Maybe it’s been a while since you’ve last traveled. But, remember what it was like just to sit back and enjoy the flight? Cocktail in hand, neck pillow on, and earbuds playing . . . ah, that was nice, right?
Well, stay there, on that imaginary flight with me for a minute, and mentally take a headcount of all the pilots, flight attendants, mechanics, and more, who all work together to get you safely to your destination.
One of the best analogies for a real estate syndication is to think of it as an airplane ride. The pilots are the syndication sponsors (like me!), and the passengers are the passive investors (like you!). They’re all going to the same place, but they have very different roles in the process.
If unexpected weather patterns emerge, if an engine has issues or any other number of surprises, the pilots are the ones who are responsible for the flight. In addition, the pilots will likely update the passengers (“Just to let you know, folks, we’re experiencing some turbulence at the moment…”). Still, the passengers don’t have any functional responsibilities in making the decisions or flying the plane.
A real estate syndication is much like this. The passive investors, sponsors, brokers, property managers, and more all share a vision to invest in and improve a particular asset. However, each person’s role in the project is different.
Our team of syndication professionals and we manage the real estate investment and are responsible for bringing the business plan to life. You’ve done your research and invested in the deal, so all that’s left for you to do is sit back and enjoy the distributions.
Below, we’ll talk about exactly who those players are, as well as their respective roles in a given real estate syndication.
People in a Real Estate Syndication
Here are the key roles that come together to make a real estate syndication happen:
- Real Estate Broker
- General Partners
- Key Principals
- Passive Investors
- Property Manager
- Starboard Equity
Real Estate Broker
The real estate broker is the person or team who surfaces the property for sale, either as a listing or an off-market opportunity (i.e., not publicly listed).
Having a solid real estate broker is crucial, as they are the primary liaison between the buyer and the seller throughout the acquisition process.
The lender is the biggest money partner in a real estate syndication because they provide the loan for the property. The lender performs their due diligence, underwriting and gets a separate appraisal to ensure the property is worth the value of the loan requested.
In the airplane analogy, neither the real estate broker nor the lender is aboard the plane. Of course, they have essential roles in bringing the project to fruition, but they are not part of the purchasing entity, nor do they share in any returns.
The general partners synchronize with the real estate broker and lender to secure the loan and acquire the property and manage the asset throughout the project’s life, which is why they are often called the lead syndicators.
The general partnership team includes both the sponsors and the operators (sometimes the same people).
The sponsors sign on the dotted line for the loan and are often involved in the acquisition and underwriting processes.
The operators, or asset managers, are generally responsible for managing the acquisition and executing the business plan by overseeing the day-to-day operations. In addition, operators guide the property manager and ensure that renovations are on schedule and within budget.
The sponsor must have a certain amount of personal liquidity to obtain a commercial loan. Liquidity reassures the lender that the sponsor can contribute additional capital to keep the property afloat if things go wrong.
The sponsor may bring one or more key principals into the deal to guarantee the loan if the sponsor’s balance sheet is insufficient.
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!
Once the general partners have acquired the property, the property manager, often a property management company, becomes arguably the essential partner 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 followed and that any surprises are appropriately addressed.
In a real estate syndication, Starboard Equity is part of the general partnership. Our central role is to lead investor relations, review conservative underwriting criteria and help raise the equity needed.
We serve as advocates for investors by ensuring that the sponsors’ projections are conservative, deals are structured favorably toward investors, that multiple exit strategies exist, and that capital will be preserved and grow.
After the property is acquired, we act as the liaison between the sponsor/operator team and the investors by providing updates, financial reports, and other important information between parties.
Getting A Team Behind You, The Catalyst In Your Investing Journey
When you invest in stocks or funds or even residential rental properties, you’re usually the only one truly on your team. Sometimes it can even feel like others are working against you.
But with real estate syndications, the investors, sponsors, and managers are on YOUR team. We’re all in this together and doing our part to ensure each syndication deal meets or exceeds its projected goals as outlined in the business plan.
In addition to the critical roles discussed here, inspectors, appraisers, cost segregation specialists, CPA, legal team, insurance agents, and more work in the background to make sure that the syndication gets off the ground.
You’ve heard the phrase stronger together, right? Well, this 100% applies to real estate syndications!
While all the respective roles are different, they are all important to the success of the syndication. When we pool our money, knowledge, connections and work together toward one aligned goal, we create a powerful movement toward growth, wealth, and freedom for all to enjoy.