Question:
David, you’ve been talking a lot about what you call the current market bubble and to be careful as investors before we invest today. How would you recommend someone vet a promoter or syndicator on a proposed investment?
Dr. Sunny P. (Ohio)
David’s Answer:
That’s an excellent question, Sunny. I won’t invest in any syndication unless I am part of the due diligence team. That means among other things, boots on the ground. I don’t trust any third party’s underwriting – I have to see it myself. The problem in the current economy is that there is so much money chasing yield in ALL markets. There are so few really good equity buys that the promoters are committing fraud to be able to syndicate deals that wouldn’t pass muster.
I’m in many inner circles in the real estate markets and am seeing a lot of the same brashness that we saw in 2005 – 2007, even among people who should know better. It’s very difficult not to look the other way when money is running at you like there’s no tomorrow and you stand to make a ton of money if you can just find a deal to syndicate.
If you’re not really closely tied into the syndicator, I would think twice about investing in the current market – you just don’t have any idea what you’re getting into now. It’s crazy times.
