As the first end-to-end commercial real estate syndication platform, Covercy makes it easier for syndicators, deal sponsors, and General Partners (GPs) to keep investors happy.
Syndication Defined
Commercial real estate syndication is a process in which multiple investors come together to pool their financial and intellectual resources to invest in properties and projects larger than they could afford or manage individually. Essentially, it’s a strategic partnership formed to acquire and manage a commercial property.
Typical Syndication Process
The syndication process typically involves a sponsor or syndicator who organizes and manages the investment. The sponsor is usually an experienced real estate professional who identifies the investment opportunity, structures the deal, and manages the property after the purchase. Investors in a syndication are typically passive, meaning they contribute capital but are not involved in day-to-day management or decision-making. In return, they receive a share of the profits from the investment.
Benefits of Real Estate Syndication
Investing in a syndication can provide access to larger, potentially more profitable investments and professional management. However, it also involves risks, such as the potential for loss of capital, and lack of control compared to direct property ownership. Furthermore, it often requires a significant minimum investment, which may limit accessibility for some investors.
Legal Structures
There are several legal structures commonly used in syndications, including limited partnerships (LPs) and limited liability companies (LLCs). In both of these structures, the sponsor generally acts as the General Partner (GP) or manager, while the investors are limited partners or members.
Manage your commercial real estate syndication with Covercy.
Unlike most investment management software on the market, Covercy approaches commercial real estate syndication with a unique focus on integrated banking and payment features. Starting with customizable waterfall structures and ending with GP and LP bank accounts opened right within the platform, distribution payments can be transferred instantly from syndicators to investors, and capital contributions can be transferred back, all with the click of a button.
7 Steps to Finding Investors For Your Syndication
Leverage Personal & Professional Networks
Engage Existing Investors
Develop a Marketing Strategy
Participate in Investor Groups & Clubs
Collaborate with Financial Advisors and Brokers
Utilize Online Platforms
Maintain Transparency & Compliance
Syndication is a common strategy across many types of alternative investments, including commercial real estate, startup funding (venture capital), private equity, and even film production. Despite the general principle being the same – pooling resources from multiple investors to invest in an opportunity that would be out of reach for them individually – the details of syndications can vary greatly depending on the asset class. Here are a few key differences:
Nature of the Asset
In commercial real estate syndication, the underlying asset is a physical property, such as an office building, apartment complex, or retail center. The value of the investment is tied to the performance of this property. In contrast, syndications in other asset classes might involve different types of assets. For example, a venture capital syndicate invests in early-stage companies, while a film syndicate invests in the production of a movie.
Time Horizon
The expected duration of the investment can vary. Real estate investments might have a time horizon of several years to a decade, allowing time for property values to appreciate and rental income to be collected. On the other hand, a startup investment might have a longer time horizon, as it often takes many years for a young company to mature and provide a return to investors.
Risk and Return Profiles
The risks and potential returns can vary greatly between different types of syndication. Real estate is generally considered a relatively stable and predictable investment, although it is still subject to risks such as market downturns and property-specific issues. In contrast, venture capital and private equity investments can offer the potential for very high returns but also carry a high risk of loss.
Management and Decision Making
In a real estate syndicate, the GP or syndicator typically manages the property and makes most of the key decisions about the investment. In a venture capital syndicate, the lead investor might help guide the company’s strategy, but the day-to-day management is typically left to the company’s founders and executive team.
Legal and Regulatory Environment
Different types of syndications are subject to different legal and regulatory rules. Real estate syndications are often structured as limited partnerships or limited liability companies and are governed by real estate laws and regulations. Other types of syndications might be subject to securities laws, industry-specific regulations, or international laws if investors are based in different countries.
Remember, syndications in all asset classes involve risk, and potential investors should conduct thorough due diligence and consider seeking advice from financial advisors or legal professionals before investing.
Tips for finding the best
commercial real estate syndication software
Investor Management and Communication: The software should facilitate investor relations, allowing for easy management of investor profiles, communication, distribution updates, and other investor-related tasks. It must include an investor portal, giving LPs easy real-time access to their portfolio performance and new deal opportunities. It should also enable the GP to quickly and efficiently disseminate information to investors, such as updates on the property or project.
Deal Management: The software should have features that support the organization and management of deals, from acquisition through disposition. This includes functionality for tracking different phases of each deal, managing documentation, and updating financial projections and performance metrics.
Waterfall Modeling and Reporting: Good software should offer robust financial modeling capabilities, allowing for the analysis of different investment scenarios and structures. It should also offer detailed reporting features to create financial reports for both internal analysis and communication with investors.
Document Management: A GP handles a significant amount of documents in a syndication deal. The software should provide secure, centralized storage for these documents. It should also support document sharing and collaboration.
Compliance: The software should help ensure compliance with applicable laws and regulations, such as securities laws. This could include features for tracking investor accreditation status, managing investment limits, and maintaining necessary records for legal compliance.
Integration Capabilities: The software should integrate well with other tools used in the business, such as accounting software, bank accounts for fund transfers, CRMs for investor tracking, marketing email systems, eSignature software, and more. This allows for streamlined workflows and improved efficiency.
Commercial real estate General Partners may consider syndicating their next deal for the following reasons (however, it’s important to note that while there are significant potential benefits for GPs in a real estate syndication, there are also substantial responsibilities and risks. The GP is typically responsible for managing the property and making key decisions, and they may be personally liable for the performance of the investment).
One of the key benefits for the GP or syndicator in a commercial real estate syndication is the ability to acquire and control assets that they might not be able to afford on their own. By pooling resources from multiple investors, the GP can purchase larger, more expensive properties that have the potential for higher returns. In addition, they maintain control over the investment, making decisions about property management, improvements, and when to sell
GPs typically earn income through fees for the various services they provide in a syndication. This can include an acquisition fee for identifying and acquiring the property, asset management fees for overseeing the property, and disposition fees when the property is sold. These fees can provide a steady income stream for the GP, regardless of the overall success of the investment.
In addition to fee income, GPs often receive a portion of the profits from the syndication, known as the “promote” or “profit share”. This is typically a percentage of the profits above a certain return threshold for the investors. This aligns the interests of the GP and the investors, as the GP stands to earn more if the investment performs well.
Asset Acquisition and Control
One of the key benefits for the GP or syndicator in a commercial real estate syndication is the ability to acquire and control assets that they might not be able to afford on their own. By pooling resources from multiple investors, the GP can purchase larger, more expensive properties that have the potential for higher returns. In addition, they maintain control over the investment, making decisions about property management, improvements, and when to sell
Fee Income
GPs typically earn income through fees for the various services they provide in a syndication. This can include an acquisition fee for identifying and acquiring the property, asset management fees for overseeing the property, and disposition fees when the property is sold. These fees can provide a steady income stream for the GP, regardless of the overall success of the investment.
Profit Sharing
In addition to fee income, GPs often receive a portion of the profits from the syndication, known as the “promote” or “profit share”. This is typically a percentage of the profits above a certain return threshold for the investors. This aligns the interests of the GP and the investors, as the GP stands to earn more if the investment performs well.
Investment management software designed with commercial real estate syndication in mind
Covercy is the first real estate platform where banking meets investment management.
Bringing capabilities such as investment management, fundraising, automated distributions, and more into a single platform, Covercy also provides GPs and their teams with the ability to service a high volume of outside investors in a single platform. Syndicators can also open, manage, track, and report on bank accounts and activity tied to their assets, funds, investors, and more.
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