From signed to closed: the acquisition itself

There are two different closings in a syndication, and confusing them causes real errors. One is closing the raise, covered in the offering-documents section, where investor subscriptions are finalized and their money clears escrow. The other, this one, is closing the acquisition: the process by which the deal entity actually buys the building from the seller. They are related, the raise usually has to close so the equity is in hand for the purchase, but they are distinct events with distinct risks, and this article is about the second. Between a signed purchase contract and owning the property sits a window where deals still fall apart, and where the investors’ committed capital is exposed before there is anything to show for it.

A signed purchase contract is not a building. Between the two sits a period where the deal can still die and the earnest money can still be lost.

What happens between contract and close

When a sponsor signs a purchase and sale agreement, they have not bought the property; they have agreed to buy it, subject to conditions, and put down earnest money to hold it. The period that follows is where the real work and the real risk live.

The due-diligence period is the sponsor’s window to verify that the property is what they underwrote. Physical inspections, environmental review, a survey, title work, lease audits confirming the rent roll is real, review of service contracts and permits. This is where the underwriting from the vetting section gets tested against reality, and where a sponsor discovers whether the numbers they raised money on hold up. If due diligence surfaces a problem, the sponsor can typically renegotiate the price, demand repairs, or terminate and recover the earnest money, but only within the diligence window. Once it closes, the earnest money usually goes hard, meaning it is no longer refundable, and the sponsor is committed to buying or forfeiting it.

The financing contingency is the other gate. The deal almost always depends on the loan covered in the structuring and financing material, and the purchase agreement is usually contingent on the sponsor actually securing that financing on acceptable terms. A financing contingency that expires before the loan is locked, or a lender that changes terms at the last minute, can put the sponsor in the position of either closing on worse terms than underwritten or losing the deal and the earnest money.

Where the investor’s capital is exposed

Here is the part investors rarely think about: their money can be committed and at risk before the property is owned. If the raise has closed and the earnest money has gone hard, investor capital is now exposed to a deal that has not yet closed and still could fail, and if it fails after the earnest money is non-refundable, that money is simply lost, a real loss on a deal that never even happened. This is why the sequence and the contingencies matter, and why a sponsor who manages the closing process carefully, keeping the earnest money refundable until the financing is certain and the diligence is clean, is protecting the investors’ capital in a way that never appears in the pro forma.

The structuring consequence

For the sponsor, the closing process is risk management, not paperwork: the discipline is to sequence the diligence and financing so that the earnest money does not go hard until the deal is genuinely certain, because the window between contract and close is where a bad deal can still be escaped cheaply, and where a well-run sponsor avoids committing investor money to a purchase that might not complete. For the investor, this is mostly invisible, but it is worth understanding that committed capital can be at risk before the building is bought, and that a sponsor’s handling of contingencies and earnest money is a real test of how carefully they steward the money between the raise and the acquisition. The contract is the promise. The close is where the promise becomes a property, or where it does not, and the gap between them is not empty.