Syndications achieve the benefits of owning real estate without the time commitment. They are a good fit for those who want real estate in their portfolio but lack the time or expertise required to vet, purchase, and manage the assets. In most cases, you can achieve reliable and consistent returns with less risk and volatility than traditional stock market investments.
What is a Syndication
Real estate syndications pool investor funds, allowing the group of investors to work with a syndicator to purchase larger commercial properties than you could achieve independently. Due to lending and capital requirements, individuals tend to focus on residential properties, including single-family homes, condominiums, duplexes, triplexes, or quadplexes. Syndications provide access to bigger and often more profitable commercial deals. We focus on class B and C multifamily housing units at McKee Capital.
Syndications involve the managing partners (syndicators or sponsors) and limited partners or investors. The sponsor identifies and vets a property, makes an offer, and negotiates the terms. Once the contract is in place, the sponsors put out a capital call to investors to raise funds required to meet the down payment requirements. At McKee Capital, we consistently invest in the deals we sponsor.
Business Structure of a Syndication
The syndication establishes an LLC or limited partnership to hold the asset. The sponsors and investors become owners of the business, with the sponsors acting as the managing partners and the investors acting as limited partners.
Responsibilities of Sponsors and Investors
Managing partners (syndicators or sponsors): These are active participants who handle the day-to-day decisions making, which includes finding qualified properties, vetting the deal, securing financing, and establishing the terms of the business agreement. Once the deal closes, the sponsors manage the property, oversee rehabilitation projects, and look for ways to cut costs. The syndicator decides when and how to liquidate the asset and close out the syndication.
Limited partners: Investors are limited partners creating a passive investment, receiving distributions during the hold period and a share in the profits at the exit. The level of investments determines the percentage of profits received.
How Investors Make Money Through a Syndication
Real estate syndications are one of the few investments that are truly passive.
Payouts during the hold period: You choose the investment level and receive monthly or quarterly distributions based on the preferred return. Distributions typically start within the first year and are cumulative.
Payouts at the exit: Syndication hold periods generally range from three to seven years. When the managing team sells or refinances the property, you share profits based on your contribution level. Most efficiently managed properties achieve double-digit returns.
Working With McKee Capital Group
We partner with accredited and non-accredited investors at McKee Capital, allowing more investors to enjoy the benefits of commercial real estate syndications. Our company vets properties using conservative criteria and stress test our assumptions to lower the risk for investors.
If you are interested in learning more about investing in commercial real estate syndications, we created a short introductory video.