Real estate syndication plays a significant role in providing investment opportunities for individuals interested in real estate. It involves a group of investors pooling their capital to jointly purchase a large real estate property, such as apartments, mobile home parks, land, self-storage units, and other real estate assets .
Key Players in Real Estate Syndication
There are two key players in any real estate syndication investment: the syndicator(s) and the passive investors .
1. Real Estate Syndicator (General Partner): The real estate syndicator, also known as the general partner (GP), is responsible for structuring and operating the real estate syndication. Their primary duties include underwriting the deal, conducting thorough due diligence on the property, arranging financing, negotiating with the seller, building a business plan, and finding investors .
2. Passive Investors: Passive investors are the individuals who invest their capital in the real estate syndication. They contribute funds to the syndication and rely on the expertise of the syndicator to manage the investment .
How Real Estate Syndication Works
Real estate syndication involves the syndicator team finding a commercial real estate asset and putting together a private placement syndication offering to passive investors. The syndicator team consists of the real estate developer, property manager, experienced real estate attorney(s), and accredited investors. They are responsible for all aspects of the investment, from acquisition fees to investor relations to property management .
The syndicator’s role includes drafting the syndication agreement, underwriting the deal, finding and selecting investment opportunities through due diligence, arranging financing, building an investment strategy and business plan, marketing the investment opportunity to potential limited partners, managing the property directly or overseeing the property management team, handling tax, insurance, and financial obligations, managing relationships with limited partners, and managing the sales process when it comes time to sell the property .
Benefits of Real Estate Syndication
Real estate syndication offers several benefits for investors:
1. Diversification: Investing in real estate syndications allows investors to diversify their portfolios by gaining exposure to different types of real estate assets and markets.
2. Access to Larger Deals: Real estate syndication enables individual investors to participate in larger real estate deals that may be beyond their individual investment capacity.
3. Professional Management: Passive investors in real estate syndications can benefit from the expertise and experience of the syndicator team in managing the investment, including property acquisition, operations, and potential value appreciation .
4. Potential Returns: Real estate syndications can offer attractive returns to investors. Investors in real estate syndication deals typically see annual returns of 8-12% or higher, although it’s important to note that all investments carry risks .