Real estate syndication is the pooling of private individuals’ capital to make an equity investment in a commercial real estate project.
Structure and cash flows
The project sponsor starts by forming a corporation to aggregate funds and hold the property’s title. Then, as the project proceeds, according to the Syndication Attorneys law firm, it attracts three sets of stakeholders:
- Investors who put up the money to fund the project.
- “Sweat equity” participants who provide development expertise, local market specialization and other capabilities necessary to undertake the project.
- A management entity that earns fees from operating the property.
The investors typically hold preferred equity, and the sweat equity participants typically hold common equity. In either case, they receive cash flows from operations, called “distributions”, which function like dividends.
Real estate syndication in the real world
Still, the description above is oversimplified to introduce the concepts.
In reality, the difference between passive investor with no experience and industry expert with no capital blurs. Actually, a real estate syndication is always a unique structure that takes into account the individual contributions of each member and provide them with appropriate incentive and reward.
While Sharestates primarily offers debt investments, its sister company, Syndicate Profile, offers equity investment opportunities.