REAL ESTATE SYNDICATION COMPANIES

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You may be asking, “What are the best real estate syndication companies?”, maybe you have even conducted a search engine search in hopes of finding a highly recommended syndication company. I believe Blue Bay Fund I will be able to provide a solution for those of you who are willing to invest in real estate, as an equity partner, while providing you unheard of customization and diversity. To understand the differences between Blue Bay Fund I and other real estate syndication companies I would like to share some insight into the world of syndication investing. First I will explain the differences of a real estate syndication v.s. REIT, followed by what is the offering memorandum real estate investors often use to raise capital. We will dive into an estate syndication structure, and how Blue Bay Fund is vastly superior to all other real estate syndication companies. Last, I would like to share with you our real estate investment syndication investment opportunities provided to my fund partners through Blue Bay Fund I. I firmly believe and trust that by the end, you will be convinced, as many of my current investors are, that Blue Bay Fund I is a vastly superior option to invest in rather than any other syndication.

Real Estate Syndication vs REIT

To many passive investors who are looking to be a part of and invest in large projects, investing in a REIT may have come across your radar. Maybe you’ve heard some co-workers discussing their REIT investments, or possibly your financial advisor, broker, or CPA has brought up REIT investing. No matter how you may have heard about investing in REITs, it still begs the question of what a REIT is, and more importantly, do you know the differences of a real estate syndication vs REIT?

What is a REIT?

A REIT, or Real Estate Investment Trust, is a company that owns and operates income-producing real estate like apartments, shopping malls, warehouses, and hotels. Think of it like a mutual fund for real estate, but instead of stocks, you're investing in shares of the trust, which owns properties, thus sort of making you a fractional owner in these properties too. Now to be clear when you invest in a REIT you ARE NOT actually an owner of the properties. However, you can easily buy and sell your shares in a REIT on the open market (stock market). REITs are regulated by the Securities and Exchange Commission (SEC), and REITs all have their own focus. There are REITs that invest in only one type of asset, such as multifamily, office space, and shopping malls, and there are REITs with a combination of various levels of debt exposure and equity exposure. It is important to do your research and know about the different REITs to invest in and how to vet these investments.

  • REITs pool money from investors and use it to buy and manage real estate properties.

  • REITs are required to distribute at least 90% of their taxable income to shareholders, which means you can receive regular dividends from your investment. However, REITs charge fees, which can eat into your returns and reduce your investment performance.

  • REITs can be publicly traded on stock exchanges, making them relatively easy to buy and sell. Like any investment, REITs are subject to market risk. The value of your shares could go down if the real estate market declines.

  • You own shares in a company that owns a portfolio of various properties. You indirectly own a piece of the company, not the individual assets. This means as an investor in a REIT, you have limited control over the properties that the REIT owns and how they are managed.

What is a Syndication?

A Real Estate Syndication is a collaborative investment structure where a group of investors pool their capital together to acquire and manage a single or a limited number of real estate properties. Unlike REITs, where you own shares in a company that holds a diversified portfolio, you directly own a share of the specific property involved in the syndication. This means you have more control over the asset and potentially higher returns, but also comes with increased risk and involvement. A syndication has two main key roles, a “GP” General Partner and an “LP” or Limited Partner. Syndications are not publicly available and are normally only offered as investments through a private offering memorandum real estate investments.

General Partner

The GP, also known as the Sponsor, should be an experienced individual or group of individuals whom manage the acquisition, operation, and eventual exit of the property. They handle due diligence, financing, and day-to-day operations, while investors provide the capital. Normally the GP should have some of their own capital at work and at risk in the deal. If they truly believe in the project and what they are doing, ensure the GP is putting their money where their mouth is. The GP role is a very active role, and “part-time” sponsors should be avoided.

Limited Partner

The LP, also known as the Investor, contributes funds to the syndication and receives ownership in the property, entitled to profits after paying operating expenses and debt obligations. Each investor's share corresponds to their percentage of the total capital raised. The LP role is a passive role, and the LP’s carry much of the risk of a syndication failure. The LP’s do have direct ownership in the property, and therefore they are able to capture many tax benefits and advantages of that ownership. In most cases syndications require that the LP’s be accredited but not always.

Understanding the differences in real estate syndication vs REITs can be a powerful step in arming yourself with the proper knowledge and information. Ultimately I know you want to know where you can find the real estate syndication companies, and I aim to provide that information. However, I also want you the interested investor to be fully aware of real estate syndication returns, tax benefits, and fees and how Blue Bay Fund is providing alternative and diverse options in a traditionally stale and uninteresting investment method.

You may learn more about REIT investing and research REITs that are available for investing through the National Association of Real Estate Investment Trusts.

List of 179 Active REITs Available For Investing

Elevate your Real Estate Syndication Investment Opportunities

Learning about real estate syndication investments, how to vet opportunities, and how to ensure you are doing the correct due diligence can be overwhelming for so many investors. By becoming a member of an investment club, they can review multiple opportunities without committing any capital and learn along the way. To answer this need, I have an investor club that many investors, like yourself, have joined to gain exposure to these powerful strategies without exposing themselves to un-mitigable risks. Learn why becoming a member of my investor club can elevate your sophistication.

Offering Memorandum Real Estate

One of the biggest differences of a real estate syndication vs REIT is the way capital is raised. With REITs, they are listed on the public stock market exchanges and may be accessed through a Financial Advisor, or your broker. With a Syndication, capital raising must be conducted in a different way. This is typically accomplished through an offering memorandum real estate (OM), also known as a private placement memorandum (PPM) or investment memorandum. This is a comprehensive document used in commercial real estate to market a specific investment property to potential investors and comply with securities regulations.

What is the purpose of an Offering Memorandum Real Estate Investment?

As mentioned above, the purpose of the OM (offering memorandum) more commonly referred to as a PPM (private placement memorandum), is to market as stay within regulations. The reason REITs do not use a PPM, is they have had to go through a rigorous process of vetting by the SEC to be able to list their REIT on the open market for investors to invest in. When a GP is raising capital from LP’s, the costs and regulatory oversight to raise money from the public, via the market (aka the Stock Market) would be costs prohibitive. So the SEC, both at the federal and state levels, allows for what is called an “exemption of non-registered securities”. These exemptions can most commonly be found in the Securities Act of 1933 under Title 17, Chapter II, Part 230, Regulation D, which discloses the rules governing the limited offer and sale of securities without registration. Under Rule 506, found in Regulation D, there are two most commonly used exemptions, (b) and (c). These exemptions govern how capital is raised for either a commercial or multifamily real estate syndication.

Reg D Rule 506(b)

  • While the investors that are presented a real estate syndication investment opportunity under Rule 506(b) are not required to be accredited, they must be sophisticated, in other words, they must have sufficient knowledge and experience in financial and business matters to evaluate the investment. (Rule 506 description)

  • Rule 506(b) places a limit on the number of accredited and non-accredited (sophisticated) investors. A 506(b) offering memorandum real estate opportunities are restrict the number of non-accredited investors to 35 with an unlimited number of accredited investors

  • The private placement memorandum may offer investments as a multifamily real estate syndication or as a commercial real estate syndication. The offering may be for one property, such as a storage unit, or multiple properties such as rentals, a development, or multi-building multifamily.

  • A Reg D 506(b) filing allows a syndicator (the GP) to raise capital from LP’s who are personally known to the investor and are sophisticated. The GP is not allowed to publically solicit or market for the syndicaiton.

Reg D Rule 506(c)

  • Real estate syndication investment opportunities under Rule 506(c) can only allow accreted investors. An accredited investor most commonly means the individual meets one of the following:

    • an individual with a net worth or joint net worth with a spouse or spousal equivalent of at least $1 million, not including the value of his or her primary residence, OR

    • an individual with income exceeding $200,000 in each of the two most recent calendar years or joint income with a spouse or spousal equivalent exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year

  • Unlike Rule 506(b), 506(c) allows for an “unlimited” number of accredited investors, however, the “unlimited” may be limited to 2000 members in certain cases

  • Rule 506c is identical to Rule 506b, in the fact that the filing type does not restrict the type of assets held by the filing. Investors should conduct their own due diligence to ensure that they are investing in a filing that collateralized the type of assets they want to be invested in.

  • This is really where the difference shines between a 506b and a 506c filing. With a Reg D 506c private placement memorandum the GP may publically solicit and advertise for investors. However the GP must also take considerable actions to validate and verify the accreditation statuses of their investors.

Securities Act of 1933 Exemptions

While the most common exemptions to filing for non-registered securities fall under Rule 506 of Regulation D in the Securities Act of 1933, there are many other exemptions that capital raisers can use to raise money for their projects. There is Regulation CF (crowdfunding), and Reg A Tier 1, and Reg A Tier 2. There is Reg D Rule 504, Rule 147 and 147A, and Rule 701. Each of these regulations has different requirements, capabilities, and limitations. Capital investors must know the type of Regulations and Rules used by the prospective GP, so that they can protect themselves and identify the best real estate syndication companies offering the type of real estate syndication structure that fits their goals and objectives.

Offering Memorandum Real Estate Circular

When a capital investor is being presented an opportunity to invest in commercial or multifamily real estate syndication they are typically presented with several documents. In this section I want to briefly cover these documents what their purpose is and what information you should be looking for in these documents.

Private Placement Memorandum

The PPM, is typically a 100+ page document that ultimately discloses market risks, management risks, assets risks, management fees, procedures and policies of identifying, vetting, and acquiring the asset, and disposition and or hold plans

Operating Agreement

Because the commercial or multifamily syndication is typically an LLC there must be an operating agreement. This document will explain in detail how day to day functions are handled by the LLC and who has legal authority to manage the LLC. In most cases this document will refer to the management company or the management agreement between the syndication and the management LLC’s.

Management Agreement

The Syndication or the Fund, will be an LLC, in which the capital investor is the LP. The Syndication will most likely have an “agreement” between itself and a management company another LLC, owned and operated by the GP. This Management agreement will dictate fees, authorizations, and limitations of what the GP can or cannot do, authorities and requirements.

Subscription Agreement

The Subscription Agreement is a summary of the PPM; reiterating what the offering amount is for, the minimum investment amount required, and the written commitment held out by the limited partner to the general partner that they have read and agreed to the terms of the investment. This document is signed by the LP, and upon receipt the GP may "call”, or request, the LP’s committed amount at any time.

Are you confused about the Offering Memorandum Real Estate Circular?

Knowing what to look for in each of these documents can be absolutely overwhelming. Many passive investors have felt that they are swimming in open waters circled by sharks. It is my goal and motivation to bring clarity to the syndication investment space and clarity at what exactly investors are looking at when considering investment opportunities. By joining an investor club you are able to leverage the Experience, Time, and Knowledge of the network. Learn why investors are excited to be a member of my investor club well before ever having to commit to any deal funding.

REAL ESTATE SYNDICATION STRUCTURE

A commercial real estate syndication has a typical structure. First, it is almost always exempt from being required to file for offering registered securities under Regulation D, Rule 506(b) or (c), see the differences between these two exemptions in the previous section. As previously mentioned, this exemption is filed specifically to provide guidelines and parameters in how the GP “General Partner” otherwise called the Syndicator/ Sponsor, can raise capital investment. How the entity structure is created and what pertinent documents should be presented are another matter.

As a disclosure, I am not a real estate syndication attorney, nor do I play one on television. Please consult with an attorney who is familiar with state and federal SEC regulations, your Financial Advisor, or a CPA before making any investment decision.

In this diagram, we see four primary players in a commercial real estate syndication. We have the Syndication or the Fund which is an LLC, that has filed with the SEC under Reg. D Rule 506(c), so the fund can publicly advertise and solicit for investors but only accept accredited investors. The syndication is managed by another LLC, the management company. This company is owned by the GP. When the GP offers the syndication up to capital partners and they decide to invest, they are investing in the Syndication LLC not the Management LLC.

Real Estate Syndication Tax Benefits

Investing in a real estate syndication vs REIT carries many advantages to the capital investor not realized in other alternative investment spaces. One of these advantages is the way that syndications benefit limited partners concerning taxes. All top real estate syndication companies recognize these advantages and are intentional and strategic in their placement of investor capital into real estate syndication investment opportunities that maximize these benefits.

  • The IRS allows property owners to deduct a portion of the property's value each year due to wear and tear. In commercial real estate syndications, this depreciation flows through to investors, reducing their taxable income. This can significantly lower your tax burden, especially if you generate substantial passive income from the property. This is a primary reason why investors look to real estate syndication tax benefits as a way to offset their annual tax liability

  • Anytime an investor is able to utilize leverage, wisely, they are able to earn a return on monies that are not theirs. One of the most prevalent real estate syndication tax benefits is being able to write off mortgage interest payments. Also with the use of leverage, the GP may decide to cash-out refinance, assuming the terms and rate are favorable, and distribute that cash-out to all investors, which could be tax-free!

  • One of the main reasons capital investors prefer real estate syndication vs REIT is the capital gains, and how they are taxed. Because almost all syndications are an investment for more than 12 months, the capital gains earned when the property is sold are taxed at long-term capital gains, which offers a significant reduction when compared to short-term capital gains. Long-term capital gains are taxed between 0 - 20%, while short-term capital gains are taxed between 10 - 37%. This is all based on your income.

Real Estate Syndication Fees

Every real estate syndication structure has fees. This is how the GP is compensated, as well as how the operations of the syndications are paid for, legal costs and annual filings and fees are paid for. Many factors play into what fees are being charged and how the Syndication GP, the manager, and investors are compensated through fees. Real estate syndication fees are charged by the management company to the syndication. Below is a short but important list of potential fees charged by real estate syndication companies to the LP’s. The diagram shows the industry average fees charged by the management company to the syndication. Every commercial real estate syndication will be different so be sure to read the PPM thoroughly and understand what these fees are.

  • This fee is typical and one of the most common of all commercial real estate syndication fees. It is charged by the GP for handling all the paperwork and negotiations necessary to buy the property. This will cover the time needed to identify, vet and underwrite a potential investment

  • This fee is normally charged when the asset requires heavy renovation or even ground-up construction. This fee is charged but utilized to hire a 3rd party manager who will be constantly at the project to ensure its smooth completion and adherence to a strict timeline. While this fee may seem overboard, protracted projects can end up costing the LP’s tens if not hundreds of thousands of dollars in lost income and bank penalties for a project going longer than expected.

  • While the asset management fee may on the surface seem like the same fee as the property management fee, it is different. The asset management fee is for managing the asset itself. Sometimes this fee can be part of the acquisition fee but not always. This fee can be calculated upfront or as a prorated percentage of the monthly income based on the share size of the investor.

  • This fee is primarily for the leasing and operational costs of managing the asset, especially if there are common areas, a pool, a gym, or other amenities onsite. This fee is collected by the GP and used to initially hire a management company. Ongoing management fees should be paid for from the ongoing performance of the asset

  • A finance fee may or may not be common in your chosen commercial real estate syndication, yet this is one of the real estate syndication fees that you need to be aware of. This is to compensate the GP for being able to apply and process loan submissions to refinance lenders in the case the asset will be held by the syndication for the long-term. In the case the plan for the syndication si to exit, or sell, the asset within a few years this fee more than likely will not exist

  • This is one of the more common real estate syndication fees limited partners may see in the fee schedule of the offering memorandum real estate investment documents. This is a fee that the GP collects to market the asset, along with hiring a real estate agent. This fee is separate from the agent’s fee collected at close.

multifamily real estate syndication fee schedule commonly charged by GP to the LP

While not every multifamily or commercial real estate syndication will have every single one of these fees, nor is this a comprehensive lists of all potential fees a general partner may charge limited partners, you can see that if not given detailed attention, the fees passed along to the LP’s by the GP could deeply cut into the projected real estate syndication returns. It is of utmost importance that any prospective limited partner review real estate syndication companies for transparency and honesty. Some limited partners have even hired a real estate syndication attorney to review private placement memorandums if they are not familiar with the documentation.

Real Estate Syndication Returns

The return offered by a commercial or a multifamily real estate syndication will vary greatly based on asset type, location, local, regional, and national market conditions and term or length of the investment. These factors along with a myriad of unknown factors can greatly increase or decrease value of the assets held by real estate syndication companies. However, that being said, normally and historically when considering a real estate syndication vs REIT, real estate syndication returns outshine REITs every day of the week and twice on Sunday. Now this being said there are many more instances of a commercial real estate syndication going belly up than a REIT, however, with risks comes reward. Based on a list of 170+ REITs listed on the NAREIT website, an average 5-year return would range between 5 - 9% respectively, with some being outside the normal parameters. However, with syndications, it is quite common that the annual rate of return could be projected between 12% - 20+%, though the way the return is presented may vary widely.

Top real estate syndication companies often pitch their limited partners to receive cash flow plus equity. However, in many cases, the cash flow can be significantly lower than investing in say secured debt. In several deals that I have considered investing in, the proposed return for a 5-year hold, was projected to be above 100%! However, a large part of that projection was equity build-up. The cash flow was around 5% +/-. Again depending on your strategy and your financial needs this may or may not work for you and your family. Think of it this way, what if you invest in a multifamily syndication that was projecting a total return such as this over the course of 5 years? After looking at the offering memorandum real estate investing docs, you discover that the annual cash flow is only projected to be around 5.5% and the majority of the returns will be projected equity buildup. After digging a bit more the cash flow is expected to break even for the first two years, until renovation to the asset is complete and new management is in place, and vacancy is brought down to 5%. If the market takes a sudden shift downward, or interest rates rise significantly over the next two years, the GP may be forced to sell early and for way less than what they expected to. You now have missed out on the projected equity rise, and you won’t receive any cash flow for those two years you were invested. This can happen and way more than you think. This is why it is critical to conduct ample due diligence on your real estate syndication investment opportunities, vet the general partner of your potential investments, and here’s an unpopular opinion…. don’t invest on the first deal presented by an operator, even if it seems it is a home run. Have patience and resist the urge to get caught up in FOMO “Fear Of Missing Out”. By having patience and giving yourself plenty of margin to evaluate a deal and its sponsor, you will be able to see how the proposed project went and how future communication from the general partner plays out.

Real Estate Syndication Investment Opportunities

Some of the best real estate syndication companies often do not advertise. The cost of advertising can cut deep into potential profits, as well, most real estate syndication investment opportunities are on a very short timeline to close, so there is not a lot of time to be able to raise funds before closing. This highlights one of the more difficult aspects of investing in real estate syndication companies. Syndications are normally structured as “close-ended” funds. meaning once they raise the money for their project, they are not taking on any other new investors. So let’s say the capital raise for a fund was $5M. The general partner has completed their due diligence, inspections, market studies, and feasibility studies. In most cases, they have already applied for a loan, and are marching toward their deadline to close. While most commercial properties take 60 - 90 days to close, by the time the general partner is ready to start raising capital they are only a few weeks to close. This short time frame to raise capital and the nature of once capital is raised the general partner is dedicated and committed to their project, makes the likelihood of additional projects from this sponsor in the near term unlikely.

This cost of lost opportunity by limited partners often feeds the fear of missing out syndrome and has caused many investors to make rash decisions in their investing. I believe that this is a critical mistake contrary to wise and well-vetted multifamily and commercial real estate syndication opportunities. This is where Blue Bay Fund shines as a light in a world of frustrating real estate syndication investment opportunities. Blue Bay Fund is unique when compared to all other real estate syndication companies, for the primary reason we are not a close-ended syndication. Blue Bay Fund operates like a fund, investors can invest at any time into the fund. Because we invest in many different syndications as both limited partners and general partners we are able to have a steady flow of real estate syndication investment opportunities.

  • Blue Bay Fund not only offers diversification of real estate syndication investment opportunities but also of asset types, geographical locations, and capital stock opportunities. This alone makes us the number one investor pick of top real estate syndication companies.

  • Many real estate syndication companies require a large investment amount, think $100K+, and this is simply for entry! Often times this minimum investment amount will get you the limited partner the lowest returns and possibly the most risky position in the investment. At Blue Bay Fund our minimum investment amount is easily met at $50,000.

  • Our capital partners invest from a wide range of accounts. From cash accounts, to self-directed IRA’s, to Solo 401K’s, to even leveraged IUL policies, HELOCs, and LOCs.

  • Once an investor invests in the fund, they can decide to allocate their fund investment into multiple investment options, both in debt (loans) and equity (syndications) in fractional slices. This means an investor could take their $50,000 investment and spread that out across numerous investments, some as little as $1,000 slices

  • Passive investing has never been easier than with Blue Bay Fund. Once you invest in the fund you immediately gain access to all of our investments, and all you have to do is allocate your investments. You can customize your portfolio to be cash-flow focused, or growth-focused, or a combination of the two. The choice is really up to you.

  • When an investor invests in Blue Bay Fund they are maximizing their real estate syndication tax benefits. We issue one streamlined K-1 for all your investments in your portfolio at the end of every year. This cuts down on waiting for multiple K1’s from multiple general partners.

Waiting Real Estate Syndication Investment Opportunities In Our Investor Club

Before an investor considers being in the fund, I invite them to join my investor club. This allows them the ability to learn more about what we are doing in the real estate space, as well meet other club members and have the opportunity to consider current opportunities available for investing. Being a member of the investor club will provide you answers to many questions you may have so that you only commit to funding once you have the answers you are looking for.