A real estate syndication has many working parts. The passive investors (limited partners) and the sponsors (general partners) of the syndication are just two of the most important components you should know about.
The sponsors of each commercial real estate syndication investment opportunity are the ones who handle the procedures and processes that take place behind the scenes, making the deal profitable and successful. If there is ever an issue, they are the ones working overtime to solve it.
The passive investors take a very relaxed role in the syndication process after their initial capital investment. Limited partners can expect to receive occasional updates from the sponsors, but have little to do with the day-to-day property management.
The sponsors, passive investors, brokers, property managers, and others all have the same vision – to invest in and improve the asset -but they do not share the same responsibilities or roles in making the investment profitable and successful.
Let’s learn more about each of these parties and the role they play in a real estate syndication.
The Key Players in Real Estate Syndication
There are a bunch of important people that make a real estate syndication come to life:
- Passive Investors
- Real Estate broker
- Great Venture Capital
- General partners
- Key principals
- Property manager
Passive investors (also called Limited Partners) simply invest money to get a share of the returns. Beyond the initial research and vetting of the deal, they really have no active role in the project. They put their money in and enjoy the passive income. This is the best position of all!
This player is the big money in a real estate syndication. They provide the commercial loan to finance the bulk of the property purchase, which is often several million dollars. It is their responsibility to make sure the property is worth the value of the loan. The lender completes the underwriting and gets a separate appraisal to double-check the value.
Real Estate Broker
The real estate broker is responsible for finding the property, either as a public for sale listing or an off-market option. An off-market option is when a property is not listed anywhere publicly. These require deep social network connections in the area and are often only found via word of mouth.
Hopefully, you’ve heard the phrase, “You make money at the purchase, not at the sale.” This emphasizes how important it is to have a real estate broker who knows the local market well shopping deals for your team.
In any real estate syndication deal, the entire investment’s success depends on the sponsors having a solid relationship with a very strong real estate broker. They are the primary contact between the sponsor team (the buyer) and the seller throughout the purchase process.
Great Venture Capital
The main role of Great Venture Capital is to lead investor relationships, which entails reviewing conservative underwriting standards as well as assisting in the raising of capital.
The Great Venture Capital team protects investors’ interests by ensuring that the sponsors’ estimates are conservative, that deals are structured to benefit investors, that multiple exit options are made available for each business, and that cash is preserved and used wisely.
After the property has been purchased, we act as a link between the sponsor/operator team and investors, providing updates, financial reports, and other key information to and from the general partnership and limited partnership members.
The general partnership is often a team of both operators and sponsors. Sometimes they are even the same people. The operators are normally in charge of figuring out the purchasing, hiring property management, and carrying out the business plan. They watch over all the day-to-day occurrences and challenges happening on the property. Operators communicate with contractors and oversee renovations, ensuring they are within budget and on schedule.
Sponsors are the people or organizations who sign the loan documents and frequently participate in purchase and underwriting procedures.
Both the operators and sponsors work with the lender and real estate broker to get the loan and obtain the property. The general partners also manage the asset throughout the length of the project. They’re also referred to as lead syndicators.
As part of the asset purchase, obtaining financing via a commercial loan requires the sponsor to show personal liquidity. They need a certain amount of liquid capital (cash assets) to show the lender they can back the investment in case things go awry. If a single sponsor’s personal balance sheet is not sufficient, additional key principals may be required to sign and commit assets before the loan funds.
After the purchase of the property, the property manager is now the ringleader. They are the ones making sure any projects, repairs, or renovations are being done according to the business plan.
The operator and asset manager work closely together. Their key relationship helps ensure the business plan is being followed and that anything surprising that happens is fixed properly.
The Real Estate Syndication Team In Action
A successful, profitable group investment like that of a multi-million dollar apartment complex involves all the key roles mentioned here, plus many others, like inspectors, cost segregation specialists, legal teams, and insurance agents. Combined, they provide a powerful resource not found elsewhere and help make a real estate syndication successful the only way possible – with teamwork and a game plan.
Yes, every role is unique, but each is very important in making the syndication a success! If you’re ready to explore joining our next syndication as a limited partner investor, we’d love to talk with you. First, join the Great Venture Investors’ Club and dive into the exclusive content we have available for investors only. We look forward to talking with you!