Very good article on what an apartment syndication is, originally published on BiggerPockets.com. Author: Michael Bishop, Austin, TX.
Syndication is when a group of individuals or companies pool their resources (time, expertise, money, etc.) to achieve a common goal that would otherwise be impossible, or very difficult, to achieve alone. Apartment syndication, then, can be viewed as multiple parties coming together to acquire an apartment complex with the goal of making money for everyone involved. Do not confuse real estate syndication with a REIT (real estate investment trust), which is a privately or publicly traded company that owns and manages real estate holdings; syndication differs in that, when you invest with a syndicator, you own a percentage of the property itself, rather than a percentage of the company that owns multiple properties.
There are several types of apartment syndication – new development, unstabilized properties, momentum play, and of course, value-add. For the purpose of this article, I will focus on value-add plays. In particular; the parties commonly involved, typical strategy used, and how all parties involved make money.
The parties at the forefront of a syndication deal include the sponsor (also referred to as the general partner, operator, or syndicator), the limited partners (or passive investors) and the property management team. There are plenty of other team members involved that make the deal work behind closed doors, including, but not limited to, a commercial broker, a team of attorneys, CPAs, and lenders.
The sponsor is more or less the work horse. They are responsible for identifying the market, underwriting the property, securing financing, overseeing the business plan/renovations and the daily activity of the property management company, ensuring strong investor relations, and managing the asset it general.
The limited partner, or investor, is the individual (or group of individuals) that provides the equity to fund the deal. Investors are, more frequently than not, required to be accredited investors* and typically have limited decision making power or voting rights, which minimizes their liability should the property fall subject to lawsuit.
The property management group is vitally important to the success of the deal. A good property management group knows the market and submarket, has experience renovating like properties, and knows the desires of the target demographic. Most often, they will oversee the renovation of the units, manage and place tenants, and market the property. If their relationship is strong, the sponsor and the property management group will work together in identifying opportunities, underwriting properties, and completing due diligence.
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