What is a Real Estate Syndication

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Syndication is the process of fractionalizing property ownership into several partial interests in order to divide the required equity into smaller parts.

The intent of real estate syndication is:

  • To allow the real estate developer to expand the pool of potential investors by offering them a smaller, more affordable equity investment unit, and
  • To provide investors who have limited capital with the opportunity to participate in the ownership or development of properties which would otherwise be too expensive for them to acquire or develop on their own.

Increasing popularity

In today's real estate environment, syndication is becoming more prevalent. In previous economic cycles, banks were willing to lend higher proportions of the cost of a project, reducing the amount of equity required from the developer or investor. In today's market this is not the case and developers and owners are more likely to require at least part of their equity from a passive, third party investor.

Further, with current stock market volatility and very low interest rates on fixed income investments, many investors are looking for the sort of secure, moderate yield return which is offered by a well-structured investment in a revenue-producing or development property. The recent increase in demand for this type of investment is indicative of investors' concerns over current economic conditions.

Low interest rates also provide the real estate investor with nearly unprecedented levels of positive financial leverage – that is, the rate of return on investment in many properties is higher than the mortgage interest rate, allowing the property owner and their investors to make money from the outset on borrowed funds from the bank.

Syndicated partnership offering

A real estate syndication typically takes the form of a general partnership and a limited partnership. The partnership brings together the real estate developer or owner (with expertise, ideas, energy, and a property under consideration) and the investors (with capital). The investors are generally passive, in that they take no role in the day-to-day operation of the development or investment, although they retain votes on major issues such as financing, sale, and the selection of management. The developer/owner takes on the active role of developing or operating the property.

The general partner sells units to investors, who then become limited partners. The general partner holds all responsibility for the operations of the partnership, such as investing the capital raised, managing the partnership's business and performing the necessary accounting procedures. The general partner must act as a 'fiduciary' for the limited partners. That means his actions involving the partnership must be in the best interest of all partners.

Investors or Limited Partners typically receive:

  • A priority (or preferred) return on their invested capital – that is, they receive some stated annual return on invested capital prior to the developer/owner receiving payment. In some cases, this may be a guaranteed minimum return by the developer/owner;
  • A priority of repayment of capital in the event of a sale or re-financing of the property;
  • A percentage share of the profit from the property's operation or sale; and
  • The right to vote on major decisions affecting the property.

The developer/owner or General Partner typically receives:

  • Fees for services provided to the partnership, which may include fees for structuring the syndication, identifying the property, managing the development, providing property management, managing the partnership, managing the disposal of the property;
  • A share of the profits after payment of a preferred return on the investors' capital and the return of their capital.

 

About Us:

Genesis Capital Partners, Inc. (“GenCap”) is a company with strong ethical standards committed to providing its clients with exceptional service and solid real estate investment returns. GenCap is managed by a group of finance and real estate professionals with over 50 years of combined experience in the financial and real estate markets in Canada. GenCap offers investors the opportunity to invest in real estate opportunities with potential for high and consistent returns. GenCap prides itself in providing investment opportunities to the average investor that would otherwise only be available to the very wealthy. By becoming a part of a syndication, investors have a direct proportional ownership in a particular property whether it be an existing commercial office building, residential income property, a development opportunity or land By striving to meet the highest standards, GenCap’s goal is to build long lasting relationships, achieve solid returns from real estate investments, and build significant wealth for its clients for generations to come. (Find out more)

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Port Coquitlam, B.C. V3C 6K5

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