February 21, 2022
Joe Fairless
5 MIN TO READ

3 Kinds of Partners to Avoid

Recently, I was pulled into a real estate syndication deal a week before it was scheduled to close. While this is not advised, the deal worked out and closed. However, during the course of that engagement, I was immersed in the deal, its structure, and the personalities that were involved 24/7 up until the closing.

It should be said that syndication deals and any other real estate deal that involves partners will always have their challenges. In this case, the challenges were with a particular partner. Below I am going to go over the three kinds of partners to avoid in any real estate deal.

 

1. The Know-It-All

We have all met them. They know more than you and there is always a story to one-up you. These partners don’t need your input — they already know what to do and how to deal with the issue at hand. These partners are dangerous because they are unwilling to be open to other perspectives. Every deal is challenging on its own, but more minds, thoughts, and ideas will likely yield successful avenues to overcoming those challenges.

In this particular instance, this partner was acting as a lawyer despite not having any legal training. Due to the doubled amount of work this generated for the lawyers in the deal to get on the same page, it ran up costs. When the issue was brought to this partner’s attention with questions about why things were being drafted that did not conform to the deal terms, righteous indignation ensued.

Know-it-alls are dangerous to deals. It is okay to not know everything about a deal. I constantly learn something from every deal. No one knows it all. If there is someone who is not open to others’ contributions to a deal, then that is not a partner you want. Remember, this will be your partner for the duration of this deal.

 

2. The Bully

No one likes a bully. In fact, some states have laws against bullying. When one partner uses intimidation, condescension, insults, and threats to force an issue or get their way, that is a disaster waiting to happen. It goes without saying that the schoolyard bully should not be part of your team of investors. Bullies are insecure about something and typically, their agenda is not in line with the mission of the investment team.

The bully in this recent deal was demeaning to the other partners, the lawyers, the bankers, and everyone who was not him. Not a wilting flower by any means, I politely, but firmly pushed back.

Standing up to the bully paved the way for the lawyers to get open communication with the other team members to work the deal in a manner that could get the closing done. However, with that bully of a partner still in that deal for the foreseeable future, I worry about the success of the investment team due to his volatile nature and unsportsmanlike conduct.

 

3. The Control Freak

Syndication deals, big and small, require a free flow of information among the members, the lawyers, and the bankers. Deals move smoothly when there is open communication. Investors need to know what is happening with their money, time, and efforts to achieve success. Moreover, those investors need to be involved in underwriting, financing, and legal requirements to close the deal.

In this particular deal, the problem partner was controlling all information. He was not sharing legal documents, was not dispersing requests from the lawyers to the other partners, and log-jammed lawyers talking with each other so he could control the information. Legal documents were wrong, opinion letters were not drafted, due diligence was delayed, and the deal got pushed back for closing the following week.

After lawyers started copying each other on requests, conference calls were had that circumvented the control freak, and information started passing back and forth. The other partners to the deal jumped in and started moving forward with their contributions, and the deal was successfully closed. However, the control freak was only sidelined after the lawyers started talking and figured out where the knot in the communication was to be found.

 

Closing Thoughts

That one deal had a problem partner that hit the trifecta of who not to partner with. Remember that partnerships are very much like a marriage: they require communication, understanding, kindness, and an open mind. No deal is worth an abusive relationship. There are always other deals to be found and other partners who will support the team mindset necessary to achieve real estate investing success.

 

About the Author:

Brian T. Boyd, JD, LLM, www.BoydLegal.co

 

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

Share this:
Get exclusive commercial real estate investing tips from industry experts, tailored for you CRE news, the latest videos, and more - right to your inbox weekly.
pattern-001