I wanted to write this blog to help educate new investors on syndications. I’ve know that
syndicated investments was a new type of investment instrument for the novice investors, but the more I talk to new investors, I realized many have never heard about these types of instruments.

Lets start here.

Real Estate syndication were originally only available to top investors. Think of the 1% club. In the early 2000’s this all changed. The SEC allowed the everyday investors the opportunity to participate in these instrument’s, allowing these under the 506B and 506C exceptions. Since that time real estate syndications have grown.

What is a Real Estate Syndication?

A real estate syndication is a method of pooling capital from multiple investors for the common goal of acquiring real estate. Investments are often syndicated in order to allow individuals to invest in properties that are significantly larger than they could afford on their own. It can be as little as 2 investors and as large as 100+ investors.

The ownership structure of a syndication is owned by all of the partners. The lead partner or “Sponsor” is the partner that puts the syndication together. The General Partners (GPs) play an active role with the sponsor to form, manage, and execute the syndication business plan. Typically, there are no more than 5 general partners, but this can vary, depending on the size of the deal. The remaining partners are referred to as “Limited Partners” or LPs.

The main duties of the GPs are to

1. Find the property; underwrite the property
2. Acquire the property
3. Improve the asset by adding value or forcing appreciation
4. Manage the asset and the property manager
5. Sell the asset for a targeted profit

For lack of better words, some new investors compare syndications to “flipping a house”. I guess at the simplest terms, you can think of it that way, but it is executed at a much larger scale, regulated by the SEC, managed by multiple experienced investors, consists of contracts drafted by attorneys, and executed within the framework of a business plan. Actually, the business plan is arguably the most critical of the components in a syndication. Compared to single family homes where value is drive by “comps” of previous sold homes, in contrast, Multi Family is drive by “forced appreciation of value”. In essence the higher the rents, the higher the value. The higher the value, the more return sponsors, general partners, and limited partners will make on its investment.

For limited partners, it’s a great way to invest in properties that they would have had no access to participating in. Think about it, as in investing an 1 single family home, versus say a $20 million 100 unit property. For most one is attainable, while the other is far fetched. A syndication allows the novice investor access to the scale of a 100 unit property, the experience and network of the general partnership team, in a regulated environment.

Hope this explanation helps. This is just a general blog, so reach out to me with questions.