What is Syndication in Real Estate?

Bringing multiple investors together to invest in a single property.

Basically, syndicating means bringing multiple investors together to invest in a single property. By pooling your resources with other like-minded investors, you can spread the risk and increase your chances of success.

Let’s take for example; an investor who wants to purchase $2M worth of commercial real estate. If the investor decides to do it alone, he or she will have to put up all the necessary capital and take on all the risks. At best, this investor will be able to take advantage of any profits that result from the sale of the property. However if in any situation the deal goes south, the investor could lose everything.

On the other hand, if the same investor syndicates with five friends, each contributing $400,000, the total investment is $2M. This means that the individual investor will invest only one-fifth of the original sum. With this, the overall risk is reduced and the chances of success are increased.

Now, an investor might be thinking that splitting profits five ways will mean losing out on some extra cash. But that’s not always the case. In fact, syndication can actually lead to increased profits due to the collective bargaining power of the group.

Who is Involved in Syndication?

In a real estate syndication, there are usually two main parties involved: The first is the syndicator (or sponsor) which is the party looking to raise funds for a property. The second is the investor, the party who is looking to invest in a property.

The sponsor is the individual who brings the investors together and manages the property. The investors are, of course, the people who put up the money to help the sponsor with the property. As you can see, it is critical for both parties to work together if they want to make this work.

Now, an investor might be thinking that splitting profits five ways will mean losing out on some extra cash. But that’s not always the case. In fact, syndication can actually lead to increased profits due to the collective bargaining power of the group.

Role of the syndicator in a real estate syndication.

  1. Identifies, negotiates, and closes the acquisition or financing of properties.
  2. Prepares property for sale or refinance
  3. Prices and markets property to investors.
  4. Manages investors’ cash flows and check disbursements.
  5. Creates and sustains investors’ relationships with the property.

Role of the investor in a real estate syndication.

  1. Pays syndicator fee and investment into the property
  2. Receives cash flow distributions from the property (sometimes monthly, depending on the agreement structure).
  3. Has voting and non-voting membership in the partnership/LLC.
  4. May have the opportunity to observe and participate in the management of the property.

Benefits of Syndication
Why Syndicate?

There are several reasons why you might want to syndicate your real estate holdings:

1. Reduced Risk:

By spreading your investment across multiple properties and investors, you reduce the risk of losing everything if one deal goes bad.

2. Increased Revenue:

When a syndicate is formed, it becomes a more attractive investment opportunity for prospective buyers. This can lead to increased revenue and a higher return on investment.

3. Access to Expertise:

One of the best things about syndicating is that you gain access to the expertise of your fellow investors. This can be incredibly valuable, especially if you are new to commercial real estate investing.

4. Diversification:

Investors are exposed to a greater number of deals and greater market and geographic diversification than if they invested individually.

5. Experience:

Syndicators bring substantial experience and expertise to syndication deals. Their knowledge of their local real estate markets and the commercial real estate finance industry allows them to win better terms for investors than would be available to individual investors.

6. Scale:

Syndication allows investors to gain access to larger and more expensive deals than they could on their own.

Risks Associated with Syndication

Risk of Syndicating

Property selection requires expertise, but few syndicators have relevant real estate experience themselves. Most syndicators outsource this key activity to a third party, which can lead to lower-quality deals and higher investor risk.

Lack of transparency: Syndicators do not always disclose all information about a property or the terms of the deal to investors. This can create mistrust and confusion among investors and may lead to disputes after the closing.

Risk of fraud: Syndicators may not have the investors’ best interests at heart and may use their position to enrich themselves at the investors’ expense.

Despite these risks, syndication can be an attractive way for investors to gain access to commercial real estate and benefit from the skills and expertise of a syndicator. By doing their homework and carefully selecting a syndicator they trust, investors can reduce their risk and enjoy the potential for higher returns that this investment strategy offers.

How to Get Started with Syndication

If you’ve finally decided to jump into the world of commercial real estate syndication, the first step towards completing this process is to look for the perfect syndication deal. How can you achieve this?

There are different ways of finding the best syndication deals.

Here are 3 of them.

Real Estate Club:
There may be a local real estate club that you can join. This is a great way to get connected to other like-minded investors and learn more about the industry.

Online Forums:
There are a number of online forums where investors discuss syndication deals. This can be a great way to get started, but be careful to do your homework before investing in any deals.

Commercial Real Estate Brokerage:
If you want professional help in finding and negotiating syndication deals, it’s best to work with a commercial real estate brokerage. They will have access to a variety of properties and can help you find the right investment opportunity for you.

Ask us!
Xotic Properties has a vast network and access to the above resources. Let us help and make it easy for you. Contact us at info@xoticproperties.com today.

Here are a few key things you need to do:

1. Get Educated:

Learn everything you can about syndication and the commercial real estate market so that you can make informed decisions when choosing the right syndication deal.

2. Have Funds Ready:

When looking for a syndication deal, it’s important to have your funds ready to go. This will show the syndicator that you’re serious about investing and can help to speed up theprocess.

3. Find a Good Syndicator:

Since you’ll be investing your hard-earned cash into this venture, it’s important to partner up with a syndicator you trust. Do your due diligence and ask lots of questions to get a sense of their experience and track record.

4. Get Involved:

Once you’ve found a syndication deal that looks good, get involved in the process. This will give you a better understanding of how the deal works and will help you to make more informed decisions when it comes time to invest.

5. Research the market:

Get to know the different neighborhoods and markets where you might want to invest. This will help you to better understand the potential risks and rewards associated with each market.

6. Make Your Investment:

Once all the details have been finalized and you’re satisfied with the syndication deal, it’s time to invest! Be sure to get all the paperwork in order and consult with your accountant to make sure you’re taking all the relevant tax deductions.

By following these simple steps, you can ensure a smooth and successful syndication experience. Good luck!

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