You have spent hours seeking, structuring, placing offers, and contracting a real estate investment opportunity. Now you a deal locked up and may have gotten qualified for hard money or conventional debt financing but this is not the good old 100% financing days. So that means that you will need to bring cash to the deal to help complete the acquisition. What happens when you are overextended or do not have enough cash? Then understanding syndications can help you get into a deal.
Real Estate Syndication involves bringing a group of accredited individual investors together to pool capital for investment in real estate to help make up the equity portion of the capital table.
Parties to Syndication
Syndicator/Promoter who creates the syndicate in the first place;
Syndicate Manager who sources the equity and manages the syndication. Typically the promoter is the syndicate manager
Capital Investors who purchase the investment units.
Legal Structure
Selecting the form of organization involves practical as well as legal and tax considerations. To choose the right structure you need to balance the following parameters: co-ownership, divided ownership, corporation, trust, general partnership and limited partnership.
Syndicate Structure
Limited Capital Investors
A hurdle/preferred return on invested capital. They receive a percentage figure which is stated from the outset on invested capital prior to the syndicator/general partner receiving payment. Depending on the risk attached to the deal, this typically rests somewhere between 5% and 10%.
A waterfall structure profit structure whereby the sponsors’ cut of the profit increases as the profits rise. Differing ‘hurdle rates’ are set which dictate the profit split between the capital investor and the sponsor/general partner.
Comments
Trinadh
I know a good attorney who can help with PPM and syndication efforts at Saul Ewing. If you need a referral shoot me a private message.
Ankit
Hi Ankit, Thanks for insights on Syndication. Can you recommend any syndication attorney who can also work with us on business plan?
Appreciated,
Trinadh