Providing Earnest Money Deposit for a Syndication

[Erik D.]

Hi all,

I have recently been asked to provide the earnest money deposit for an apartment syndication, 120 unit apartment complex, in exchange for GP share of 3.6%. EMD would be $150k.

So far everything has been verbal over Zoom or via text, I have not seen any sort of agreement or contract for signatures. I have however been sent the wire instructions to fund an escrow account.

Is it my responsibility to come up with my own contract and ask for signatures or is it up to the syndication to hand me some sort of contract? The earnest money would be returned to me at closing, but how can I guarantee that?

Thank you!

[Arn Cenedella]

@Erik D.

1. Be careful here especially if you do not have a long standing relationship with the syndicator. I would be especially concerned if you are putting up alL the EMD. If the syndicator is not putting some of his own cash as EMD, I would probably run from the deal.

2. Understand EMD is “at risk capital” and it is YOUR capital at risk but you have no control over it. If syndicator can’t close the deal, you could very well lose your money and the syndicator doesn’t have to pay you back.

3. Generally the final documents covering the GP compensation are not finalized until the very end of the deal. So much of this is based on trust.

4. Be sure to understand 3.6% of the GP is not 3.6% of the deal. 

Proceed with caution. 
Hope this helps. 

Arn