What is a Real Estate Syndicate?
In this article, we explain what a real estate syndicate is, how it is formed and how it works. We also explain the respective roles in the syndicate - the syndicator (sponsor) and the investors.
A real estate syndicate is a group of investors who pool their funds to invest in or develop a property. By consolidating resources, a real estate syndicate provides investors with greater purchasing power, allowing them to have access to larger and more sophisticated investment opportunities that were otherwise available only to institutional investors.
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How does a syndicate work?
In a real estate syndicate, the syndicator (also known as the sponsor) is responsible for the sourcing, management and administration of a real estate investment. The investors pool their capital to fund the real estate deal, with each investor receiving a pro-rated share of the returns.
While there are myriad ways in which the returns may be distributed, this often includes a fee paid to the syndicator for its services, the investors receiving their preferred return rate, and the remainder of the profits split amongst the investors and syndicator as stipulated in the investment management agreement, which both parties formally sign to crystallise their mutual consent.
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 deal execution process.
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Individuals who invest with the syndicator essentially own a percentage of the property proportional to their investment in the asset, and reap the returns and benefits that come with property ownership. However, they do not share the responsibilities of the syndicator, who has to acquire and manage the property.
Advantages of real estate syndication
By pooling together resources and having the investment process managed by a syndicator, a real estate syndication offers clear benefits compared to an individual investing in a property. The primary advantages of a real estate syndication arrangement are as follows:
- Provides individual investors access to a wider range of investment opportunities that were previously out of their reach due to the size and quantum of the investments, geography or investment complexity (i.e. non-residential investments or alternative real estate investments such as data centers, hotels, etc.)
- For a fee, investors are able to outsource deal sourcing, execution and management to a professional (i.e. the syndicator)
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.
Online real estate syndication
Online real estate syndication operates in much the same manner as offline real estate syndication. However, the use of new technologies for fundraising, investment management and reporting, data collection, marketing, presenting and customising information has enabled real estate syndicates with a strong technology focus to operate more efficiently and reach a wider audience.
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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 making it available on the company’s online platform for interested investors. Investors select the deals they wish to invest in, with information of each deal readily accessible to investors to track in real time via RealVantage’s easy-to-use user interface.
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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RealVantage is a real estate co-investment platform that allows our investors to diversify across markets, overseas properties, sectors and investment strategies.
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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.