Syndication

Foundations of a real estate syndication

What a syndication actually is before any of the mechanics: two businesses stacked on one property, read from the sponsor's chair and the investor's chair.

A syndication is two businesses wearing one address. The first is a real estate deal: a building bought, improved, operated, and sold. The second is a securities offering: a manager raising money from people who will never touch the property and are trusting the manager with it. Most people who fail at syndication are competent at one of those businesses and never noticed the other one was there.

A great building can be a terrible syndication, and the reason is never in the building.

This is the seam nobody advertises. A broker underwrites the property. A securities lawyer papers the offering. Neither one prices the thing that actually determines whether the investors do well: the promote structure that sits between the property’s return and the investor’s return, and the manager’s incentive to hold, sell, or refinance at the moment that pays the manager rather than the investor. The property can perform and the syndication can still leave a passive investor short, because the deal and the split are different questions with different answers.

That is why this pillar is written from two chairs at once. The sponsor building the deal and the investor deciding whether to wire are reading the same numbers for opposite reasons. Every page names both readings.

Start with what a syndication is and where the leverage actually sits before the money moves.

Inside this hub

The operating agreement is the deal

Investors read the pitch deck and the projected returns, then sign the operating agreement without reading it. That is backwards. The deck is marketing; the operating agreement is the only document that binds anyone, and it was written by the sponsor's lawyer to protect the sponsor. Here is why it is the thing that actually decides your outcome.

Who has the leverage, and when

The same clause reads differently depending on who you are. A pension fund writing a $50 million check negotiates the operating agreement line by line. An accredited individual writing $50,000 into a fifty-investor deal gets it as written. This page maps the leverage, on both sides, because every other page depends on knowing which chair you are in.

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Keep reading

Syndication 07 The deal misses its projections A missed projection is not a breach, and that is the first thing both chairs have to absorb. The question that matters is not whether the numbers came in low, but why, and whether the miss was disclosed as possible before the money went in.

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