The FORT Podcast: Real Estate Syndication 101
On this episode, Chris discusses Real Estate Syndication. He describes the differences between a syndication and a fund, the pros and cons of syndication, breakdowns of GPs and LPs, deal structures, fees, and Twitter questions from listeners. Enjoy!
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(00:58) – Real Estate Syndication
(01:52) – Syndication vs. a Fund
(03:20) – Syndicating vs. Investing Your Own Capital
(03:43) – How a Syndication Works
(04:24) – General Partners
(06:14) – Limited Partners
(08:27) – Advantages of Syndicating
(10:17) – Advantages from a GP Perspective
(11:25) – Advantages of Syndicating vs. a Fund
(12:45) – Setting Terms As a GP
(13:59) – Working With Institutional Capital
(15:16) – Disadvantages for General Partners
(16:43) – Disadvantages of Syndicating
(19:09) – What LP’s Should Be Looking For in a General Partner
(20:54) – Questions to Ask Potential General Partners
(25:17) – Best Practices for Finding a Co-GP
(27:59) – Types of Deal Structures and Their Merits
(35:28) – Raising from Multiple Investors
(36:42) – Creating Liquidity for LPs
(43:48) – How Money is Made in the Syndicating Industry
(46:56) – Type of Fees You Might See Out of a Syndicator
(50:40) – How to Keep Alignment Between the GP & LP
(51:50) – How do terms change between acquisitions and a development deal?
(53:24) – Lenders
(56:35) – The Fort Capital Investor Onboarding Process
(1:02:54) – Technology Impacts as a Syndicator if You Decide to Use a Software Like Juniper Square
(1:07:23) – Biggest Tailwinds in the Industry
(1:12:15) – Data and Stats on How GPs and LPs are Looking at the World as it Relates to Syndicators
(1:14:28) – Twitter Questions: Adjusting Acquisition and LP Return Criteria Given the Market
(1:16:52) – What part of your structure has changed the most over time?
(1:18:29) – What’s the most surprising thing that investors are interested in?
(1:20:25) – Wrap Up & Contact
Episode Summary
Powers, renowned for his wealth of knowledge and expertise in the real estate sector, presents a coherent, insightful exposition of syndication, underlining its pivotal role in democratizing investment opportunities and enabling investors to pool resources to facilitate significant real estate investments. The spotlight is cast on the essential characters in the syndication script – the sponsor and the Limited Partners (LPs) – elucidating their roles, responsibilities, and the dynamics that govern their interactions and collective investment journey.
The initial dialogue underscores the advantages of real estate syndication, which pivots on the potential to access diversified investment opportunities and the ability to amalgamate financial resources from various investors. This pooling mechanism not only facilitates entry into larger, potentially lucrative deals but also serves as a platform for investors to diversify their investment portfolios across various projects and geographical locations. However, Powers doesn’t shy away from exploring the potential pitfalls, emphasizing the relinquishment of control to the sponsor and the inherent risks embedded within the investment itself.
Venturing into the realm of trust and credibility in investment relationships, Chris emphasizes the quintessential role of investor trust, underscoring the imperative of a proven track record and the preservation of consistent, transparent investor relationships as indicators of a sponsor’s reliability and trustworthiness. Integrity, transparency, and consistency are highlighted as the bedrock upon which investor trust is built and sustained, thereby nurturing long-term investment relationships and establishing a fertile ground for future collaborations.
Navigating through the complexities of fees associated with real estate syndication, the discussion sheds light on various fees, such as acquisition, asset management, property management, and construction management fees. Each fee, integral to the operational and management aspects of the investment, is dissected to offer listeners a clear understanding of their applicability and impact on the overall investment structure.
Powers also elucidates the investor’s pivotal position as a crucial customer in the syndication process, accentuating the importance of assiduously treating investors with utmost priority and ensuring that their needs, concerns, and aspirations are meticulously addressed. The significance of robust, transparent, and consistent communication is emphasized, highlighting its role in ensuring that investors are perennially abreast of the investment’s trajectory, challenges, and milestones.
The procedural aspects of syndication are not left unexplored. Chris delineates the processes and mechanisms that guide document sharing, subscription, and capital calls, with platforms like Juniper Square being spotlighted as facilitators of efficient administrative coordination and investor communication. A meticulous and precise approach to managing and coordinating the administrative and procedural components of the investment process is underscored as critical to ensuring a smooth, efficient investment journey for all stakeholders involved.
In a nod to the technological revolution permeating all sectors, the discourse explores the increasing reliance on software and technology in optimizing and streamlining syndication processes. Powers illustrates, with statistical data, the proportional relationship between technological investment and syndication success, underlining the critical role of technology in enhancing operational efficiency, investor communication, and overall management of the syndication process.
Powers further emphasizes the pivotal role of referrals in syndication investments, highlighting the substantial reliance of syndicators on investor referrals for the expansion of their investment networks and opportunities. The emphasis is placed on leveraging existing investor relationships to explore and capitalize on new investment frontiers, thereby facilitating the growth and expansion of investment opportunities.
The FORT with Chris Powers is produced by Straight Up Podcasts