This is one of the main questions I get from busy professionals looking to invest in multi-family properties. As a multi-family investor with several years of experience, I have good working knowledge of this topic. However, I am not a securities attorney. As such, do not construe this information as legal advice; it is for educational/familiarization purposes only.
Real estate syndication is one of the main ways in which real estate developers and multifamily real estate investors acquire real estate. In short, a syndicated real estate transaction involves bringing together a group of investors to raise money for real estate investment. It is essential that multifamily investors have some knowledge of syndications because mid-large multifamily property acquisitions/investments will likely employ this acquisition structure.
What does syndication mean?
Real estate syndication is a capital aggregation of several participants to invest in real estate opportunities jointly. Simply, syndication means that a group of people join to buy a property. Syndication can be formed to acquire a property or several properties. In general, when we talk about syndication, we refer to the aggregation of the capital, required for the purchase of a property.
Who are the players?
Sponsor
The sponsor(s) is the owner or developer of the asset; the party that collects the funds, also known as the principal. The sponsor is the party seeking the transaction and executes the purchase and operation of the property.
Investor
Investors invest their money in the transaction. There could be an investor or several investors. In general, they do not play any role in the acquisition or operation of the asset; however, they will usually provide a periodic strategic entry.
Who can practice syndication Investment?
Sponsors and investors can invest in Real Estate Syndication. Accredited investors are defined as having a net worth of more than $ 1,000,000 USD, excluding their principal residence, or an income of more than $ 200,000 USD in the case of an individual or more than $ 300,000 USD if filing jointly. A sophisticated investor is a non-accredited investor that has sufficient knowledge and experience in financial and business matters to make him/her capable of evaluating the merits and risks of the prospective investment.
Who can practice syndication Investment?
Sponsors and investors can invest in Real Estate Syndication. Accredited investors are defined as having a net worth of more than $ 1,000,000 USD, excluding their principal residence, or an income of more than $ 200,000 USD in the case of an individual or more than $ 300,000 USD if filing jointly. A sophisticated investor is a non-accredited investor that has sufficient knowledge and experience in financial and business matters to make him/her capable of evaluating the merits and risks of the prospective investment.
What are the risks?
Sponsor: The sponsor will generally be exposed to significant financial and reputation risk. Often, the sponsor will have personal guarantees of recourse in the acquisition loan.
Investor: The investor also incurs a significant financial risk to the extent that it provides the greater part of the capital. They have a marginal reputation risk. Generally, they will not commercialize the transaction and the asset.