One of the best analogies I’ve heard for a real estate syndication is to think of it as an airplane ride. There are pilots, passengers, flight attendants, mechanics, and more, who all work together to get the plane safely to its destination.
In this analogy, the pilots are the syndication sponsors, 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 making decisions in the passengers’ best interest.
The pilots will likely update the passengers (“Just to let you know, folks, we’re experiencing some turbulence at the moment…”). Still, the passengers don’t have any functional responsibilities in making the decisions or flying the plane.
In a real estate syndication deal, the passive investors, sponsors, brokers, property managers, and more share a vision to invest in and improve a particular asset. There may be several people working toward this unified goal that you never knew were even there. Each person’s role in the project is different yet critical.
In this article, I’ll give you a behind-the-scenes peek at the team behind a real estate syndication deal. You’ll learn who those essential connections 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
- General partners
- Key principals
- Passive investors
- Property manager
- Exponential Equity
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.
The lender is the biggest money partner in a real estate syndication because they provide the property’s loan. The lender performs their own due diligence, underwriting, and gets a separate appraisal to ensure the property is worth the value of the loan requested.
In the airplane analogy, neither the real estate broker nor the lender is aboard the plane. 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.
The general partners synchronize with the real estate broker and lender to secure the loan and acquire the property in addition to managing the asset throughout the life of the project, which is why they are often also called the lead syndicators.
The general partnership team includes both the sponsors and the operators (sometimes these are the same people).
The sponsors are the ones signing 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. Operators guide the property manager and ensure that renovations are on schedule and within budget.
For a commercial loan, the sponsor is required to 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 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.
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 an airplane, they get to put their money in, sit back, and enjoy the ride.
What a great position!
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 being followed and that any surprises are adequately addressed.
Kind Equity Partners
In a real estate syndication, Kind Equity Partners is part of the general partnership. Our primary role is to lead investor relations, review conservative underwriting criteria, and 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 act as the liaison between the sponsor/operator team and the investors by providing updates, financial reports, and other important information between parties.
At Kind Equity Partners, we love helping busy entrepreneurs learn about and invest in syndications so they can generate wealth and make the best of their precious time with their family and growing business without the time commitments of becoming a landlord. Most contractors and business owners know there’s potential in real estate but struggle to figure out how to invest in real estate this passively. Well, now you know!
A real estate syndication, by definition, is a group investment. It sounds cliche, but we really are stronger together. And it’s only through pooling resources as a community, pursuing a unified goal, and coordinating that the syndication can be successful.
In addition to the critical roles discussed here, there are inspectors, appraisers, cost segregation specialists, CPA, legal team, insurance agents, and more who work in the background to ensure that the syndication gets off the ground. You’ll probably never meet these people or even know they were there, but they’re all vital to the syndication’s success.