10 THINGS TO LOOK FOR WHEN COMPARING REAL ESTATE SYNDICATIONS TOM WILSON
With opportunity, however, comes invest in. Good syndication sponsors will partner will experts
the need to know what to look for when bringing new category deals to their investor pools. Due
when comparing opportunities. I diligence is key, and sponsors should be able to clearly articulate
have compiled 10 of the most why they like a deal and what sort of risk mitigation exists.
important factors to look for in a
syndication when evaluating them 3) Preferred Returns. Many stabilized properties are
in order to make the most generating revenue via rents collected from tenants, and the
informed investments possible. sponsors of these syndications will structure a preferred return to
investors. This return represents an annual return on the
1) Qualifications. Check and principal amount invested by the investor (i.e. 8% returns on a
see if the syndication deal $100,000 investment would represent $8000/year). This return
requires a accrues at a predetermined rate, and must be paid before any
accredited sort of profitsharing takes place upon the sale of the property.
investor. Syndications structured Some deals will have a set preferred return pegged to an
under investor’s initial investment, while others will establish this return
you
sophisticated
SEC
exemption
to
or
be
Regulation
506(c),
D,
require
as a percentage of actual net cash flow received.
investors to be independently
accredited via a CPA or 3rd 4) Dividends. Often confused with preferred returns, dividends
party service. This confirms an differ in that they are the actual payments made during the hold
investor meets minimum net period of a deal. These are often paid out monthly or quarterly.
worth income Certain valueadd deals that require increasing occupancy or
requirements in order to legally rehab work may delay paying dividends until cash flow of a
take part. 506(b) offerings, on property is sufficient to cover these payments. Dividends are
the other hand, simply require ultimately paid at the discretion of a sponsor, and can be
an investor to be sophisticated interrupted due to unexpected expenses or vacancies that arise
which during the course of the holding period.
and/or
is
simply
a
broad
definition meaning an investor
possesses
sound
financial
education.
2) Track Record. Syndications
are passive, so it is extremely
important that the sponsors
have a proven track record and
knowledge of the industries and
areas they are choosing to