What happens after hold period in syndication deals?

[Martin Kim]

Hi everyone,

I was looking to answer my own question on Google but I could not find the answer. 

After the hold period of around 5-7 years in a syndication investment, what happens to your investment? Does the GP pay you back the original principal and you are no longer invested in that property? If the property is a long term hold and I want to continue to stay invested in this deal, earn cash flow & grow equity, is that something that's commonly done? Do most syndication deals plan on selling the property after a few years as an exit strategy? 

Also, what happens after the loan is refinanced? 

I was not sure if you (as the investor) would be getting back the principal and you have to find another deal, or you can choose to keep your money invested in that property for generations. 

Thanks in advance! 

[Taylor L.]

The goal is to sell the property within the target timeframe and distribute the return to investors as agreed upfront. Investors get their money back plus a return and move on to the next deal. Refinances are a bit more nuanced, the specifics will depend on the deal. I believe investors should expect to maintain their ownership, but there are sponsors out there who treat refis as an investor cash-out. Always important to read the documents.

In the past market cycle most multifamily business plans have been based around 3, 5, or 7 year holds, but in practice folks have been selling in the shorter end of that range. Moving forward I think we'll start to see longer holds.

One thing we like to do on sale is to offer investors the ability to 1031 exchange into a following deal. The logistics can be difficult to have deals lined up and get the timing right, but many investors prefer to keep investing and roll the capital gains tax liability forward.