What exactly is real estate syndication?

[Nick LaRocca]

Ever since I got into real estate I've had a few questions raddling around in my head about syndication that I can't seem to get straight:

1. Are developers syndicators or do they use syndicators to finance the equity portion so they don't have to raise it them selves (essentially acting as an equity broker)? Also, not talking about affordable housing where developers sell tax credits to a syndicator specializing in that but on a normal ground-up commercial property.

2. Are syndicators often the operating partner on deals or again do they just find operators looking for capital and connect them?

3. Do syndicators ever raise money and act as the operating partner themselves and received carried interest? If so, what makes a syndicator different form a REPE firm? Is it that one raises a fund that investors in many properties and one raises money for individual projects and properties?

[Taylor L.]

1. There are a few different ways in which the word 'syndication' is used. The most common use you'll see here on BP and similar areas is by those who raise private investor capital to acquire or develop real estate of some kind. That is what we do.

The term syndication is also used in the tax credit space. That is not my area of expertise, but as I understand it there are some similarities with the first type, as it pertains to structuring entities to complete transactions. One party wants a tax credit and the other can provide a deal that offers tax credits, so they structure a syndication to meet that need so that one party receives tax credit benefits and the other is compensated for them. Tax credit syndication is not my area of experience or expertise, so hopefully a tax credit syndication expert will chime in.

Most of the syndicators you'll see on BP, podcasts, YouTube, etc will be doing the first type, where they raise capital from passive investors to acquire or develop real estate.

Some developers use syndication to raise equity, others have the capital on their own, I know some who use JVs - so the answer is it varies/it depends!

2. This varies. There are General Partnership teams who do Asset Management, Property Management, and raise all of the capital. Then there are others who farm out the Property Management and/or the Asset Management. To be someone who just raises capital requires securities licenses and a lot of compliance. There are folks out there who market themselves as capital raisers who are likely not in compliance with securities laws.

3. The most common forms of syndicator/General Partner compensation you'll see include equity split, asset management fees, disposition fees, and sometimes refinance fees. That is by no means an exhaustive list, and all forms of GP compensation should be clearly disclosed in the documentation.

There are both fund models and single asset syndication models. Some syndicators do only funds, some do only single assets, and some do both! It's a big topic, to be sure.