Syndication vs. Joint Venture
At Saorsa, we continue to grind by actively underwriting multiple opportunities a week to find attractive opportunities for our investors. In developing our projected pro-formas we are essentially architecting a business plan for operating the target opportunity. Structuring the deal is part of that process which includes identifying how many investors we may need and in what capacity they should operate. Generally speaking, investors remain passive but that doesn’t have to be the case and oftentimes isn’t the case. Below we describe two types of deal structures: Syndication and Joint Venture.
Syndication - In a syndication, one or few people are part of the sponsor or managing team. They are responsible for the overall success of the project and they each bring a unique skill. Everyone else who contributes money but is not actively involved in the deal is considered a passive investor. Syndications are a type of securities offering. Any property investment in which the expected profits on the investment are issued by a third party is a syndicate investment. Real estate investing syndicates include a sponsor (or general partner) and passive investors (or limited partners). The role of the passive investors is raising funds for making the investment. The sponsor then manages all other aspects of the investment. At the time an investment property is sold, the sponsor also handles all of the details of the sale. Relative to a joint venture, syndicates are more costly to form. This is because you are required to register with the SEC. You must also produce supporting documents with the advice and assistance of a securities attorney.
Joint Venture (JV) - In a joint venture, two or more active investors partner together. The linchpin of a joint venture is that each investor must take an active role in the investment. You can’t just sit around and wait for a return based on the work of others. Primarily governed by contract law, JVs involve a few business partners who, regardless of whether they invest in the deal or not, are all actively involved and each contribute unique skills to the overall success of the project. Unique skills may include, for example, construction management, property management, due diligence, underwriting, searching for financing, handling accounting and legal, etc. However, these must all be real significance skills. Getting a group of people together every Tuesday to drink wine and vote on the color of the paint for the building, for example, doesn’t rise to the level of a unique skill.
Investments in multifamily real estate assets continue to rise in popularity as investors diversify their portfolios with cash producing vehicles. To prepare for upcoming investment opportunities we have been sourcing and short listing various other vendors to potentially team with via JV opportunities.
