I’ve learned throughout my adult life from being a doctor, a rabid soccer fan, and now a real estate investor that you can go further, faster with the help of a team. The greatest soccer players, basketball players, and football players have the support of coaches, teammates, and fans that help them succeed.
Real estate syndications are similar. But, rather than doing all researching, buying, construction, marketing, a team of dedicated professionals makes the real estate game winnable.
Each syndication member has a specialization, whether that be the asset class, the area, the financial markets, etc. This team works together to make every real estate deal the best possible for investors and buyers.
My wife and I love to travel. Because we’re shift workers, we often run last-minute, and we’re intimate with how the airline industry works, both good and bad. I always think of the syndication as running similar to a plane ride. The airline provides pilots, flight attendants, mechanics, and more who work together to get passengers to their destination safely.
In this analogy, the pilots are the syndication sponsors, and the passengers are the passive investors. They’re all going to the same place, but they have very different roles in the process.
If unexpected weather patterns emerge, if an engine has issues or any other number of surprises, the pilots are the ones who are responsible for the flight.
The pilots will likely update the passengers (“Just to let you know, folks, we’re experiencing some turbulence at the moment…”). Still, the passengers don’t have any functional responsibilities in making the decisions or flying the plane.
A real estate syndication is much like this. The passive investors, sponsors, brokers, property managers, and more share a vision to invest in and improve a particular asset. However, each person’s role in the project is different.
In this article, we’ll talk about exactly who those players are, as well as their respective roles in a given real estate syndication.
The 7 Key Roles In A Real Estate Syndication
Here are the key roles that come together to make a real estate syndication happen:
- Real estate broker
- General partners
- Key principals
- Passive investors
- Property manager
Real Estate Broker
The real estate broker is the person or team who surfaces the property for sale, either as a listing or as an off-market opportunity (i.e., not publicly listed).
Having a strong real estate broker is crucial, as they are the main liaison between the buyer and the seller throughout the acquisition process.
The lender is the biggest money partner in a real estate syndication because they provide the loan for the property. The lender performs their own due diligence, underwriting, and gets a separate appraisal to ensure the property is worth the value of the requested loan.
Neither the real estate broker nor the lender is aboard the plane in the airplane analogy. Of course, they have essential roles in bringing the project to fruition, but they are not part of the purchasing entity, nor do they share in any returns.
The general partners synchronize with the real estate broker and lender to secure the loan and acquire the property and manage the asset throughout the life of the project, which is why they are often also called the lead syndicators.
The general partnership team includes the sponsors and the operators (sometimes these are the same people).
The sponsors sign on the dotted line for the loan and are often involved in the acquisition and underwriting processes.
The operators are generally responsible for managing the acquisition and executing the business plan by overseeing the day-to-day operations. In addition, operators guide the property manager and ensure that renovations are on schedule and within budget.
For a commercial loan, the sponsor must show a certain amount of personal liquidity. This reassures the lender that the sponsor can contribute additional private capital to keep the property afloat if things were ever to go wrong.
One or more key principals may be brought into the deal to help guarantee the loan if the sponsor’s personal balance sheet is insufficient.
A real estate syndication’s passive investors have no active role in the project. They simply invest their money in exchange for a share of the returns. Like the passengers on an airplane, they get to put their money in, sit back, and enjoy the ride.
What a great position!
Once the property has been acquired, the property manager becomes arguably the most critical partner in the project because they are the “boots on the ground” who execute renovation projects according to the business plan.
The property manager works closely with the operator (i.e., the asset manager) to ensure the business plan is followed and that any surprises are appropriately addressed.
getFREED is part of the general partnership in a real estate syndication. My primary role is to provide free educational material, lead investor relations, review conservative underwriting criteria and help raise the equity needed.
I serve as an advocate for investors by ensuring that the sponsors’ projections are conservative, deals are structured favorably toward investors, that multiple exit strategies exist, and that capital will be preserved and grow.
After the property is acquired, I liaise between the sponsor/operator team and the investors by providing updates, financial reports, and other important information between parties.
You Are The Key To A Successful Real Estate Syndication
A real estate syndication, by definition, is a group investment. And it’s only through pooling resources and coordinating that the syndication can be successful. A tremendous behind-the-scenes crew can make an okay deal fly high, and a lousy team can run a good deal into the ground.
In addition to the critical roles discussed here, inspectors, appraisers, cost segregation specialists, CPA, legal team, insurance agents, and more work in the background to ensure that the syndication gets off the ground.
While their respective roles are different, they are all needed to ensure the syndication’s success. getFREED Investor Club is our community of investors who take pride in networking well, finding the best partners and operators to work with, and investing in commercial real estate deals that exhibit the most opportunity for returns.
You’re invited to join the club so you can meet the crew and gain access to the investment opportunities only offered inside.