created a serious strain on cash flow.

Another issue highlighted in the article was the execution of the business plan. The success of these deals was highly dependent on increasing rents. The plan was to make property improvements and increase rents, which is common for many multi-family syndications. However, the asset manager noted that the owner refused to make necessary repairs and tenants complained to the city about the living conditions, indicating the syndicator was either out of cash and couldn’t make the repairs or just a bad operator. Most likely he was out of cash because he tried to do a capital call, meaning he asked his investors for more money. Either way, it is hard to maintain occupancy, let alone increase rents, when maintenance is deplorable and improvements aren’t completed.

The biggest problem with these investments was the mindset and experience of the syndicator. This is a classic example of growing too big too fast and not having the experience to navigate the changes in the market. The syndicator had an IT background with no prior real estate experience and was able to acquire 7,000 units in 4 years. This is an extremely aggressive acquisition plan. Unless there is an experienced team in place, this type of volume is very difficult to handle. In addition, if he had the experience of investing during the 2008 real estate crash, he may have thought twice about using floating rate debt on these deals, at least without any protection. Unfortunately, history is repeating itself. The 2008 crash was caused by residential mortgages with floating rate debt that fluctuated to levels where individual homeowners could not handle the payments, which led to record level home foreclosures. There is a similar situation occurring in the multifamily syndication industry for those who used bridge debt. It appears this syndicator did not have the right team or advisors in place to make the prudent financing decisions and manage on a large scale.

Final Take

Multifamily syndication is a powerful investment vehicle that can help you build wealth; however, you must be wise and conservative in your approach. Before committing to investing in a syndication, fully understand the underlying business plan and financing for the project. Most importantly, vet the sponsorship team to ensure they have the experience and expertise to take on the project and make the right decision. You want to trust that the syndicators can take a punch and come out on top.

Are you an investor who wants to generate passive income? Consider investing in multifamily syndications. Investing in multifamily real estate is a great way to improve your financial status and you can do it passively through a syndication. To learn more visit

About the author: Tomond Jack is a real estate entrepreneur and syndicator who has over 20 years of investment experience. He is passionate about helping people expand their wealth through real estate.

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