You might have seen this term pop-up across the web, either in a forum, blog post, Youtube video, or in a Facebook group. Syndication is the pooling of resources to take on a project. Each participant of the syndication has an important role in closing a deal. If you have been investing in single-family and non-commercial multifamily properties, the thought of taking on a large 100+ unit apartment community might seem out of reach. Perhaps you are a working professional such as a doctor, lawyer, or C-suite executive that would like to invest in real estate and reap the lucrative returns of larger projects; however, you do not know how to source the right deal and execute on a strategy. Syndication could be a good alternative.
Syndicating real estate is a transaction between a deal Sponsor and group of investors. Take for example a person decides he would like to start a car dealership. Joe has many years experience managing a dealership, but does not have the money to get the business started. His friend Jane is a working professional that has been saving money to invest in a potentially profitable venture. She decides it would be worth investing in Joe’s business. Joe is the deal sponsor, and Jane is the investor. Joe leverages his operational expertise, and supplier relationships to bring all of the resources needed to get the business up and running. Jane supplies the capital and takes a passive role. They will agree on an ownership split and profit share. Large real estate transactions can be executed in the same way.
The real estate syndication Sponsor may put in up to 20% of the required equity capital, while limited partners (investors) put up the rest. The syndication can be setup as a Limited Partnership (LP), or a Limited Liability Company (LLC). The Sponsor is the active manager of the syndication and will communicate asset performance, as well as make distributions to investors.
About the Author:
Dion Huey is a Key Principal at Delta Bridge Capital LLC which is a multifamily real estate investment company that invests in value-add apartment communities in The United States. He earned a masters degree in finance at Northeastern University in 2017 and worked on multiple business syndications as a financial analyst for Boston-based Plateau Asset Management which is a private equity search fund that has $30 million AUM. In 2010 he co-founded Rocky Mountain Education and Technology Group which is a Beijing-based education services company that has serviced more than 5,000 clients. To-date, he has successfully advised and brokered $10 million in real estate transactions in three different markets, and was an analyst on the deal team for the syndication of a $1.5 billion hotel project in Manhattan. In his spare time, Dion enjoys reading, martial arts, lifting, and learning foreign languages.