Who is Involved in Real Estate Syndication?

There are generally two key parties to a real estate syndication: the syndicator (typically referred to as the “sponsor” or “developer”) and the investors.

The sponsor can be an individual or company and is responsible for all day-to-day activities related to the deal. This includes crafting the business plan and then executing that strategy. The sponsor’s responsibilities include researching and evaluating various opportunities, property acquisition, planning, and design, permitting, financing, overseeing construction, marketing and lease-up. The sponsor will usher the deal through to completion, which may be refinancing or selling the property, depending on the desired exit strategy.

Sponsors will usually have an equity stake in the deal themselves. This is a way of ensuring that the sponsor and investors’ interests are aligned. The sponsor may also collect various development fees along the way, as well as a share of the profits that are not usually not paid out until the investors have earned a certain degree of return first.

The other party to a real estate syndication, as we alluded to above, are the investors. The investors are considered “limited partners” (LP) and have a passive role in the syndication. After contributing their capital, the LP investors generally do not have any responsibilities related to the deal, and therefore, are given few opportunities to influence the decision-making related to the deal. Therefore it is critically important for investors to carefully vet sponsors before investing, to ensure they are comfortable with the sponsor’s business plan and confident that the sponsor will be able to execute that plan accordingly.

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