Real estate syndication is an effective way for investors to pool their financial and intellectual resources to invest in properties and projects much bigger than they could afford or manage on their own. The basics of real estate syndication are fairly simple: there is a manager and operator of the deal, the Sponsor, who typically invests the sweat equity, including scouting out the property, raising funds for acquisition, seeking entitlement and government approvals, if necessary, and overseeing the property’s day-to-day operations, and there are the Investors, who provide most of the financial equity. The Sponsor is usually responsible for investing anywhere from 5-20% of the total required equity capital, while investors put in between 80-95% of the total.
Most syndicates come with built-in protections for all parties. They’re usually structured as a Limited Liability Company or a Limited Partnership with the Sponsor participating as the General Partner or Manager and the Investors participating as limited partners or passive members. The rights of the Sponsor and Investors, including rights to distributions, voting rights, and the Sponsor’s rights to fees for managing the investment, are set forth in the LLC Operating Agreement or LP Partnership Agreement.
While the syndicate structure is simple, it comes with several legal pitfalls that must be carefully navigated to avoid running afoul of SEC regulations and state Blue Sky laws. The real estate investment lawyers of Lowenthal APC, who have in-depth experience in these areas, are here to guide you. Please contact us today for a free consultation to discuss your next syndicate or group investment.