The best way to illustrate the various important roles that are necessary for the success of a real estate syndication deal is with an analogy. Imagine an airplane ride. There are pilots, passengers, flight attendants, mechanics, and more, who all work together to get the plane safely to its destination.
In this analogy, the pilots are the sponsors (Growability Equity) of the syndication, and the passengers are the passive investors (you & the community of investors inside the Growability Equity Club). We’re all going to the same place, but we 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 responsible for the flight, communication, and maneuvering through any danger.
The pilots will likely update the passengers (“Just to let you know, folks, we’re experiencing some turbulence at the moment…”), but the passengers don’t have any active responsibilities in making the decisions or flying the plane.
A real estate syndication operates similarly. 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.
In this article, we’ll talk about exactly who those players are, as well as their respective roles in a given real estate syndication.
The Team Behind 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
- Growability Equity
Real Estate Broker
The real estate broker is the person or team who surfaces the property for sale, either as a listing or as an off-market opportunity (i.e., not publicly listed).
Having a strong real estate broker is crucial, as they are the main 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 own due diligence, underwriting, and gets a separate appraisal to make sure the property is worth the value of the loan requested.
In the airplane analogy, neither the real estate broker nor the lender are aboard the plane. They have important roles in bringing the project to fruition, but they are not part of the purchasing entity, nor do they share in any of the returns.
The general partners synchronize with the real estate broker and lender to secure the loan and acquire the property in addition to managing the asset throughout the life of the project, which is why they are often also called the lead syndicators.
The general partnership team includes both the sponsors and the operators (sometimes these are the same people).
The sponsors are the ones signing on the dotted line for the loan and are often involved in the acquisition and underwriting processes.
The operators are generally responsible for managing the acquisition and for executing the business plan by overseeing the day-to-day operations. Operators guide the property manager and ensure that renovations are on schedule and within budget.
For a commercial loan, the sponsor is required to show a certain amount of personal liquidity. This reassures the lender that the sponsor can contribute additional personal capital to keep the property afloat if things were to ever go wrong.
One or more key principals may be brought into the deal to help guarantee the loan if the sponsor’s personal 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 property has been acquired, the property manager becomes arguably the most important partner in the project 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 being followed and that any unexpected surprises are addressed properly.
In a real estate syndication, Growability Equity is part of the general partnership. Most times we will act as sponsors and operators with total project accountability. In all cases where we offer opportunities to our community, our preeminent role is to ensure strong investor relations/communications and help raise the equity needed.
We serve as an advocate 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, in the cases where we happen to not be a part of the sponsor/operator team, we act as the liaison between the sponsor/operator team and the investors by providing updates, financial reports, and other important information between parties.
How You Play A Key Role As A Real Estate Syndication Investor
A real estate syndication, by definition, is a group investment. And it’s only through pooling resources and coordinating as a team that the syndication can be successful, which is why the role you play is so important.
Without passengers, is there any point to the plane taking off? Not really. Similarly, without you and other passive investors like you, a syndication would be unable to get off the ground, so to speak.
For simplicity, you got to know the most visible team member roles in a real estate syndication in this article, but there are many more talented individuals working behind the scenes too! Inspectors, appraisers, cost segregation specialists, CPAs, an entire legal team, insurance agents, and more, also work in the background to make sure that the syndication gets off the ground.
If you’re interested in joining the Growability Equity Club and becoming one of the important passive investors behind-the-scenes, we can’t wait to get to know you, your investing goals, and begin coordinating toward an investment opportunity that supports your ambitions.
I’m a new passive investor with Growsbility and continue to be impressed with the management team. They proactively communicate and educate and are very responsive to questions.
Thanks Michael, great to have you in the community. Looking forward to us growing wealth together!