Real Estate Syndicates

Contrary to the reliance of some, a real estate syndicate has nothing at all to do with Don Corleone. Take it from me - or my name is not Luigi.

The real estate venture store is becoming more and more complicated and, as a result, the former boundaries in the middle of distinct venture activities are changing. If man is concerned in buying or selling an interest in land, he ordinarily seeks help from a real estate expert. If man wants to buy or sell a tasteless stock, he seeks the services of a securities expert. While the past decade there has been a increase of new forms of venture vehicles, the most tasteless of which are known as 'syndicates'. Syndicates are used in conjunction with many types of assets including real estate, R & D, purchase and management of hotels and motels, oil and gas exploration, livestock and agricultural amelioration to name a few. Specifically as it refers to real estate syndicates, in its simplest definition this term is applied to any form of organization which allows two or more investors to partake in the ownership of an interest in real estate.

Real Estate

In the syndicate, the real estate asset is divided into two or more 'investment units' which are acquired by the personel investors. It is leading to perceive that the venture unit refers to the singular asset that is acquired by the investors, and not the underlying real property itself. The spoton nature of the venture unit will depend on the form of the syndicate. In essence, venture units recount a fractionalized ownership of one or more interests in real property rather than direct ownership of an entire interest. While real estate syndicates are formed for a collection of reasons, the typical fancy is to generate a tax shelter. At the base of the syndicate is the association among investors. In all real estate syndicates there is some form of contract specifying the association intercurring in the middle of the personel investors and the underlying interest in real property.

Despite the multitude of forms, the buildings of a real estate syndicate is invariably based upon one of the following six legal relationships: co-ownership, divided ownership, corporation, trust, normal partnership and puny partnership. In addition, there are three central participants, or sets of participants, as follows:

[ ] the syndicator or promoter who creates the syndicate in the first place;

[ ] the syndicate owner who manages the syndication and who, often times, is the promoter as well;

[ ] the investors who purchase the venture units.

Moreover, a estimate of other experts are used that are unrelated to the syndication, such as managers, appraisers, builders, leasing agents and mortgage lenders. In some cases the syndicator may buy the property before creating the syndicate organization. In other cases, the syndicate venture units may be marketed before the real property is acquired.

The funds of profits and expenses is typical of the real estate industry. For instance, there are 'front-end' fees to cover first expenses for the formation of the syndicate such as:

[ ] mark-up behalf on lands sold to the syndicate by the syndicator, if he industrialized the first capital to purchase real estate.

[ ] Real estate commissions on sales to the syndicate by the syndicator.

[ ] percentage of the first funds raised by the syndicator.

[ ] Fees for services rendered.

[ ] Fees for guarantees, such as cash-flow guarantees or construction guarantees.

As to the return and liquidity, each investor is entitled to the proportionate share of all leases, rents, resale of the syndicate interests in land and, of course, each investor will have to consider distinct tax protection possibilities offered by the six distinct legal organizations of syndicates. Last but not least, liquidity is an vital factor from an investors perspective, in that investors may want to exchange venture units or part thereof to man else at a later date.

There are at times situations wherein a direct ownership in land is neither useful nor convenient, and an indirect ownership by way of venture units may be more appropriate. Likewise, as it is the case more and more with large hotel consortiums, former capitalization is done by selling 'interest shares' - the equivalent of venture units - to incommunicable investors, with the balance of the first funding obtained by institutional lenders and secured by the real property. Nowadays syndicators have gone as far as raising money in the stock store by selling futures stocks of edifications to come, typically large high-rise and residential towers that mass the downtown core of roughly every metropolis in North America.

Luigi Frascati

Real Estate Syndicates