WHAT IS A MULTIFAMILY SYNDICATION?
is a type of real estate investment where a group of individual investors pool their money together and come up with the equity required to purchase an apartment building with a loan. The investors in a syndication typically have a sponsor or general partner who is responsible for managing the property and overseeing the day-to-day operations. The general partner receives a set portion of the profits from the syndication, while other investors receive a share of the profits based on their initial investment. This structure allows investors to pool their money to purchase a more expensive property than they would be able to purchase on their own and present all the guarantees for the lender.
TYPES OF INVESTOR
1. Limited (Passive) Partners: Provide cash
2. General (Actively Involved) Partners: Acquire, Operate (Coordinate Vendors), and sell on the investors' behalf.
HOW DOES IT WORK?
Usually the equity raised by the partners, general and limited account to one third of the purchase amount while banks finance two third. By pooling capital and resources in a syndicate, investors can purchase larger and better properties, improve the quality of their portfolio, and benefit from economies of scale.
Multifamily Syndication Framework
The syndication process begins when a syndicator identifies a potential property and puts together the syndication team called the “General Partners”. They orchestrate the deal and use several professionals like an attorney, an accountant, a lender, and other professionals with expertise in multifamily real estate. The syndicator then works to raise capital from their investors, “the limited partners” either through a direct offering or through a private placement. The syndicator is responsible for providing investors with information about the property, the business plan, and the expected returns. Once the capital is raised and all the conditions of the lender are met, the deal can close. Once the purchase is completed, the syndicator and the team manage the property and its tenants to generate income. The income is then distributed among the investors.
Multifamily syndication is a popular way to invest in commercial real estate, as it allows investors to benefit from economies of scale and access larger and more profitable properties.
ADVANTAGES OF MULTIFAMILY SYNDICATION?
Investing in a multi-family syndication gives investors the opportunity to diversify their portfolio across multiple asset classes. This allows investors to spread their risk and potentially receive higher returns.
2. Professional Management
Investing in a multi-family syndication allows investors to take advantage of the expertise of professional property managers and real estate professionals. This allows investors to receive more consistent and higher returns that they would receive if they were to manage the property themselves.
3. Tax Benefits
Investing in a multi-family syndication provides investors with the opportunity to take advantage of tax benefits such as depreciation and tax-deferred exchanges.
4. High Returns
Multi-family syndications offer investors the potential for higher returns than other real estate investments due to the fact that they are typical large and can be more easily managed.
5. Low Risk
Investing in a multi-family syndication is generally considered to be a lower-risk investment than other type of real estate investments. This is because the cash flow of a multi-family syndication is typically more stable and can be more easily managed.