In business, there is always an expert team behind any product or service. The end consumer might not see all the people involved in achieving success, but if you’re knowledgable about the corporate world, you know what it takes to put together something that your clients love.
Each person who brings their expertise to a project has an important role to play, whether they are visible to the consumer or not. Whatever your industry, you need research, marketing, production, manufacturing, and sales teams to provide support. They have very different roles in the process, but for each team, the end goal is the same.
A real estate syndication is much like this. Each person involved in the syndication, passive investors, sponsors, brokers, and property managers, share a vision. They want to make their asset the best it can be by investing time, money, and genius. However, each person’s role in the project is different.
In this article, I want to talk about who is on the team that makes a real estate syndication successful, and how their roles support your investment.
The Real Estate Syndication Team
Here are the key roles that come together to make a real estate syndication happen:
- Real estate broker
- Lender
- General partners
- Key principals
- Passive investors
- Property manager
- Koo Investments
Your 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 Role of the Lender
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.
What the General Partners do
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.
Who the Key Principals are
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.
The Benefits of Being a Passive Investor
A real estate syndication’s passive investors have no active role in the project. You simply invest your money in exchange for a share of the returns. As a limited partner in a prestigious piece of real estate, you’d qualify for accelerated depreciation and other tax benefits that could offset other income sources.
You get to put your money in, sit back, and enjoy the benefits. What a great position!
Responsibilities of a Property Manager
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.
Koo Investments
In a real estate syndication, Koo Investments is part of the general partnership. Our main role is to lead investor relations, review of 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.
Moving Forward as a Passive Partner
A real estate syndication allows a group of investors to pool their resources to purchase an asset such as a multifamily apartment building. The professional team works in the background to follow the business plan, forcing appreciation and making the asset profitable for investors.
This expert team also has oversight of inspectors, appraisers, cost segregation specialists, CPA, legal team, and insurance agents, who assist in moving the syndication forward successfully.
Commercial real estate syndication investments present the perfect opportunity to leverage the experience and expertise of others, contribute your capital to a project that makes a difference in peoples’ lives, and, of course, to profit from the proper management of a well-located, large, prestigious piece of commercial real estate without having to manage it yourself!