<aside> 💡 This page is largely for people learning to invest in syndications

Becoming a Syndicator (Under Construction)

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Syndications are a group of people who invest together on a larger project. It is slightly different compared to a JV (joint venture or joint partnership) in that only a handful of the members are actually managing the project while the rest are passive investors.

How the financial structure works

Syndication

• Split based on General Partner (GP) who are the managers of the project and Limited Partners (LP) who are passive
• GPs will be the only ones signing on the loan
• Usually a large 10+ group of people investing in large projects.
• Legal fees are 10-15k+ just to set up because this is a security

Joint Venture

• Everyone is an active participant in the project, if it turns out someone is passive, you could be at risk of committing securities fraud
• Everyone is on the loan
• Maximum is usually 6 people according to both lenders and the SEC, however fractional.app is changing that
• Legal fees <2k depending on complexity

Returns

• Preferred Return (6-12%)h
• Equity/Profit Split (usually 30 General Partner/70 Limited Partner)
• Cash-on-cash Return (ROI)
• Internal Rate of Return (14%+ IRR)

Fees to watch out for

• Acquisition Fees (1-5% of purchase price)
• Refinance Fees (.5-2% of refinance amount)
• Disposition (1% of sale price)
• Property Management Fee (2-8% of revenue)
• Developer Fee (5-10% of construction budget)
• Asset Management Fee (1-2% of revenue)

🚩 Red Flags For Syndications 🚩

<aside> 💡 Common Scam #1, No they don't actually own/manage 300 units or $100M

When I started investing as an LP and analyzing deals, I didn't realize this was a marketing trick (apparently illegal one according to our friends at the 506 club). Other syndicators please start calling each other out.

Sponsors/Lead GPs - People who signed on the loan are considered the actual operators of the deal and handle the day to day.

Co-sponsors/Capital Raisers/GPs - Syndicators who raised money but aren't the guarantors on the loan. May or may not be involved in operations. Commercial lenders do NOT consider this experience.

LPs - Limited partners who invest passively and aren't involved in the operations at all.

So for example, we've got around $35M in assets under management that I'm sponsoring. However, there's technically another $75M that I raised money for that I don't actually operate as a co-sponsor because the deal looked great but the sponsor didn't want to split roles on how he operated.

It would be wrong for me to say that I have $110M in assets under management or to add those 300 units to my resume list, since I've only raised $2M of the whole $75M. However, it seems a lot of newer co-sponsoring syndicators didn't get the message so they'll use the whole amount to advertise their actual experience despite being <3% of the entire equity stack. (Technically my portion of it is $6M when accounting for the share of capital I brought because it was 65% LTV)

Also, if you're a newer sponsor don't get suckered into raising money for a sponsor who tells you this counts as experience because this won't help you with future lending at all.

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