There can be any number of parties to a deal – from simple transactions with a buyer and a seller, to moderately complex sales involving middlemen, all the way to complex deals that involve multiple parties getting compensated in different times, amounts, and forms.
Some real estate investments involve multiple layers of investors, partners, and deal participants, and it’s important to the eventual success of an investment that everyone in a deal has similar goals and expectations.
Part of that is understanding who gets paid what and upon what milestones or objectives. Another is understanding timelines and fees. And there’s more, like grasping the total size of the deal and the relative magnitude of all participants’ contributions.
Before you consider investing in syndication, it is essential to understand your sponsor’s business plan and exit strategy as they’re the ones actively managing an asset and making all the critical decisions. So, don’t be afraid to ask them questions to evaluate if the investment is a good fit for you.
The size of the co-investment a sponsor makes is possibly one of the greatest markers of alignment of interest. The more capital a sponsor invests in a deal, the higher risk they run, demonstrating their faith in the investment.
As part of their compensation, a sponsor receives fees for facilitating a deal. These fees will be outlined in the Private Placement Memorandum (PPM), a contract between sponsors and investors. Here are a few types of fees you’ll find in a syndication:
This fee is earned upon closing a property. Sponsors spend weeks, even months researching, sorting, underwriting a deal, and some of their co-investment isn’t returned until the sale of a property. S