16 Jan What Are The Roles In a Real Estate Syndication?
What Are the Roles in a Real Estate Syndication?
A great way to understand a real estate syndication process is to make it analogous to taking a flight to a destination.
There are the pilots, the passengers, flight attendants, and many others that are brought together with one goal: to bring the plane to its destination safely.
So, in the analogy, the deal sponsors of the multifamily syndication are the pilots, and the group of investors that are the passive investors are the passengers. Everybody is wanting to go to the same destination, but everyone has completely different roles in the endeavor.
If there are any unexpected surprises, the pilots with their extensive experience are fully responsible for taking care of any issues. It is their job to make sure the flight safely arrives to its destination for the passengers. The passengers, on the other hand, are analogous to the group of passive investors who because they have a limited partnership and passive role are not responsible for conducting any work in the real estate deal.
It is the responsibility of the pilots during the process to keep the passengers informed, and that would be analogous to the monthly updates that the passive investors receive from the active investors or also known as the deal sponsor team or general partnership (GP). Additionally, the passive investors will receive much more detailed financial reports on a quarterly basis.
In short, a real estate syndication structure has a group of people who are essentially all team members who share a vision of wanting the property syndication to be a solid real estate investment for all, but every person’s role is different, but all roles are important.
In this article, we’ll discuss more about who those players are and what roles they each play in the success of the real estate syndicate.
Roles Within a Commercial Real Estate Syndication
Here are the key roles that help to make an apartment syndication happen:
● Real Estate Broker
● Commercial Lender
● General Partners / Deal Sponsorship Team / Active Investors
● Key principals of the
● Passive Investors / Syndication Investors / Limited Partners
● Property Manager
● PCRP Group – our firm
As you can see there are a variety of individuals that participate in the success of a real estate syndication investment and every person’s role is very different. So, let’s dive in…
Real Estate Broker
The real estate broker is the individual or team of individuals who have located the particular assets either as listed properties or as off-market investment opportunities. Off-market just means that the particular asset is not publicly listed. Having an experienced real estate broker is imperative when dealing with commercial properties during the acquisition process.
The real estate broker simply finds the investment property but has no role in the property beyond the acquisition, so does not share in the returns or the profits.
The commercial lender plays a critical role in the acquisition because the funds that the lender brings to the acquisition are the largest amount of financial resources that the deal sponsorship team can have; they are a money partner in effect, but the lender does NOT share in the returns or the profits.
The lender will always conduct their own due diligence by performing stringent underwriting and an appraisal to make sure the property value is where it needs to be before they approve the funds for the loan.
Real Estate Attorney / Securities Attorney
The real estate attorney plays a key role in a real estate syndication. They take care of all of the legal basics of real estate syndication and conduct all of the real estate syndication work and the legal framework for all involved.
They prepare any particular legal document needed such as the operating agreement, the private placement memorandum (PPM), and the subscription agreement for all of the parties involved so that everyone has an in-depth understanding of what to expect when they invest in this particular piece of real estate.
The general partnership (GP) has extensive roles in the investment opportunity. The responsibilities of the GP are to work with the real estate broker and the commercial lender in locating and acquiring the property but then the real work comes after they have acquired the property and are managing the day-to-day operations and overseeing other key team members to ensure the success of the real estate project.
The general partnership team or the real estate syndicator team includes both the deal sponsors and the operators, typically.
The deal sponsor team is the group of individuals who are helping to locate the real estate assets to invest in as well as obtaining the funding with the commercial lender and they often participate in the underwriting processes as well.
The operators, on the other hand, handle the day-to-day operations of the investment and are responsible for successfully executing the business plan that has been developed by the GP as a whole. Also, the operators oversee the property management and construction teams to make sure the budgets and scope of work are adhered to and everything is running smoothly and on track.
When a sponsor (or sponsor team) is getting a commercial loan, they must be able to present that they have a particular amount of personal liquity to qualify for the loan. is required to show a certain amount of personal liquidity. This is insurance for the lender that the sponsor has enough liquidity to cover any capital required in the event that something were to go awry.
There may be more than one key principal needed based on the lender’s requirements for liquidity in order to guarantee the loan.
The passive investors in a real estate syndication are individual investors who have chosen to participate in the a commercial real estate syndication in order to receive a share of the returns in the form of regular cash flow distributions, as well as the ability to partake in extensive tax benefits AND passive investors share in the profits when the asset is sold.
Passive investors have a limited partnership in the endeavor and have a completely passive role in the project, which means they don’t have to work at all to earn their cash flow. They simply contribute their investor capital into the investment vehicle, and that’s it. They play no active role whatsoever.
The investment strategy of a passive investor in a commercial real estate syndication is analogous to the passengers on the plane that we spoke of earlier. They simply sit back, relax, enjoy the ride, and let the pilots successfully bring them to their destination. These are the vast advantages of passive investing. What a great real estate investing strategy!
Once the apartment complex has been acquired, the property management company becomes an integral part of the project, and arguably the property manager is The property manager takes on, quite possibly, one of the most important roles in the project. Not only are they responsible for helping to oversee the day-to-day operations and tenant relations, but they are also responsible for helping to execute the deal sponsor’s overall business plan.
PCRP Group – That’s Us!
In a real estate syndication, PCRP Group is part of the general partnership. Our main role is to conduct due diligence, spearhead investor relations, and we also help to raise the equity. So, essentially one of our jobs is to raise the “down payment” or otherwise the equity portion of the capital needed to purchase the apartment building.
We like to think of ourselves as advocates and spokespersons for the investors by helping to ensure that the underwriting that the sponsors have projected is conservative, and the deals have favorable returns for the investors. Additionally, we want to make sure that the deal sponsor team does not have just one predetermined exit strategy but that they have thought through multiple exit strategies, and most importantly we want to make sure that the investor capital is preserved and will grow over the hold term of the asset.
After the property is purchased, we are the liaison between the deal sponsor team/operators and the private investors in the deal. We are continually keeping the investors informed on the project by providing them with monthly updates and on a quarterly basis, we provide in-depth financial analysis as well as other important information exchanges between all of the parties.
So think of us as the flight attendants in our flight analogy. We take care of all of the needs of the passengers, help to keep them comfortable and well informed during their journey to the destination.
In the long run, a real estate syndication is simply an investment that is compiled of a group of different real estate investors who pool all of these resources that we have discussed so that there is a coordinated orchedstration so that the syndication can be successful.
There are may other individuals that play a role in different ways such as property inspectors, appraisers, CPA’s and bookkeepers, insurance agents, and cost segregation specialists and more, who are put in place to make sure that the syndication gets off the ground as smoothly as possible.
While every person’s role is vastly different, they are all important to the ultimate success of the syndication.
Ready to Learn More?
The best way for you to learn more about passive investment opportunities in commercial real estate syndications is to join the PCRP Passive Investor Club.
Through the PCRP Passive Investor Club, you’ll get a priority review of all the deals we offer. We’ll work with you to determine your investing goals and then present you with the best deals to meet those goals. We’ll then guide you every step of the way as you invest in those deals.
So if you’re ready to start investing passively in institutional-grade, commercial real estate in fast-growing, climate-resilient markets in the U.S., join the PCRP Passive Investor Club – IT’S FREE! – and get started on your path to EARN PASSIVELY and LIVE ABUNDANTLY!
If you would like to know more about what we do and how it may be of value to you, please reach out to us anytime. We’re always happy to help!