Syndication is the pooling of investor capital where investors typically participate as limited partners, while the general partner (syndicator) structures the deal and manages the business plan. This approach provides returns for the benefit of all investors.
A Private Placement Memorandum (PPM) is required by the SEC and outlines the offering details, partnership agreement, investment summary, subscription agreement, and risk disclosures. It is a lengthy legal document prepared by a syndication attorney and highlights nearly every potential risk.
Annual returns are generally targeted in the 8–10% cash-on-cash range, with an average IRR of 15% over the hold period. In value-add projects, much of the return is realized at the time of sale. Actual performance varies by property, as described in each project’s PPM.
Investor distributions vary from deal to deal but most syndications make quarterly distributions.
The returns forecasted are described in the private placement memorandum (PPM) and vary from deal to deal. The most common fee is an acquisition fee based on purchase price and is paid at closing. This covers the general partner’s costs to find the deal and get it under contract. The second most common fee is the asset management fee which is compensation for holding the property manager accountable, to ensure execution of the business plan, bookkeeping, and distribution of checks and K1s. The asset management fee is aligned with the investor’s interest as it is based on the property’s revenues. Industry averages are 1-3 % for both fees.
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