Table of Contents
- How Does a Syndicate Work?
- What are the Roles in a Real Estate Syndicate?
a. Syndicator (or Sponsor)
- Advantages of Real Estate Syndication
- How did Real Estate Syndicates Come About?
- How are Real Estate Syndicates Formed?
- Online Real Estate Syndication
A real estate syndicate is a group of investors who pool their funds to invest in or develop property. By pooling together resources, the real estate syndicate provides investors with greater buying power and allows them to have access to larger and more sophisticated investment opportunities that were previously only available to institutional investors..
How Does a Syndicate Work?
In a real estate syndicate, the syndicator (also known as the sponsor) handles the sourcing, management, and administration of a real estate investment. The investors pool their capital to fund the real estate deal, and each investor receives a pro-rated share of the returns.
While there are a few different ways in which the returns may be distributed, this often includes a fee paid to the syndicator for their services, the investors receiving their preferred return rate, and the remainder of the profits being split among the investors and syndicator as outlined in the investment management agreement.
What are the Roles in a Real Estate Syndicate?
Syndicator (or Sponsor)
The syndicator is a company (or in some cases, an individual) responsible for sourcing, acquiring, arranging financing for and managing the real estate asset. The syndicator also conducts due diligence on any deals presented to the real estate syndicate and is ultimately responsible for the whole deal execution process. Legally, the real estate syndicator is typically registered as a Limited Partnership (LP) or Limited Liability Company (LLC) in the United States, with the real estate assets being purchased by the LP or LLC on behalf of the group.
Read also: What is Real Estate Sponsor Promote
Individuals who invest with the syndicator essentially own a percentage of the property proportional to their investment in the asset and are able to reap the returns and benefits that come with property ownership. However, as investors, they do not share the responsibilities of the syndicator in having to acquire and manage the property.
Advantages of Real Estate Syndication
By pooling together resources and having the investment process managed by a syndicator, real estate syndication has clear benefits compared to investing in property as an individual such as:
- Provides individual investors access to a wider range of investments that were previously out of their reach due to size (i.e. larger real estate investments), geography, or investment complexity (i.e. non-residential investments or alternative real estate investments such as data centres, hotels etc.).
- Investors are able to outsource deal sourcing, execution and management to a professional (i.e. the syndicator).
How did Real Estate Syndicates Come About?
Real estate syndicates have been around for centuries, but the Securities Act of 1933 changed the way these syndicates operated by prohibiting public solicitation for unregistered securities. This forced real estate syndicates to go private, raising capital from personal connections or brokers instead doing so publicly.
However, in 2012, the Jumpstart Our Business Startups (JOBS) Act allowed for public solicitation as long as all investors involved were already accredited, thereby reviving real estate syndication as a viable property investment option.
How are Real Estate Syndicates Formed?
Real estate syndicates are formally created through registration as a legal entity, which may take the form of a Single Purpose Entity (SPE) or Special Purpose Vehicle (SPV) for each real estate deal. The real estate syndication process and entities are governed by regulations set out by the US Securities and Exchange Commission (SEC).
Online Real Estate Syndication
Online real estate syndication works in much the same way as offline real estate syndication. However, the use of new technologies for fundraising, investment management and reporting, data collection, marketing and presenting and customising information has enabled real estate syndicates with a strong technology focus to operate more efficiently and to reach a wider audience.
As a co-investment platform, RealVantage is a real estate syndicate, albeit one with a heavy technology focus. RealVantage’s real estate experts source property deals and organise all aspects of the investment before releasing it onto the company’s online platform for interested accredited investors. Investors can then select which deals they want to invest in, with information of each deal available for investors to track in real time via RealVantage’s easy-to-use user interface.
As such, by combining in-house real estate investing experience with technological expertise, RealVantage aims to democratise the real estate investment process, allowing more individuals greater access to a wider range of investment opportunities than previously available to them.
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Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational purposes. Please consult your financial advisor, accountant, and/or attorney before proceeding with any financial/real estate investments.