You’ve probably heard of syndication, particularly if you’re interested in real estate. But have you considered the role of a syndicator in areas such as multifamily, content, and apartment syndications? This article will teach you everything you need to know about how a syndicator operates in each of these fields.
What Is A Syndicator?
A syndicator is an individual or part of a group of individuals that find possible investment possibilities, put together a deal to offer to investors, raises money to seal the agreement, and after closing, ensure the deal is operated successfully and profitably for all investors involved.
In rare circumstances, a syndicator or deal sponsor will invest his personal wealth with passive investors in real estate syndications.
When syndicators invest in the multifamily project for which they are raising funds, or “put skin in the game,” it builds trust between passive investors and the syndicator. This is so since it demonstrates that the syndicator believes the deal will be successful and profitable!
Generally, becoming a syndicator is appropriate for people seeking a more ‘hands-on’ venture.
What Is The Role of A Syndicator in a Multifamily Syndication?
As previously stated, syndicators are responsible for putting the deal together, finding investors, raising funds, closing the deal, and managing the asset till disposition!
A syndicator must thoroughly evaluate a contract to see if the asset should be acquired for the multifamily syndication in order to uncover prospective investment opportunities for passive investors.
Overall, the syndicator should ensure that investors obtain a good return on their investment in the multifamily syndication.
Once an asset is acquired, it is the syndicator’s obligation to properly communicate with the asset’s passive investors. The essence is to keep them up to date on the investment project via monthly or quarterly updates.
Syndicators will also be responsible for all back-office procedures related to multifamily syndication.
Setting up bank accounts, arranging insurance, K-1 tax partnership, and often interacting with the property management team to ensure the project is on track with its investment strategy are just a few of these duties.
Most syndicators will employ an asset manager who will help supervise the asset throughout the hold time to ensure that the multifamily syndication is optimal and rises in income, cash flow, and profitability for all investors!
What are the Syndicator’s Risks in a Multifamily Syndication?
When dealing with other people’s money, there is ALWAYS a risk.
As a syndicator, you must work to ensure the profitability and stability of the multifamily syndication. This is not only for the safety of your own personal investment but also for the protection of the capital of your passive investors.
In some situations, the underlying mortgage for the investment project in multifamily real estate syndications will require a personal recourse guarantee on the loan. This would increase the syndicator’s risk.
Furthermore, the syndicator jeopardizes his or her reputation. One miscalculation or mistake in a multifamily syndication could jeopardize the sponsors’ credibility and ability to attract finance for future ventures for the foreseeable future.
As a result, if you want to pursue a career as a multifamily syndicator, you should endeavor to consult or cooperate with other specialists in the field. They can assist you make the best business decisions possible.
As a syndicator, collaborating with professionals will help to reduce your risk.
Who Is Eligible to Invest in a Multifamily Syndication?
When an investor considers participating in a multifamily syndication, certain federal and state security requirements come into play.
On the most fundamental level, syndicators and investors should be aware of a few things.
The SEC requires that all real estate syndications be registered.
If you are raising cash for a Regulation D offering, the securities legislation allows syndicators to raise an unlimited amount of money from accredited investors and around 35 percent from non-accredited investors.
Individuals with a net worth of more than $1 million, excluding their primary residence, or annual income of more than $200,000 if filing as an individual or more than $300,000 if filing jointly, are considered accredited investors.
Regulation C offerings are subject to new rules. Here are some pointers on the distinctions between Regulation D and Regulation C offerings that might occur under multifamily syndications.
As a syndicator, you would almost certainly be seeking for accredited investors.
How are Syndicators compensated by Multifamily Syndications?
Profit Distribution
The syndicator may receive a share of the remaining earnings after the preferred return has been distributed to the limited partners. This depends on the multifamily syndication arrangement.
The income share may vary depending on the property’s asset class. The initial offering of the investment opportunity will determine this.
Because the syndicator is financially incentivized to operate the multifamily asset so that the yearly return exceeds the preferred return, the profit split encourages hard labor.
If the syndicator does not keep the asset operational, they will miss out on an opportunity to generate additional revenue.
The syndicators receive a greater payment when the yearly returns exceed the preferred return for the passive investor.
Fee for acquisition.
Almost every apartment syndicator will demand a fee for the acquisition of a unit.
The purchase fee is a one-time charge paid to the syndicator at the time the multifamily syndication is closed.
The acquisition fee ranges from 1% to 5% of the purchase price, depending on the size, scope, team experience, and income potential of the investment.
Consider the purchase cost to be a consultation fee given to the syndicator for putting the entire project together.
Fee for Asset Management.
The asset management charge is a recurring annual fee given to the syndicator in exchange for supervising the property’s activities and carrying out the business strategy.
The asset management fee is either a percentage of the accumulated income or a cost per unit each year.
The fundamental percentage range is 2% to 3%, with an annual average of $200 to $300 per unit.
Fee for refinancing.
A refinancing fee is a fee paid to the syndicator for the work involved in refinancing the property.
Of course, if the business strategy does not result in a refinance, the syndicator will not be paid.
Fee for guaranty.
The guarantor fee is often a one-time payment made to a loan guarantor at the time of closing in exchange for his or her participation in guaranteeing the loan.
To obtain the greatest financing terms, the syndicator may persuade someone with a high net worth/balance sheet to sign on to the loan.
The syndicator may also choose to sign the loan themself.
The size of the fee is determined by the type of loan. Debts are classified into two types: recourse and nonrecourse.
Recourse financial obligation allows the loan provider to collect what is owed for the debt even after collateral has been taken.
Nonrecourse debt restricts the lending institution’s ability to pursue anything other than security. The cost of the guarantor will be higher for recourse loans than for nonrecourse loans.
Fee for Construction Management.
This is a yearly fee paid to the firm in charge of the capital improvement process.
Depending on the magnitude and complexity of the improvement strategy, this cost ranges from 5% to 10% of the restoration budget.
This cost could be bundled with the asset management fee.
A building and construction management fee may be charged if the syndicator has hands-on involvement in the refurbishment process. It may also be charged if the syndicator has its own property management company.
Fee for Organization.
The syndicator receives the organization fee for assembling the investment group.
This is a one-time fee that ranges from 3% to 10% of the total amount raised, depending on the amount raised.
This price is included in the acquisition fee for some syndicators, but it is a separate fee for others.
What Is A Content Syndicator?
A content syndicator republishes the same piece of content on many websites. This content can take the form of an article, a video, or an infographic. Syndicating content is popular among publications, both large and small because it allows them to provide their viewers with new information. The original authors benefit from this technique as well, because it exposes their brand to a new audience. It’s a win-win situation.
It’s crucial to note that, while they may appear to be the same thing, a content syndicator and guest blogger are not the same things. A guest blogger may publish entirely new content developed exclusively for one magazine. A content syndicator takes the same piece of content and republishes it on other platforms with permission.
From the standpoint of the reader, it’s easy to identify if an article was syndicated rather than a guest post because the original source is usually mentioned on the page.
The Apartment Syndicator
An apartment syndicator is in charge of organizing and running the apartment syndication. The apartment syndicator’s key responsibilities will be as follows:
- Underwriting the transaction.
- Conducting extensive due diligence on the property.
- Organizing the funding.
- Bargaining with the seller.
- Creating a business plan
- Identifying investors.
- Obtaining financing for the transaction.
- Collaborate with the property management team.
- Asset administration.
- Dealing with investor relations.
As you can see, an apartment syndicator manages everything from discovering the property to organizing the deal and running the asset after the transaction is completed. The syndicator’s function is to carry out the business plan and provide high returns to passive investors in real estate syndication.
What is the Role of the Tax Credit Syndicator?
Tax credit syndicators help bridge the gap between the numerous stakeholders involved in affordable housing transactions. Syndicators raise funds from investors and locate low-income housing projects in which to invest the funds. Non-profit syndicators, such as National Equity Fund®, are particularly focused on developing long-term connections with partners.
NEF’s origination and asset management professionals collaborate closely with developers to not only plan and close on project investments but also to provide the kind of technical help that secures the financial and operational success of projects for many years to come.
Both the origination and investor sides of the company strengthen NEF’s drive to assist regenerate towns across the country. We bring together community-minded investors and project sponsors to help make it happen.
To summarize
Whether you want to be a real estate syndicator or a passive investor in real estate, multifamily syndications can be a very profitable investment opportunity. They can help you develop your net worth and thus, reach your financial goals.
We hope this article clarified the roles you can play as a syndicator in multifamily, apartment, and content syndication!
Syndicator FAQs
what is a syndicator in real estate?
A syndicator is a person or company that is in charge of locating, acquiring, and managing real estate. They have a track record of real estate experience as well as the capacity to underwrite and perform due diligence on real estate.
how much do syndicators make?
Syndicators often earn between 25% and 50% of the distributable cash earned through a property’s operations, refinance, or sale, which can be paid as a direct split between the members and the syndicator (i.e., 65/35) or as a preferred return.
Are real estate syndications worth it?
Real estate syndications can be a great way to invest. However, no investment vehicle is without flaws. When you invest passively in a real estate syndication, you are investing a large sum of money over an extended period of time. It will take some time and effort to understand and become comfortable with the process, and you will have to relinquish control.
