Andy Bales - Director of Finance & Technology

in theory

What is a “Real Estate Syndication”?

A real estate syndication is a method of pooling collective resources and expertise with the common goal of acquiring real estate, typically larger, potentially more profitable properties than otherwise possible. It offers investors a simple way to gain access to investments that might otherwise have been out of reach.

in practice

What does that look like in practice? We can think of a real estate syndication as consisting of 5 phases.

1. Opportunity Identification: The General Partners (or GPs) identify properties or development site they believe to have great profit potential and develop a business plan. These are often typically large assets or projects that require significant capital and experience.

2. Syndicate Formation: A legal entity, such as an LLC or LP, is established to represent the syndicate and own the property. This structure allows investors to have clear ownership of the property and take advantage of all the benefits that come from owning real estate.

3. Investors Participation: Investors contribute funds to the syndicate in exchange for ownership shares in the entity. These amounts can vary between investor and typically have a minimum contribution limit.

4. Property Acquisition / Construction: The pooled funds are used to execute the previously identified business plan.

5. Income / Exit: The syndicate collects rental income (if a buy and hold strategy was chosen). When the property is sold, any profits are distributed to investors according to the specific syndication agreement, concluding the investment cycle.

These are the basic steps of a syndication and while some of the terminology may be a bit confusing, the idea is fundamentally very simple - folks pooling resources to buy or develop larger real estate deals - with a structure that keeps everyone on the same page.