I am excited about the new year.
As I look back to my previous 25 years in celebration of a career milestone, I am excited about cultivating my relationships with current clients and growing relationships with new clients.
I gave a hint in my previous article of a new venture this year–in addition to continuing selling and leasing commercial real estate, I will be creating a new private equity syndication company.
A primer on syndications
A syndication is an organization consisting of a group of investors who pool capital together to purchase investment real estate.
Why a syndication – Pooling funds together with other investors allows for the purchase of larger higher value properties. The result is better diversification as well as greater stability with multiple tenants and higher-quality tenants.
Professional management – There is also the hands-off aspect for the investor as the syndicator is usually the manager of the portfolio and in most cases comprised of seasoned professionals who have been in the business for decades and know what they are doing.
Control and transparency – Unlike a REIT (Real Estate Investment Trust) or a real estate mutual fund you know the properties purchased, the other investors in the group and the management team. Knowing this can give you a bit more control depending on the structure of the syndication either as an LLC (limited liability company) or LP (limited partnership).
Partners in the company – When you invest in a syndication you are purchasing shares of the company and not real estate. You will be part of a group of usually ten to possibly a couple hundred investors depending on the size of the fund.
Property-specific or blind pool – A property-specific fund is for a single property or development of which you know all the details going in from the PPM (private placement memorandum). Whereas a blind-pool fund raises the capital first and then under a detailed set of parameters seeks out the properties to purchase.
Accredited investors – You will usually find a syndication open to accredited investors only, which is someone who has a net worth over $1 million or income of $200 to $300 thousand a year.
The crowdfunding bandwagon
Crowdfunding is a capital-raising method for a specific project or venture potentially involving thousands of people. The Internet is the most widely used method in bringing parties together and has opened the door to many.
Philanthropic based – The Internet model allows the project or idea initiator to utilize the service of a crowdfunding platform such as gofundme.com or kickstarter.com to bring in those who support the idea or cause and are willing to contribute funds.
Investor-based – There are several options of crowdfunding for profit that could be venture based on a new business or for the investment of real estate.
Crowdfunding closely resembles the syndication model, but allows for more investors (of which could be non-accredited), with smaller amounts of capital.
Whether a syndication or crowdfunded real estate opportunity the returns can be appealing from 8 to 18 percent (more or less) depending on the fund.
Burt M. Polson, CCIM, is an active commercial real estate broker. Reach him at 707-254-8000, or [email protected] Sign up for his email newsletter at BurtPolson.com.