One of the best analogies for a real estate syndication is to think of it as an airplane ride. Pilots, passengers, flight attendants, mechanics, and more work together to get the plane safely to its destination. In this analogy, the pilots are 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 unexpected weather patterns emerge, if an engine has issues or any other number of surprises, the pilots are the ones who are responsible for the flight. Still, the passengers don’t have any responsibilities in making the decisions or flying the plane. 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, as well as their respective roles in a given real estate syndication.

People in a Real Estate Syndication

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

• Real estate broker
• Lender
• General partners
• Key principals
• Passive investors
• Property manager
• Vestus Capital

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 solid real estate broker is crucial, as they are the primary liaison between the buyer and the seller throughout the acquisition process.

Lender

The lender is the biggest money partner in a real estate syndication because they provide the loan for the property. In addition, the lender performs their due diligence, underwriting, and separate appraisal to ensure the property is worth the value of the requested loan. In the airplane analogy, neither the real estate broker nor the lender is aboard the plane. 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 (GPs) synchronize with the real estate broker and lender to secure the loan, acquire the property, and manage the asset throughout the project’s life, 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 sponsor’s sign on the dotted line for the loan and are often 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 is required to show a certain amount of personal liquidity, reassuring the lender that the sponsor can contribute additional personal capital to keep the property afloat if things were ever to go wrong. More key principals may be included into the deal to help guarantee the loan if the sponsor’s balance sheet is insufficient.

Passive Investors

A real estate syndication’s passive investors, also known as Limited Partners (LPs), have no active role in the project. Instead, they simply invest their money in exchange for a share of the returns. Like the passengers on an airplane, they get to put their money in, sit back, and enjoy the ride. What a great position!

Property Manager

Once the property has been acquired, the Property Manager becomes an essential 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 unexpected surprises are adequately addressed.

Vestus Capital

In a real estate syndication, Vestus Capital is part of the general partnership. Our primary role is to lead investor relations and help raise the equity needed. We serve as an advocate for investors by ensuring that the sponsors’ projections are conservative, deals are structured favorably toward investors, that multiple exit strategies exist, and that capital will be preserved and grow. After the property is acquired, we liaison between the sponsor/operator team and the investors by providing updates, financial reports, and other important information between parties. Essentially, we are like the flight attendants, who prep the passengers for the journey and help ensure they are well-informed and comfortable throughout the flight.

Summary

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.

How To Get Started

The first step to invest with us is to fill out our Interest Form. We’ll connect and discuss your goals, then we’ll find the best investments to help you meet these goals. After you invest you can just sit back, relax, and receive quarterly cash flow payments from your passive investments.