On The Market

214: What to Know About “Capital Calls” As Multifamily Syndications Get “Squeezed” w/Brian Burke and Mauricio Rauld

May 6, 2024

Syndication experts Brian Burke and Mauricio Rauld discuss the challenges of capital calls in multifamily syndications. They cover the risks of investing more money, obligations of investors, and key questions to ask before committing. The episode emphasizes the importance of clear communication, transparent strategies, and legal compliance to navigate capital calls successfully.

51:40

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Episode guests

Mauricio Rauld

Brian Burke

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Quick takeaways

Syndicators face financial pressure with rising mortgage rates, prompting capital calls for additional investor funds.

Understanding the roles of limited partners (LPs) and general partners (GPs) is crucial in assessing syndication risks and involvement levels.

Properly navigating capital calls in syndications requires transparent communication, legal compliance, and detailed fund utilization insights.

Deep dives

Understanding Syndications

Syndications involve pooling capital to invest in large commercial properties like multifamily units. While syndications can offer high returns, there are risks involved, especially in the current real estate market. Issues like capital calls, where additional funds are requested from investors due to unforeseen financial constraints, can arise, highlighting the importance of understanding the dynamics of syndications.

Introduction

2min

Demystifying Real Estate Syndication and Investment Structures

6min

Challenges in Real Estate Market and Investment Opportunities

2min

Navigating Capital Calls in Multifamily Syndications

23min

Navigating Legal and Communication Challenges in Multifamily Syndications

7min

Navigating Capital Calls in Multifamily Syndications: Maintaining Investor Confidence

3min

Emphasizing Communication and Legal Compliance in Multifamily Syndications

4min

Navigating Capital Calls in Multifamily Syndications

3min

Multifamily syndications are getting squeezed. With short-term financing coming due and mortgage rates at multi-decade highs, syndicators are calling on their original investors to raise more money so they don’t lose the deal. The problem? If you’re an investor, how do you know if your additional investment will ever be returned? Could a syndication simply burn through your money without making any promising changes to the investment? What should you know BEFORE you put up the cash for a capital call? We brought two syndication experts, Brian Burke and Mauricio Rauld, on to share their tips for navigating capital calls.

Before we start, let’s clarify this isn’t exclusively a syndication or multifamily problem. Much of the commercial real estate market is facing financing problems as loans come due and mortgage rates stay high. However, this problem has become a lot more common for syndication investors since rates started rising. In this episode, we’ll break down what a capital call is, why syndications do them, whether or not you’re obligated to invest more, and what investors MUST look for before putting up cash.

If a capital call comes your way, we have the exact questions you should ask the syndicator to ensure your money is being used correctly. Plus, if you’re a syndicator or plan on being one in the future, we share the steps to pull off a capital call the right way and make your investors whole. Making the wrong move could cost not only your investor’s money but also your money and lead to serious legal consequences. Don’t get stuck in that spot; stick around!

In This Episode We Cover:

Capital calls explained, why they happen, and why they’re becoming common in multifamily

Syndications 101 and the reason they’ve become popular among passive investors

Commercial lending problems and the bridge loans that are squeezing multifamily investors

What investors MUST look for when a capital call comes their way and the questions to ask

The right way to execute a capital call and the steps every syndicator should follow

And So Much More!

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