You win some. You lose some. Some get rained out.

If only this one had been "rained out." But it wasn't.

This week an email hit our inbox that we basically knew was coming. One of our multifamily syndication investments has gone to zero. It was a foreclosure and there was no avoiding it anymore.

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Let's back up a bit in the story. It 2021, during COVID-19. The multifamily syndication market was hot. Many people were probably overreaching, overpaying, and taking on more risk and bigger deals than was a good idea. This was one of those deals. We were one of those LPs getting in on a deal where the GP was, in fact, taking on too much risk. Of course, we didn't know that at the time or we would have sat this one out.

We believed the syndicator who described this is a "safe" one with "lots of cash flow from the start--less about betting on appreciation" than other deals on offer at the time. That was baloney: there was not a dollar of cash flow received on the deal. There wasn't a month where they were even in the ballpark of the pro forma. Not even close.

A pile of things went wrong on this one. Yes, the big one: the syndicator took on floating rate debt. That, we now know, was a ticking time bomb for many–and with more to detonate before long. Seemed like a good idea at the time--but obviously wasn't even close to a good idea.

Just as important, from the start, the execution was evidently poor. This is one of those deals where the promised communications were late and spotty, if they came at all. The K-1 was the last one issued for each of the years we were in the sorry deal--as in, reaching us really close to the deadline for extended filing, in October. That's never a sign that the syndicator has their stuff together. When asked, they fired back excuse after excuse--never on them, always someone else, and we (their LP) were unreasonable to be asking about our ability to file our taxes. Ugh.

They issued a capital call to try to save the deal. We met the capital call immediately--sending in over 30% of the original amount. Those who did not meet the capital call were met with angry emails about how bad partners they were in this already-lousy deal, cc:ed to those of us who had already paid in the extra cash. It didn't have a good feel. Browbeating your investors is never a good look.

The deal had a GP who was local and seemed to be experienced in the area of this multifamily apartment complex and a GP who had national experience and many, many deals under their belt with a seemingly good track record. It seemed like a good team that who have the experience and the funding to protect investor capital. They did not.

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The email that we received this week – end of June, 2024, less than 3 years after the initial investment – didn't even mention that it was a total loss of capital. The email, the first communication in many months on the deal, was packed with euphemisms and more excuses. We had to write back to the investor relations person to say, "just to be clear, this was a total loss of capital, right?" We thought that was perhaps material information that an investor might have wanted to know about.

It's not the end of the world. We have taken a portfolio approach to our syndication investments, knowing some would work out and others would not. To spread the risk, we have tended to be on the low end of the check size per deal. We didn't put our family's rent money into this (or any) deal. But it still stings to lose your investment--and is a great reminder that, yes, a syndication deal can turn into a total loss. While it is the first in our syndication investing career, we're guessing it will not be the last.

And we are guessing the 2023 and 2024 K-1s from this deal will be the latest of our 20+ even after its death, too.

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One of the motivations for this site and writing up this content is to bring some added transparency to an opaque market. You can help if you have been involved in a deal and want to contribute a brief report to our growing database of results from deals and syndicators over time.