I have been a Dallas Cowboys football fan my entire life, and it’s sometimes hard for me not to compare the team behind a successful real estate syndication and my beloved blue and silver star-spangled football team.
Syndications are similar to a football organization because there are so many different moving parts to each. Every football team has a multitude of coaches, players, referees, team doctors, support staff, general managers, owners, and probably many more who work tirelessly behind the scenes. They all work collectively to (hopefully) have a winning season.
In this analogy, the coaches are the sponsors of the syndication, and the players are the passive investors. They’re all playing the same game, but they have very different roles in the outcome.
If team injury occurs, if the defense is allowing point after point, or the offense continues to lose yardage or not score, or any other number of issues, the coaches are the ones who are responsible for substituting players and calling plays.
The coaches will likely discuss the situations with the players, especially during halftime and after the game. But the players often don’t get an active say in the play calls, roster decisions, and more.
A real estate syndication is a lot like this. All of the key players, the passive investors, sponsors, brokers, property managers, and more, all share a plan to invest in and improve a particular asset. However, each person’s role in the project is different.
We are going to talk about each player who is a part of a real estate syndication and what their roles are within the real estate syndication process.
The People Dedicated To A Real Estate Syndication’s Success
Here are the key roles that come together to make a real estate syndication happen:
Real estate broker
Lender
General partners
Key principals
Passive investors
Property manager
Exponential Equity
Real Estate Broker
The real estate broker is the person or team who surfaces the property for sale, either as a listing or as an off-market opportunity (i.e., not publicly listed).
Having a strong real estate broker is crucial, as they are the main liaison between the buyer and the seller throughout the acquisition process.
Lender
The lender is the biggest money partner in a real estate syndication because they provide the loan for the property. The lender performs their own due diligence, underwriting, and gets a separate appraisal to make sure the property is worth the value of the loan requested.
In the airplane analogy, neither the real estate broker nor the lender are aboard the plane. They have important roles in bringing the project to fruition, but they are not part of the purchasing entity, nor do they share in any of the returns.
General Partners
The general partners synchronize with the real estate broker and lender to secure the loan and acquire the property in addition to managing the asset throughout the life of the project, which is why they are often also called the lead syndicators.
The general partnership team includes both the sponsors and the operators (sometimes these are the same people).
The sponsors are the ones signing on the dotted line for the loan and are often involved in the acquisition and underwriting processes.
The operators are generally responsible for managing the acquisition and for executing the business plan by overseeing the day-to-day operations. Operators guide the property manager and ensure that renovations are on schedule and within budget.
Key Principals
For a commercial loan, the sponsor is required to show a certain amount of personal liquidity. This reassures the lender that the sponsor can contribute additional personal capital to keep the property afloat if things were to ever go wrong.
One or more key principals may be brought into the deal to help guarantee the loan if the sponsor’s personal balance sheet is insufficient.
Passive Investors
A real estate syndication’s passive investors have no active role in the project. They simply invest their money in exchange for a share of the returns. Like the passengers on an airplane, they get to put their money in, sit back, and enjoy the ride.
What a great position!
Property Manager
Once the property has been acquired, the property manager becomes arguably the most important partner in the project because they are the “boots on the ground” who execute renovation projects according to the business plan.
The property manager works closely with the operator (i.e. the asset manager) to ensure the business plan is being followed and that any unexpected surprises are addressed properly.
Engineered Capital
In a real estate syndication, Engineered Capital is part of the general partnership. My main role is to evaluate each deal from top to bottom with an engineer’s critical lens, lead investor relations, immerse myself in the conservative underwriting process, manage the asset, and help raise the equity needed.
I serve as an advocate for my investors by ensuring that the projections are conservative, that each deal is structured favorably toward investors, that multiple exit strategies exist, and that capital will be preserved and grow. I’m focused on creating this business as a legacy for my family, so you can rest assured that I’ll be more meticulous about asset management and control than most other general partners.
After the property is acquired, I make sporadic physical visits to the asset, meet with the property management team, continue to run calculations, and aid communication between the sponsor/operator team and the investors by providing updates, financial reports, and other important information between parties.
Real Estate Investing Success Requires An A-List Team
A real estate syndication is a group investment, but the group is not simply pooling capital, throwing it in the asset, and crossing their fingers it all turns out ok. The group is pooling capital, knowledge, resources, connections, and perspectives to make sure the syndication is successful.
Those listed here are just a few of the many key players in a multifamily real estate syndication. There are also others who play important, yet more behind-the-scenes roles such as inspectors, appraisers, cost segregation specialists, CPA, legal team, insurance agents, and more. You may never truly know how many hundreds of people’s expertise, capital, and effort it takes to run a successful syndication full-cycle, but the beauty is you don’t need to.
You get to enjoy the passive investor role and all the worry-free time freedom that comes with it! Meanwhile, I do what I do best and manage the asset to profit along with my carefully selected team of experts. While all their respective roles are different, they are all necessary to ensure the success of the syndication.
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