Real estate syndications let individual investors pool capital to acquire large commercial properties — apartment complexes, self-storage facilities, industrial buildings, or retail centers — that no single investor could typically purchase alone. As a passive investor (Limited Partner), you write a check, receive quarterly distributions, and let experienced operators (General Partners) run the deal. It's one of the purest forms of truly passive real estate income.
How a Real Estate Syndication Works
The typical syndication structure involves two parties:
- General Partners (GP) / Sponsors: Find the deal, secure debt financing, raise equity from LPs, manage the property, and execute the business plan. Typically own 10-30% of the deal and earn fees for their work.
- Limited Partners (LP) / Passive Investors: Provide most of the equity capital (often 70-90% of the total equity). Receive a preferred return (first 7-10% of profits) plus a share of remaining profits at sale.
A typical deal structure: LP investors get an 8% preferred return paid quarterly, then a 70/30 profit split at exit (70% LP, 30% GP). This is called a "waterfall."
Key Syndication Metrics to Understand
- Preferred Return ("Pref"): The minimum return LPs receive before GPs share in profits. Usually 6-10%. Cumulative prefs accrue if not paid in a given period.
- Equity Multiple: Total distributions received ÷ capital invested. A 1.8x equity multiple on $100,000 = $180,000 returned. Target: 1.5x-2.5x over the hold period.
- Internal Rate of Return (IRR): Annualized return accounting for timing of cash flows. Target: 15-20% IRR for value-add deals.
- Hold Period: How long you're illiquid. Typically 3-7 years — you cannot exit early in most cases.
- Promote / Carried Interest: The GP's share of profits above the pref. A 30% promote means GPs keep 30% of profits beyond the preferred return.
Syndications vs. REITs: REITs are publicly traded and liquid — you can sell any day. Syndications are illiquid but often offer better returns, direct property ownership tax benefits (depreciation pass-through), and more control over property selection. For truly passive investors who don't need immediate liquidity, platforms like Fundrise offer REIT-like access to commercial real estate with lower minimums.
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Use our Deal Analyzer Playbook to decode syndication waterfalls and evaluate sponsor underwriting before you invest.
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The most important factor in any syndication is the sponsor's track record. Ask for:
- List of completed deals with projected vs. actual returns
- Number of deals that missed projected returns — and why
- How many deals were sold at a loss or required capital calls
- Years of experience in the specific asset class and geography
Beyond the sponsor, review the deal's assumptions critically: rent growth projections, exit cap rate assumptions, interest rate assumptions (especially if floating rate debt is involved), and whether reserves are adequate for a downturn scenario.
The Legal Framework — How Syndications Are Offered
Syndications are securities offerings regulated by the SEC. Most use SEC Regulation D exemptions:
- Rule 506(b): Up to 35 sophisticated non-accredited investors + unlimited accredited investors. No general solicitation — you must have a pre-existing relationship with the syndicator.
- Rule 506(c): Accredited investors only, but allows public advertising. Sponsor must verify accredited status.
Always receive and read the Private Placement Memorandum (PPM), Operating Agreement, and Subscription Agreement before investing. Have a securities attorney review the documents if you're investing over $50,000.
