REAL ESTATE SYNDICATION
At its most basic level, real estate syndication involves bringing together like-minded investors and pooling capital and resources in order to purchase larger investment properties than any one individual investor is able or willing to do on their own. The sponsor, who organizes the syndication and generally co-invests with the other investors, typically is responsible for raising capital from investors, finding a suitable investment property to purchase, and managing the real estate and syndication as general partner. The sponsor of the syndication should have significant experience in all aspects of investment real estate including acquisition, asset management, financing, leasing, risk management, and disposition as they are responsible for ensuring the overall success of the real estate investment. The other investors are typically limited partners and enjoy the access to deal flow, passive investment in direct real estate assets, and greater diversification (by way of smaller capital requirements per investment) than if they invested in individual properties on their own.
Real estate syndication's typically last in duration from 3 to 7 years, although some can run 10 years or longer depending on the investment objective and strategy. Shorter duration's of 3 to 5 years are more typical of Development, Re-Development, and deep Value-Add investments which offer the highest potential return along with the highest level of risk. These investments also typically have lower cash flow, at least initially, and produce most of their return by way of high appreciation of the asset. Distributions for the first year or two, tend to me small if non-existent, but improve over time as the property is stabilized and new leases are signed.
Longer duration investments, typically in the 5 to 7 year range, tend to focus on slight Value-Add and stable Income Producing investments which have lower overall returns, but also carry substantially less risk. These investments produce strong stable income from the beginning and produce most of their return by way of income. Typically, these properties already have high occupancy levels, and for commercial properties, often have credit or national tenants on longer term leases which offer more predictable income to investors than properties with short duration leases.
There are many factors to consider when evaluating a potential real estate syndication including liquidity needs, risk tolerance, preference for income versus appreciation, duration of investment, tax advantages/consequences, and loan recourse/guarantees just to name a few.
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DISCLAIMER – Direct and syndicated real estate investments carry unique risks, including lack of liquidity and potentially complex tax consequences, and may not be suitable for all investors. Please consult with your tax advisor prior to making any investment.