The complete guide to real estate syndication

The Complete Guide to Real Estate Syndication

Chapter 1: What exactly is a syndicate?

a) Introduction to group investment

(i) defining what syndication is: group investment

b) All kinds of syndicates

(i) syndication not limited to real estate, and other forms of syndication

Chapter 2: The Pros and Cons of Real Estate Syndication

a) Cash advantages

(i) the flow of cash involved, tax breaks, equity, appreciation-based profit, working capital, and high investment returns

b) Why people might shy away from real estate investment

(i) Real Estate is less marketable than other investments, if someone looks to cash out their investment, there is no guarantee that their property will sell quickly, if it will sell at all.

(ii) Risk of Obsolescence; the value of the investment could decline as/if the property becomes obsolete.

(iii) Time and Management; once an investor secures a real estate investment, they must either hire a manager for the physical property, or spend their own time managing the property.

(iv) Political/Environmental Risk; Changes to government policies, toxic or hazardous materials, or geographic liabilities are often dissuasive

Chapter 3: Fundamentals of aSuccessful Syndicator

a) What is a Syndicator?

(i) The syndicate manager, producer, organizer, planner, legal representation. The syndicator is responsible for finding and investment, finding investors, determining the costs of the investment, arranging financing for said investment, securing the title, and planning the use of the investment property/land.

b) issuer vs. dealer

(i) Issuers: acquire property, form the syndicate/get investors

(ii) Dealers: Manage and market the investment

c) The Risk of being a Syndicator

(i) As a syndicator, you take on all of the immediate monetary risks. The syndicator makes the downpayment/deposit on the investment, and is liable for repayment of investors.

Chapter 4: The Perks of being a Syndicator

a) Broker by Day/Syndicator by Night

(i) If a working Real Estate broker acquires a listing for a property that he/she sees commercial or profitable value in, he/she may create a buyer for the property by forming a syndicate, from which they will also retain commission on the sale.

b) Paying the Syndicator

(i) When drafting the contract for the Syndication, and declaring yourself the syndicator; it is a good idea to declare any income from the syndication that you will be retaining. If you do not disclose income from the Syndicate, there could be legal repercussions.

(ii) In Private Syndicates the Syndicator will often be granted a large percentage of the profits, after the investors are satisfied with their minimum return.

(iii) Public Syndication is regulated by an agency that determines what constitutes “fair” compensation for the Syndicator.

Chapter 5: How do I Choose a Project?

a) Choosing a Syndicate

(i) A successful Syndicator knows that the question isn't only what to syndicate, but also who will form the syndicate. Younger or High Income investors have different reasons for investment than elderly or retired investors.

b) Choosing a Project

(i) There are several options when it comes to projects for syndication: Residential, Commercial Shopping, High-Rise Buildings, Land, Industrial Plants, Agricultural Projects, Personal Property, Oil and Mineral Exploitation, Race Horses, Motion Pictures, Money Lending, etc.

c) Syndicate Classes

(i) There are types or classes of syndicates that may be formed, all with their own pros and cons; Specific, Blind Pool, Master Registration Syndicate, Multi-Class Syndicate, etc.

Chapter 6: Property Acquisition

a) Finding the Property

(i) Where to start whyen looking for a good investment property. There are multiple sources with their own expertise in this matter: real estate brokers, title & escrow companies, publications, construction companies, banks, chamber of commerce, transit companies, financial institutions, churches, schools, universities, lawyers, etc.

b) Get it in Writing

(i) Before assembling a syndicate, it is a good idea to make sure you (the syndicator) controls the property. You can control the property by either having it in Escrow, or under contract. If you don't get it in writing, however, there is still room for one of the parties to back out.

c) Paying for the Property/Purchase Agreement

(i) Draft a purchase agreement; get with a real estate attorney to make sure the purchase agreement meets state and county requirements.

(ii) Actual price of the property; This is something to pay attention to. The ostensible price is a speculated/agreed upon amount to pay for the property; the net price is what will actually be paid to the seller.

(iii) If a cash settlement/payment is offered, and there is a lien on the property currently, the seller will most often incur a fee for prepayment off their loan. This could make the net price increase in correlation.

(iv) Find out whether or not the existing loan on a property will be assumed by the buyer, or if the seller will retain the loan, with transfer of the title/deed at a later date. Also, who bears the transfer fee?

(v) Escrow, make sure the purchase contract states that the sale will be settled by an escrow company, title company, or by an attorney and that the buyer and seller will adhere to escrow instructions.

Chapter 7: Working with a Real Estate Broker

a) The Power of Negotiation

(i) Hiring a broker that understands and works with everyone involved in the acquisition of property is always a good idea. Often without the mediation of a third-party broker, these relationships can and will often be strained.

b) Hiring a broker

(i) When you look for a broker, first check and make sure they are in good standing with the state agency and trade associations; furthermore, ask around and find out what experience and areas of expertise the broker may have.

(ii) When you choose to work with a broker, give them exclusivity for a determined amount of time to avoid competing with yourself with multiple listings.

(iii) Pay attention to how the broker will be paid, if you are hiring a broker to assist in acquisition, you will want a different motivator than a standard contingency percentage; you don't want them chasing the highest price.

Chapter 8: How to Negotiate Financing

a) financing effect on market value

b) financing considerations

c) general negotiating points affecting cash flow

d) non cash flow elements of loan negotiations

e) liability considerations

f) constructions loans

g) sources of financing

Chapter 9: Selecting the Form of Equity

a) Types of entities

b) Considerations in selecting the entity

Chapter 10: Tax Considerations

a) Choice of entity

b) Corporations

c) Limited partnerships & LLCs

d) Start up Acquisition

e) Operation of the Property

f) Disposition of Real Estate

Chapter 11: Formation of the Entity

a) timing

b) existence of entity

c) delivery of deed

d) conveyances out

e) acknowledgements

f) use of sole limited partner

g) affect on conveyances

h) conclusion

Chapter 12: Documentation of the Syndicate

a) types of documents

b) combined factors

c) offering

d) appraisal

e) articles of limited partnership

f) risk factors

g) check list

Chapter 13: Drafting Syndicator's Provisions of Entity Documents

a) contractual considerations

b) protective provisions

c) balance of interests

d) narrow vs. broad definition of rights, privileges & duties

e) self-dealing

f) right to compete

g) accounting

h) compensation

i) loans from the manager

j) manager's rights to borrow from partnership

k) meetings and votes

l) exculpation (release of personal liability)

m) indemnity

n) issuance and transfer of interests

o) common trust account & investment of surplus funds

p) right to rely on general partner's authority

q) power of attorney

r) marketing representations disclaimer

s) representation of the limited partners

t) limited partner's advisor

u) duties

v) withdrawal or removal of general partner

w) filing of certificates

x) caution re regulatory standards

y) partners dealing with a partnership and title insurance

Chapter 14: Drafting Impound Provisions in a Securities Offering

a) types of impounds

b) the depository agreement

c) providing for flexibility

d) promoter's acceptance of units

e) the use of a repurchase guarantee

f) staging development

g) importance of local law

h) conclusion

Chapter 15: Management of the Syndicate

a) reports and distributions

b) annual meetings

c) selecting accountant and attorney

d) investor dissatisfaction

e) disallowance of tax benefits

f) cash flow deficiency

g) change of manager

h) defaulting partners

Chapter 16: State and Federal Regulation of Syndicate Activities

a) Organization and operations

b) Licensing in California

c) Qualification of syndicate shares

d) Non-public offering

e) Interstate offerings

f) Finder's fees and brokerage commissions

g) Management activities

h) Leasing and sale of real estate

i) Quasi-governmental regulations

j) State regulation

k) Regulation D rule 147

l) Rules and guidelines

Chapter 17: How to Market Syndicate Shares

a) marketing techniques

b) building a data bank

c) price of entry

d) caution re inter-state offerings

e) offering circular

Chapter 18: Guarantees and Real Estate Syndicate Securities

a) marketing device

b) definition

c) class of obligor

d) extent of obligation

e) automatic expiration

f) mutuality

g) effect on qualification

h) necessity for writing

i) tax considerations

j) conclusion

Chapter 19: Providing Liquidity for Syndicate Interests

a) problem of motivation

b) sales techniques

c) the entity agreement

d) from time to time

Chapter 20: New Syndication Strategy

Chapter 21: How to Analyze an Offering

a) ignore the hype

b) track record

c) the syndication

d) search out conflicts

e) liquidity

f) exit strategy

g) market direction

Chapter 22: Conclusion

a) franchising

b) other forms

c) alternatives

d) conclusion