Real estate capital raising and syndication
How do I structure a real estate syndication for investors?
Short answer
Start with a clear split between sponsor and investors. You act as general partner and investors come in as limited partners, with terms often set out in offering documents. Decide whether investors get equity, a preferred or income piece, or both. Many sponsors talk to securities counsel about how to approach the offering and the entity. I also tell sponsors to expect heavy diligence on themselves as they grow.
Start with the GP and LP split, then ask what else you could offer
Most syndications I see use a general partner and limited partner setup. You run the deal as the GP. Your investors put in most of the capital as LPs. Many sponsors talk to securities counsel about how to approach the entity and the offering, including how and when they can talk to investors about it.
In this interview with a multi-family office, I point out how many sponsors default to the traditional GP and LP structure.
"structure their deals as a traditional GP/LP, and they could have structured it to have a mezzanine component, an income component, or preferred income."
That is the point I want you to take away. One structure does not fit every investor. Some investors want growth and accept equity risk. Others, especially late in a cycle, want income with strong collateral behind it. If you can offer a preferred or income piece next to the common equity, you speak to more of them.
Build the deal for someone who reads one deal at a time
A private investor explains that he puts money into single syndication deals instead of pools, and how he sorts them by strategy.
He lists four strategies he uses. They are development, distressed equity, multifamily syndications and luxury rehab. He also says multifamily is a little hot, with a lot of capital chasing too few good assets. So he judges each deal by itself. Your structure should make that easy for him.
- State the strategy and the hold period in plain words.
- Show what the sponsor puts in and how the sponsor is paid.
- Show who gets paid first and who takes the loss first.
- Many sponsors keep the story for each deal easy to follow.
Plan for the platform and for diligence before you scale
A real estate credit operator explains how his team moved from the typical 80/20 with a 2% management fee to a REIT, and what early investor counts required.
Summary and key takeaways from this video
He said the move to a REIT was driven by tax considerations. He also said that when you start, the number of investors is a real consideration. They had about 300 million in assets when they repositioned, and today they have 625 investors. Whether any of that fits you is a question for your own advisors. I share it so you think about the platform before the first deal, not after the fifth.
He also described his first hundred million dollar ticket, which came from Oaktree Capital. The diligence on his team was far deeper than he had ever seen. They even reviewed a partner's divorce decree from decades earlier. Larger investors often check the people, not only the property. Get your background, track record and documents in order early.
At Family Office Club we see the same pattern again and again. Sponsors who think about structure early raise money with fewer surprises.
From my books and event talks
I have seen structure decide who keeps their money. In one real estate deal, setting it up as a preferred equity deal helped protect the investors from getting wiped out. That is why I push sponsors to think hard about where each investor sits in the capital stack before they raise a dollar, and to talk with their advisors early, not after trouble starts.
Key facts
- One real estate credit operator moved from a typical 80/20 structure with a 2% management fee to a different structure.
- That operator had about 300 million in assets when they repositioned and now has 625 investors.
- A private investor splits his real estate into four strategies: development, distressed equity, multifamily syndications and luxury rehab, and invests in single syndication deals.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Growing Platforms, Structuring Deals & Raising Capital in Real Estate Credit, HNW Private Investor Mandate Interview - Investing in Direct Deals, Real Estate & Small Businesses, New York City $1B+ Multi-Family Office Investor Mandate Interview on Private Equity, Real Estate,.... Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around entity and offering approach, investor communication rules and tax structure choices. Do not use AI to write your own legal agreements.
Next moves
- 1Write down your strategy, hold period and the role of every party.
- 2Decide whether you will offer equity, a preferred or income piece, or both.
- 3Talk to securities counsel about how to approach the entity and the offering.
- 4Many sponsors talk to a tax advisor about how the structure may affect them and their investors.
- 5Prepare your background and track record documents before investors ask.
More questions on this
Should I offer only common equity to investors?
Not necessarily. I have seen groups that default to a traditional GP and LP deal when they could add a mezzanine, income or preferred component. Which mix fits depends on your deal and what your advisors suggest.
Do I need a REIT to run a syndication?
A REIT was one operator's choice for his credit platform, made for tax reasons at a certain scale. What fits your deal is a question for your tax and securities advisors.
Will investors check my personal background?
Often, especially larger investors. One operator told me an institutional investor reviewed a partner's old divorce decree. Expect real diligence on the team.
Related questions
- What happens to investors when a syndication deal goes bad?When a syndication goes bad, distributions usually stop first.
- How much of my own money should a sponsor co-invest?A sponsor should put in an amount that is meaningful to them, and there is no universal number.
- How do I raise capital for a mobile home park?Raise capital for a mobile home park by teaching investors why the asset class works before you ask anyone for money.
- How do I raise equity for a ground-up development?Size the equity check first, then decide how much you raise yourself and how much a partner covers.
Work through it with the pitch deck grader. See all real estate capital raising and syndication resources.