If you’ve spent any time in the real estate investing world recently, you’ve probably seen headlines about apartment syndications struggling, capital calls being issued, distributions being paused, and in some cases, investors losing substantial amounts of money.
One of the most public examples has been a recent Houston apartment deal involving Brandon Turner and Open Door Capital where approximately $15 million of investor capital was ultimately lost. The interesting part is that the property itself wasn’t necessarily a failure from an operational standpoint. Occupancy remained strong, rents increased significantly, and the business plan was largely executed. Yet investors still lost money because the financing structure and broader market environment changed dramatically.
Before I go any further, let me make something very clear:
This article is not intended to criticize Brandon Turner, Open Door Capital, or any other syndicator. In fact, I give Brandon credit for publicly discussing the deal and sharing lessons learned. Most operators would rather stay silent and hope people forget.
The bigger lesson is not about one operator.
The bigger lesson is about understanding risk.
What Happened to Multifamily Syndications?
To understand what happened, we need to go back to 2020 through early 2022.
Interest rates were historically low.
Apartment values were climbing.
Rents were increasing rapidly.
Lenders were aggressively providing financing.
Investors were flooding into multifamily deals.
For a period of time, it felt like almost every apartment deal worked.
Then everything changed.
The Federal Reserve began raising interest rates at one of the fastest paces in modern history. Borrowing costs increased dramatically. Property insurance costs exploded in many markets. Property taxes increased. Cap rates expanded, putting downward pressure on apartment values. Refinancing became far more difficult.
Many apartment syndications were built around a simple assumption:
Buy the property, improve operations, increase rents, refinance or sell in a few years, and return investor capital with a profit.
When interest rates and property values moved against that plan, many operators found themselves trapped.
The property itself could be performing well while the investment still failed.
The Risk Most Investors Missed
Many investors focused heavily on the property.
They looked at:
- Occupancy
- Rent growth
- Market demographics
- Renovation plans
All important factors.
But many failed to focus on the capital stack and financing structure.
Questions like:
- Is the debt fixed or floating?
- When does the loan mature?
- What happens if rates rise?
- What happens if refinancing isn’t available?
- How much equity cushion exists?
Those questions suddenly became extremely important.
In many cases, the operational plan worked.
The financing plan didn’t.
As one industry observer recently noted regarding the Brandon Turner deal, “Operations got this deal an A. Financing gave it an F.”
The Difference Between Equity Investing and Debt Investing
This leads to an important distinction that many investors do not fully understand.
When you invest as a Limited Partner (LP) in an apartment syndication, you are typically investing equity.
That means:
You participate in the upside.
But you also absorb the downside.
If the property performs exceptionally well, investors can generate outstanding returns.
If the property struggles, investors can lose some or all of their capital.
The equity investors are generally the last ones paid in the capital stack.
Debt works differently.
When an investor participates in a private debt fund like 608B Capital, they are investing in loans rather than property ownership.
Our fund lends money to real estate investors and builders.
We are not relying on:
- Rent growth
- Cap rate compression
- Future refinancing
- Appreciation
Instead, our position is secured by recorded mortgages and deeds of trust against real estate assets.
In simple terms:
Apartment syndication investors are typically participating in ownership.
Debt fund investors are typically participating in the financing.
Neither is inherently better.
But they are very different risk profiles.
Questions Every Passive Investor Should Be Asking
Regardless of what type of investment you’re considering, here are some questions worth asking:
If Investing in a Syndication:
- What type of debt is on the property?
- When does the loan mature?
- Is the debt fixed or floating?
- What happens if refinancing isn’t available?
- How much experience does the operator have in this asset class?
- What is the worst-case scenario?
If Investing in a Debt Fund:
- What collateral secures the loans?
- What loan-to-value ratios are being used?
- What happens if a borrower defaults?
- How are loans underwritten?
- How is risk managed?
The goal is not finding investments with no risk.
The goal is understanding which risks you’re being compensated to take.
Final Thoughts
The recent struggles in the apartment syndication space are not evidence that syndications are bad investments. Nor are they evidence that operators are incompetent.
What they do demonstrate is that every investment strategy carries risk, and market conditions have a way of exposing assumptions that seemed perfectly reasonable just a few years earlier.
For investors, the lesson isn’t to avoid real estate.
The lesson is to dig deeper.
Understand the capital stack.
Understand the financing.
Understand where your money sits in the structure.
And most importantly, understand what has to go right for you to make money and what can go wrong if the market changes.
The investors who ask those questions tend to make better decisions, regardless of whether they choose apartment syndications, debt funds, direct ownership, or any other real estate investment vehicle.