The Seven Key Roles in a Profitable Real Estate Syndication

by | Jul 14, 2022 | Investing Advice

Few sights are more beautiful than a sunset over the ocean, especially if you’re viewing that sunset from the privacy of your own yacht!  

I like to think of a real estate syndication as a yacht ride with your closest friends after a long yet very successful week at work.

You have the skipper, the passengers, and the crew. Everyone is working to get safely to a destination while enjoying the ride.

In this analogy, the skipper represents the sponsors of the syndication, and the passengers are the passive investors. They’re all going to the same place, but they have very different roles in the process.

If a storm picks up or other boats enter the area, the skipper is responsible for the safety of the trip. 

The skipper will likely update the passengers, but the passengers don’t have any functional responsibilities in making the decisions or steering the yacht.

A real estate syndication is much like this. The passive investors, sponsors, brokers, property managers, and more share a vision to invest in and improve a particular asset. However, each person’s role in the project is different.

In this article, we’ll talk about exactly who those players are and their respective roles in a given real estate syndication.

 

The Seven Key Roles 

Here are the seven key roles that come together to make a real estate syndication happen:

  1. Real estate broker
  2. Lender
  3. General partners
  4. Key principals
  5. Passive investors
  6. Property manager
  7. Village Capital Partners
Real Estate Broker

The real estate broker is the person or team who surfaces the property for sale, either as a listing or as an off-market opportunity (i.e., not publicly listed).

Having a robustly talented real estate broker is crucial, as they are the primary liaison between the buyer and the seller throughout the acquisition process. Both of us (Russell and Julie) have worked as real estate brokers and have been able to negotiate several great deals because of our extensive background with real estate transactions. Russell started a boutique mortgage lending firm in 2000 and knows exactly what lenders are looking for, which gives us an edge on the deals we share.

 

Lender

The lender is the biggest money partner in a real estate syndication because they provide the loan for the property. The lender performs their own due diligence and underwriting and gets a separate appraisal to ensure the property is worth the value of the requested loan.

Neither the real estate broker nor the lender is aboard the yacht in the yacht analogy. Of course, they have essential roles in bringing the project to fruition, but they are not part of the purchasing entity, nor do they share in any returns.

 

General Partners

The general partners synchronize with the real estate broker and lender to secure the loan and acquire the property and manage the asset throughout the life of the project, which is why they are often also called the lead syndicators. 

The general partnership team includes the sponsors and the operators (sometimes these are the same people).

The sponsors in all of our deals, Russell and Julie, sign on the dotted line for the loan and are fully involved in the acquisition and underwriting processes.

The operators are generally responsible for managing the acquisition and executing the business plan by overseeing the day-to-day operations. In addition, operators guide the property manager and ensure that renovations are on schedule and within budget.

 
Key Principals

For a commercial loan, the sponsor must show a certain amount of personal liquidity. This reassures the lender that the sponsor can contribute additional private capital to keep the property afloat if things were ever to go wrong.

One or more key principals may be brought into the deal to help guarantee the loan if the sponsor’s personal balance sheet is insufficient.  To date, all deals we have done have been guaranteed by Julie and Russell to get the loan secured and funded.

 

Passive Investors

A real estate syndication’s passive investors have no active role in the project. They simply invest their money in exchange for a share of the returns. Like the passengers on a yacht, they get to put their money in, sit back, and enjoy the ride.

What a great position!

 

Property Manager

Julie’s Management Co. directly provides all Management Services on each project in our portfolio.  This is a big distinction vs. other sponsors.  We have our own in-house Management Co. to look after the property and to stay on top of all expenditures to keep expenses low.  

Once the property has been acquired, the property manager becomes arguably the most critical partner in the project because they are the “boots on the ground” who execute renovation projects according to the business plan. 

The property manager works closely with the operator (i.e., the asset manager) to ensure the business plan is followed and that any surprises are appropriately addressed. Having Julies Management Co. allows our projects to be operated efficiently down to all of the nitty-gritty details!

 

Cash Flow MD

Village Capital Partners is part of the general partnership in a real estate syndication. Our primary role is to lead investor relations, review underwriting criteria, and help raise the equity needed to close and fund on a specific project.

We serve as an advocate for investors by ensuring that the sponsors’ projections are conservative, deals are structured favorably toward investors, multiple exit strategies exist, and the capital raised will be preserved and grow.

After the property is acquired, Village Capital Partners acts as the liaison between the sponsor/operator team and the investors by providing updates, financial reports, and other important information between parties.

 

You Hold the Most Valuable Role in the Syndication

A real estate syndication, by definition, is a group investment. And it’s only through pooling resources and coordinating that the syndication can be successful. 

In addition to the critical roles discussed here, inspectors, appraisers, cost segregation specialists, CPA, legal team, insurance agents, and more work in the background to ensure that the syndication gets off the ground. 

While all their respective roles are different, they are all needed to ensure the success of the syndication.

The crucial role in all this is you, the passive investor. Without passive investors, there wouldn’t be enough capital to entertain the purchase of a large commercial property, and the best-laid plans couldn’t be pursued. For this reason, you are absolutely key to our next successful syndication deal.

If making a real estate syndication investment is new to you, remember you have a supportive team to protect your capital and help you enjoy the journey toward consistent, passive income and financial freedom. 

 

 

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