Real estate syndication is a very complex and highly lucrative deal structure. Syndication involves many moving parts, and can sometimes become overwhelming. Fortunately, real estate is—by nature—a team sport that allows individuals to utilize the experience and skillsets of others. Here are 7 top team members that a syndication/sponsorship team should have to ensure all-star success.
Property management is by far one of the most—perhaps the absolute most!—important positions required to be successful in multi-family real estate syndication. It is essential that you perform due diligence on property managers before identifying an asset in a particular market. They need to possess expertise in your apartment class (A, B, or C) to ensure they understand the market and execute the business plan to meet return projections. Property managers give the first impression to your customers (tenants), so it is in your best interest to find a property manager who will represent your business in a professional fashion. All told, property managers truly have the ability to make or break your investment.
Real estate is a fairly non-liquid investment, so selecting an experienced sponsorship team in multi-family real estate is crucial to protecting your capital investment. Partners must have standard operating procedures in place, before and after acquisition, to execute the business plan. All partners should be trustworthy and ethical. They are expected to make important decisions on behalf of the entire group, so partners should have good financial acumen and deep knowledge of the markets in which they are investing. All members of the deal should have an alignment of interest and "skin in the game". A good sponsor is upfront, transparent, and communicative throughout the deal from start to finish.
The debt-financing institution of a real estate deal is likely your largest partner. A mortgage broker's responsibility is to work with the sponsorship team to place the most effective and adequate debt structure on the property. The mortgage broker needs to have experience with the specific asset type (as this can significantly impact the lender's requirements while the property is under contract), and connections with potential lending sources to secure the best debt possible for the asset.
An SEC attorney is required to perform a syndication structure [e.g. Reg D 506(b), 506(c)] and is knowledgeable on all legal documentation needed to advise all members of the legal requirements and procedures of the Securities and Exchange Commission. An SEC attorney outlines the capital allocation, partnership structure, business plan, risks, etc.
A real estate attorney is essential for drafting and overseeing all contract terms and language in a real estate transaction. It is imperative that they are involved with outlining favorable terms and clauses that protect the sponsorship team's best interest in the transaction. Moreover, the real estate attorney should be knowledgeable in the local jurisdiction's real estate laws, as this can affect specific language and terms to be used in the contract.
A zoning attorney is responsible for ensuring that potential development plans are feasible in accordance with local jurisdiction law by the way of right or application. This avoids any issues in the development/redevelopment stage, as any impediments can significantly impact your business plan, thus potentially affecting your return projections.
The responsibility of a CPA (Certified Public Accountant) is ensuring that the sponsorship team follows the IRS tax codes and laws required under the investment. The CPA plays an important role in maximizing potential tax savings on the investment. They also produce Schedule-K1's, which report profits and losses for each investor.
Equity investors bring a large portion of the capital investment required to securely close and execute on a multi-family transaction. Equity investors also make up part of the sponsorship team — remember, all members of the deal should have skin in the game. It is essential that all members have an alignment of interest and outline expectations of both the general partnership (sponsorship) and the limited partnership (equity investors). All members should understand the deal structure and projected returns to ensure a thriving partnership.
As stated, there are many moving parts and parties involved in a syndication structure that can become fairly complicated. This article provides context on important team members necessary to successfully execute and perform on the transaction.
Author: Yannik Cudjoe-Virgil
Yannik formed Merlynn Acquisitions in 2017. He has experience in portfolio asset management, real estate investing, investment analysis and financial modeling.
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