The Team Players Involved in Apartment Syndications
Apartment syndications are opportunities for investors to purchase large-scale properties that they likely would not be able to purchase on their own by pooling their money together for the shared goal of making a profit. Syndications are made possible by the collective efforts of a few important players. General partners, limited partners, and property managers are just a few of the keywords that you will hear commonly used in the multifamily syndication arena. Understanding the “who’s who” of syndications, along with their roles and responsibilities, will allow you to better understand how syndications work within the multifamily investing space.
Multifamily Syndication Team Roster
General partners
Limited partners
Property management company
Banks/lenders
General Partners
Also known as syndicators, operators, or sponsors, the general partner (or partners) on a project is essentially the ring leader. The main distinction of this group is that they play a very active role in the overall syndication process. A GP is typically in charge of locating potential properties, researching investment opportunities, overseeing the execution of the business plan, and securing necessary investment funds. There may be multiple GP’s on a project and each may play a particular role. GPs lead the team from start to finish and earn their returns through acquisition fees, asset management fees, and portions of the profit made on the deal.
Limited Partners
Often referred to as investors, private investors, or passive investors, LPs are individuals who serve as the funding source for the project and are not actively involved in the day-to-day operation. LPs pool together their money to fund the syndication, and while they receive regular updates about the project and maintain partial ownership, they do not interact with the tenants or deal with maintenance of the property. LPs earn a portion of the profits in exchange for their willingness to fund the deal. Because they aren’t involved in the day to day operations, it’s extremely important that LPs trust the GPs they choose to work with, as they have the most control over the overall return on investment that both parties receive.
Property Management Company
Oftentimes, the sponsor team (GPs) will hire a third-party company to manage the day-to-day operations of the apartment building. This includes any necessary renovations, repairs, and general maintenance that may arise throughout the length of the project. Property management teams typically handle the leasing operations such as tenant relations, lease write ups, bookkeeping, and marketing the property to fill units.
When you are considering investing in a property that will be maintained by a management company, it is important to look into that company’s credentials and history. Make sure they have experience and a proven track record in the specific asset class that you are investing in. For example, you would want to make sure the property management company who is going to be in charge of a 400 unit luxury high rise has successfully managed a building of that size and tenants of that caliber before. Whether it’s a large luxury apartment building or a Class C property, you want to make sure the management team knows how to properly handle the project from start to finish.
Money Team
Although limited partners do supply funding for the project, most multifamily syndications still require additional loans to secure the transaction. That is where more traditional lenders come into the picture, such as local or institutional banks. Just like you’d take a loan out for your personal home, commercial real estate loans are not much different; however, they do come with a bit more complexity and additional steps in order to acquire the funds. When looking to invest in a multifamily syndication, look for a GP that has a healthy relationship with a lender they’ve worked with on previous projects. This working relationship makes it easier to acquire long-term funding when necessary.
Recap
General partners lead the way. These individuals do the majority of the heavy lifting on multifamily syndication projects. Limited partners still have ownership but primarily serve as a funding source. Many investors reading this are likely considering a role as an LP. If that’s you, it is important to remember the aforementioned topics when interviewing potential GPs. Before investing your dollars in a project, make sure that the GP, the management team, and the lenders have proven track records in their respective fields to ensure your hard earned dollars are in the right hands.
If you’re interested in learning more about how syndications may help you progress your financial goals, schedule a free consultation with one of the EZ FI U team members.
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