GROUP INVESTING
THE POOLING TOGETHER OF MONEY FROM A GROUP OF INVESTORS TO ACCOMPLISH WHAT WOULD OTHERWISE BE IMPOSSIBLE TO ACHIEVE INDIVIDUALLY
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COLDWELL BANKER COMMERCIAL:
YOUR TRUSTED ADVISOR FOR GROUP INVESTMENTS
“GROUP INVESTING” IS ALSO KNOWN AS “SYNDICATION”
​One of the more innovative ways to invest in the larger commercial properties is through “Group Investing”, a process also known as “Real Estate Syndication”. Real Estate Syndication is an effective way for individual investors to pool their financial resources to invest in properties and projects much bigger than they could afford or manage on their own.
GET ACCESS TO “INSTITUTIONAL-GRADE” INVESTMENT PROPERTIES
​Real Estate Syndication gives the individual investor access to “Institutional-Grade” investment properties, properties that they would never had access to before. Real estate syndication can enable the pooling of capital for single high quality investment properties valued at $5 Million to $100 Million or more, sums out of reach for most individual investors.
REAL ESTATE SYNDICATIONS WERE ONCE SOLEY RESERVED FOR THE WEALTHY ELITE
Once reserved for the wealthy elite, with deals cut in private, Real Estate Syndication transactions are now a way for the individual investor to invest like the wealthy. Pooling funds gives you a seat at the table for investing in Class A institutional properties, properties otherwise only accessible to the wealthy elite, large institutions, or REITs. A recent study was conducted which showed that the wealthy elite have 46% of their money in alternative investments, i.e. private equity, private credit, and private real estate. On average the wealthy elite only have 29% of their money in the Public Markets.
HOW DOES A REAL ESTATE SYNDICATION DEAL WORK?
There are basically two entities involved in a Real Estate Syndication:
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THE FIRST ENTITY:
The Real Estate Syndicator (or General Partner). The General Partner is THE ACTIVE PARTICIPANT. They’re responsible for structuring the deal and operating the syndication.
Their job typically includes:
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Property Acquisition: Finding the property, negotiating the purchase with the Seller, conducting due diligence, arranging financing, and closing the deal.
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Property/Asset Management: Conception and management of the business plan, coordination of property improvements, maintenance and repairs, and both originating and managing rental leases.
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Investor Relations: Finding investors to fund the deal, communicating with the investors, and financial management including reporting via the proper forms to the investors.
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2. THE SECOND ENTITY:
The Real Estate Investors (the Limited Partners). The Real Estate Investors are THE PASSIVE PARTICIPANTS.
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Responsible for providing the bulk of the funds needed to acquire the property in exchange for a proportional ownership share of the property.
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Ongoing Cash Flow Distributions – The investors receive monthly or quarterly income distributions of the asset’s net cash flow during the ownership period.
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Long-term Property Appreciation - When the property is sold, the goal is to have the investors not only getting the return of their initial cash investment, but also receiving their share of the property’s appreciation.
Most Real Estate Syndications are structured as “Limited Partnerships” with the Syndicator being the “General Partner”, and the Investors as the “Limited Partners”. The real estate syndication is governed by the “Limited Partnership Agreement”. The Limited Partnership Agreement defines the voting rights, the profit distribution, the cash distributions, the reporting procedures, and the communication practices.
ARE YOU THINKING OF INVESTING IN COMMERCIAL REAL ESTATE? GET STARTED WITH GROUP INVESTING!
Syndication is a powerful strategy, allowing Individual investors to finally be able to invest in prime Commercial Assets, assets such as Industrial Warehouses, Apartment Buildings, and large tracts of Vacant Land. Buying a $5 Million to a $100 Million+ Investment Property requires a substantial cash investment. Real Estate Syndication allows individual investors to participate in
the financial upside these properties represent, without having to come up with the large down payment that would be required if you were to invest on your own.
GROUP INVESTING CAN BE A GREAT WAY TO SUBSTANTIALLY INCREASE YOUR NET WORTH
​Pooling your funds with other individuals gives you a seat at the table for investing in Class A Institutional Properties that typically get snapped up by large institutions or REITs.
WHO IS ELIGIBLE TO PARTICIPATE IN A REAL ESTATE SYNDICATION?
​In the Province of Ontario, investors in Real Estate Syndications must meet the requirements to be considered an “Accredited Investor”. In Ontario, the financial threshold for an individual to be considered an “Accredited Investor” is notably high, reflecting the assumption that such individuals possess the financial acumen and stability to engage in more complex and potentially riskier investments. Individuals must demonstrate (i) a substantial level of income, or (ii) asset ownership, in order to qualify.
For Income, the requirements are as follows:
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A single individual’s net income before taxes must have exceeded $200,000 in each of the last two years, with the expectation to at least maintain the same level of income in the current year.
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​If combined with a spouse’s income, the threshold increases to a net income before taxes of $300,000 in each of the last two years, again with the expectation to maintain or exceed this level.
​When it comes to assets, an individual or a couple must:
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​Own financial assets worth more than $1 Million, net of related liabilities, and excluding the value of an individual’s primary residence.
PROS AND CONS OF REAL ESTATE SYNDICATION:
PROS
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The Ability to Invest in Larger Deals – We help you locate the ideal Vacant Land purchase for your Investment Portfolio. We not only comb through the Vacant Land properties currently on the market, but we also search to uncover off-market opportunities to make sure we find the right property for the right client.
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Passive Income – You need to have your eyes wide-open when you’re looking at a potential Vacant Land purchase. We help you in providing access to the Due Diligence pros in the search to uncover problems with the Vacant Land parcel you are considering purchasing. From Environmental Engineers, to Geotechnical Engineers, to Percolation Testing Experts, we put you in touch with them, and help you follow-up with them, to make sure your eyes are wide open when it comes to pulling the trigger on a potential opportunity.
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Property Appreciation Potential – There is a lot of money to be made from Commercial Real Estate. Vacant Land purchases are usually all-cash deals and the high cost for large tracts of Vacant Land usually puts most investors out of the game. From time to time, we put a group of investors together so they can participate in owning Vacant Land without having to come up with an astronomical sum that they would be unable to on their own. Please check out our “Group Investing” section for more information.
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No-Hassle Property Investing – We give you the information you need to be aware of what your Vacant Land is worth. As you grow your portfolio, you need to know where you stand, so that you can make the best decisions you can moving forward.
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Proportionate Ownership of Tangible Property – You decide how big a share you want in a property. It can range from a sliver of ownership to a much larger share of ownership. Most syndications have minimum and maximum investments.
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You Choose which Properties to Invest In – You decide which properties to invest in. The control over which properties to invest in, resides solely with you.
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Portfolio Diversification – Instead of putting a substantial cash investment into a single investment property, Real Estate Syndication allows investors to spread out their cash amongst several different investment properties, diversifying their portfolio and reducing the potential risk with owning just one property. You don’t have to have all your capital invested in one large asset. You can spread your capital over several properties.
PROS AND CONS OF REAL ESTATE SYNDICATION:
CONS
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Illiquidity – Liquidity for investors is extremely limited as most syndications have anywhere from five-to-seven-to-ten-year timelines. Trying to sell your proportionate share before the end of that period would be very difficult. Sometimes the General Partner will help to find a Buyer for investors who need to cash out before the end of the holding period, but there are no guarantees. This is one of the tradeoffs with this kind of investment, but in reality all real estate investments are typically long-term in nature. You just have to be comfortable with your capital being tied up for the syndication period. In some cases, a syndicate might refinance the property, providing investors with a partial (or full) cash-out opportunity within the holding period.
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Long-Term Investment – Commercial Property Syndications are long-term in nature. This is great for those who are investing with a view to building wealth and retiring down the road, but is not suitable for investors who have short-term investment goals.
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Investors have No Control – Investors in a real estate syndication are passive investors. They have no say in the management or operation of the investment property. To some investors, this is exactly what they are looking for, ie. a management-free investment that lets them enjoy the financial benefits of real estate investing without the management headaches. However, if you enjoy the challenges of operating and managing a real estate asset, perhaps investing on your own is the way to go.
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Performance is tied to a Single Asset – This could be a positive or a negative. Some properties perform well above expectations, while some perform below expectations. Sometimes investing in a single asset can reap great returns, and in some cases being diversified would have been a better choice. Each investor must consider each investment carefully, asses their situation and risk level, and make a decision that is in their best interest.
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Not All Deals Work Out – Real estate investing is not a sure-fire return and there are substantial risks involved. Not all deals are going to work out.
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Must Be An Accredited Investor – In the Province of Ontario investors who participate in a real estate syndication must be accredited investors (as defined above). This eliminates a lot of investors who would like to participate in a real estate syndication. For those who don’t qualify as an accredited investor, they should consider alternate investments options such as a smaller investment property that they own outright, or other alternatives such as REITs (Real Estate Investment Trusts) which are traded on the stock exchanges, or even look into “fractional” real estate offerings which are open to the ordinary investor, have very low investment cost, but are capped as to how much one can invest.
THE BOTTOM LINE: SYNDICATION CAN BE PROFITABLE
JUST PROCEED WITH CAUTION
Remember as with all real estate investing, “Buyer Beware”. While there has been a tremendous amount of money made investing in Commercial Real Estate, it’s important to note that NOT ALL DEALS WORK OUT! Investing in Commercial Real Estate involves risk, and you should only be investing with money that you can afford to lose. Each real estate syndication is unique and you need to examine each in great detail before you commit your hard-earned cash.
But for those who are looking to diversify their portfolio into Commercial Real Estate but don’t want the work involved, nor the large capital required, Group Investing is a great investment avenue worth exploring. Investors should consider, with their investment advisors, alternative investment options, including real estate investment trusts (REITs) and direct property ownership, before deciding on real estate syndication.