We once heard real estate syndications described as being like an airplane ride. It’s a brilliant analogy when you think about it. You’ve got the pilots, passengers, flight attendants, mechanics, and ground staff who all have a part to play in bringing the plane to its final destination successfully. Just as in a real estate syndication where you have team members who work together to create a successful and profitable investment deal.
Imagine that the pilots are the equivalent of the sponsorship team, and the passengers are the passive investors. Both groups are getting on that plane, and both are motivated to make the journey, but their roles in the process couldn’t be more different.
There might be storms, the ride could be bumpy if turbulence strikes, and there might even be engine issues. When problems arise, the pilots take charge of the flight because that’s what they’re trained to do.
Your pilot will keep you informed as a passenger, but they’re not expecting you to run to the front of the plane, wrench open the cockpit door, and fly the aircraft! They’re just letting you know what’s going on and assuring you during the sometimes complex process.
A real estate syndication works in much the same way. Everyone on the team, from passive investors to sponsors, brokers, and property managers, are all moving forward with the vision of purchasing and renovating a specific property.
This article will give you the details of who is on a real estate syndication team and how they work together to create a successful investment.
Real Estate Syndication Roles
Here are the key roles that come together to make a real estate syndication happen:
- General Partnership Team
- Syndication Investors
- Property Management Team
- Ascent Equity
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 make sure the property is worth the value of the loan requested.
In the airplane analogy, neither the real estate broker nor the lender are aboard the plane. They have important roles in bringing the project to fruition, but they are not part of the purchasing entity, nor do they share in any of the returns.
General Partnership Team
The general partners synchronize with the real estate broker and lender to secure the loan and acquire the property in addition to managing the asset throughout the life of the project, which is why they are often also called the lead syndicators.
The general partnership team includes both the sponsors and the operators (sometimes these are the same people).
The sponsors are the ones signing 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 for executing the business plan by overseeing the day-to-day operations. Operators guide the property manager and ensure that renovations are on schedule and within budget.
For a commercial loan, the sponsor is required to show a certain amount of personal liquidity. This reassures the lender that the sponsor can contribute additional personal capital to keep the property afloat if things were to ever 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!
Property Management Team
Once the property has been acquired, the property manager becomes arguably the most important 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 being followed and that any unexpected surprises are addressed properly.
In a real estate syndication, Ascent Equity is part of the general partnership. Our main role is to lead investor relations, review conservative underwriting criteria, and help raise the equity needed.
We 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, we act as the liaison between the sponsor/operator team and the investors by providing updates, financial reports, and other important information between parties.
A Successful Group Investment
Real estate syndications are group investments that work by having a group of passive investors put their money together to purchase an asset. That asset creates continued cash flow and appreciates over time. To make the most of a deal, the whole syndication team needs to work together cohesively.
In addition to the roles listed above, there are also inspectors, appraisers, cost segregation specialists, CPA, legal team, and insurance agents who are integral to getting the syndication off the ground.
We are committed to finding a team that looks after your money as if it were their own. Our team will keep you in the loop regarding the safety of your investment, and will always make decisions with your best interest at the forefront of our minds.