7 STEPS IN THE LIFE CYCLE OF A SYNDICATION

The pursuit of financial independence and retire early has gained traction in recent years.  The F.I.R.E. movement teaches ways of achieving an early retirement by having more passive income coming in than expenses going out.

One of our favorite tools is participation in a partnership to buy and operate apartment complexes. You can do so passively as an investment in what is called a syndication.  This is similar in many ways to owning mutual funds or stocks, but as we noted earlier, is a longer term investment with excellent cash flow and also growth potential.

In this blog, we’ll explore the life cycle of a syndication, shedding light on the steps involved and how you, as a potential investor, can navigate this path.

We encourage you to commit yourself to taking action to achieve financial independence swiftly. You can use a variety of investment avenues.  We will focus on multifamily or apartment syndications.  You can own a multi-million dollar property by pooling your resources with others in this kind of partnership. And you can do this as a passive partner, with no day to day responsibilities of running the complex.

Here are seven steps of the life cycle of a syndication.  We hope this will provide insight into what to expect.

Remember, the general partners or operators play the active roles in the partnership.  The blog primarily zeroes in on understanding how to be a passive investor.  Here are the seven steps.

STEP 1:  IDENTIFY AND QUALIFY INVESTORS

The first crucial step in this journey is the identification and qualification of potential investors. The General Partners initiate conversations with you and other individuals who might be interested in being a part of a partnership to buy an apartment complex.  Some deals are limited to accredited investors.  Many will provide a way for the average person with some knowledge of investments, called non-accredited investors, to participate.   

In the conversation, you will clarify your interest, experience, and potential investment amounts.  You will look at what a typical investment might look like.  This is a good time to ask questions and learn all you can. 

The General Partners will likely ask you to make a “soft commitment” of an amount you might invest if the right opportunity presents itself.  This early commitment is non-binding.  It will help the General Partners have an idea of how much money they might be able to raise and point them to the size of the properties they would look for.

STEP 2:  SECURE CONTRACT AND PERFORM DUE DILIGENCE

With a good idea of how much money they might raise the General Partners scour the market in search of properties that that fit their criteria.  As soon as they find the right deal, they will negotiate a purchase contract with the seller.  They will start performing due diligence involving inspections, market analysis, and financial assessments.  

They will secure the major financing from a bank or other lender.  This due diligence period requires the General Partners to pay for inspections, legal fees, etc.  They will also be investing a great deal of their time.

The clock starts ticking for the General Partners who will have to put all the pieces together and close by a specific date.  Be aware of this as you consider investing with them.

This stage is pivotal, ensuring that the selected property aligns with the syndication’s goals.

STEP 3:  PREPARE OFFICIAL OFFERING DOCUMENTS

When they are convinced this is the right deal at the right price with the right financing, the General Partners will engage with an SEC-qualified attorney to craft essential documents such as the Private Placement Memorandum (PPM) and Limited Liability Company (LLC) formation papers.

These documents, though extensive, play a vital role in informing you and other potential investors about the investment, its timeline, and expected returns.

STEP 4:  PRESENT OFFICIAL OFFERING TO POTENTIAL INVESTORS

Then General Partners will present the official offering documents to you and the other potential investors.  This is similar to the prospectus you receive before investing in mutual funds.

Carefully read the documents.  Review them with your attorney and accountant and other advisors. 

Let the General Partners know of your interest and how strong your interest is in this particular investment.  Ask more questions.  Get clear about the risks and benefits.

Make a decision about investing and how much you plan to invest.  Communicate this with the General Partners as soon as you can.

Many people have missed out on being able to participate in syndications because they did not make a decision early enough.  

STEP 5:  INVESTOR COMMITMENT, FUNDING, AND PURCHASE

The key step for you is signing the legal documents and wiring funds to the closing attorney or title company.  The General Partners will be getting commitments and funds together to ensure they have the ability to close on the property by a certain date.

Throughout this process, they will provide regular updates on the funding progress and the anticipated closing date.

STEP 6:  ASSET MANAGEMENT, COMMUNICATIONS, AND RETURNS

Once the syndication successfully purchases the property, ownership is transferred to the syndication partnership. You and your partners now own a multi-million dollar apartment complex.

The General Partners do the ongoing work of what is called “asset management” — making strategic decisions, and keeping investors informed about financial progress. One of the key decisions is the selection of a property manager to handle the day to day operations.

Investors may begin receiving dividends or preferred returns from the net operating income produced by the property. You will receive K-1s for tax purposes at the beginning of each year.

STEP 7:  EXIT STRATEGY

Towards the conclusion of the syndication life cycle, a critical decision must be made—whether to sell or recapitalize the project.

If sold, proceeds are distributed among partners after settling with lenders and addressing liabilities.

If recapitalized, a new loan may be obtained, and the property continues to be operated, with some capital returned to investors.

The sale of the property marks the conclusion of the syndication life cycle.

NEXT WEEK

This overview might raise more questions than answers.  Get in touch if we can help you better understand.  We also encourage your continual learning, such as attending conferences, networking, and staying informed.

The next installment promises to empower readers with the title, “You Are the Master of Your Finances.”

Help Us Get to Know You Better

Join us at noon Eastern time on the third Wednesday of each month as multi-family investors network and engage in conversations about how to be better investors.  We discuss opportunities and what we are doing in the current market. 

On Wednesday, January 17^th, at 12:00 noon (Eastern) join a conversation with Lee Walsh, a good friend and mortgage broker, as we talk about the issues related to financing multifamily properties.  We will be on Zoom.  Here is the link: 

https://us02web.zoom.us/j/84532190088?pwd=QlZ1YXFVNlBRbFBuNDZzVWZYQWFrZz09

Meeting ID: 845 3219 0088

Passcode: 630439

Dial in by phone  +1 305 224 1968

Attune Investments provides a better return for our investors.  And we make a positive impact in people’s lives and in our world.

If you want to learn more about how others are investing with us then we invite you to join our club and request a conversation with us.  See below.

Through the power of a syndication partnership with other investors like you, working with managing partners who are experienced in managing apartment complexes, you can own multifamily assets.  

Or you can choose to loan money, get in with a clear return, and get out earlier.  

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