Broadly defined, a real estate syndicate pools capital from various investors and then utilizes the capital to: acquire an income producing property; or, develop underutilized land on which an income property can be developed.
A syndicate structure allows investors to invest in real estate venture they may be unable or unwilling to invest in individually. Generally the investor is not involved in the day-to-day management of the project. A common example of this would be the purchase of a residential apartment complex.
Investing in a real estate syndicate requires due diligence and a careful analysis of the proposed venture; as there are no guarantees that the venture will be profitable. It is recommended that individuals seek the advice of a qualified attorney and or financial planner when evaluating a syndication offering to fully understand the merits and risks of the investment.
The organization that puts together the syndication, the syndicator generally is compensated for: locating the real estate, due diligence of the acquisition or intended development, and closing the deal. This compensation can be provided in a variety of ways including: acquisition fees – paid to the syndicator at closing; management fees –typically based on a percentage of yearly gross revenue; and, equity carve outs – permits the syndicator or retain an equity interest in the project.
The investor can realize gains on his investment through the cash flows of the property, the appreciation of their ownership interest that will be realized upon sale, and/or a preferred return on their invested capital.
Real estate syndication is regulated by the Federal and State government to protect the public as well as potential investors. This regulation can be very difficult to navigate as it is frequently changed, and many governmental agencies are involved in the process. Investing in a real estate syndication should only be done after a thorough investigation of the syndicator and the investment. The securities attorneys at Zamzow PLLC have the expertise and experience to counsel syndicators and investors at each step of the syndication process.