What is property syndication?
Real estate syndication describes a process whereby a lead investor or 'sponsor', sometimes called the 'developer' or 'general partner', seeks funding from multiple private investors. These jointly raised funds are then used to invest in real estate. This syndicate can range from a few committed investors to an extensive network with hundreds of participants. In Belgium, Immotokens is the party offering real estate syndication services.
How Real Estate Syndication Works
Usually, the lead investor or sponsor already has a specific property in mind before the syndication process is started. In this case, the syndication serves mainly as a means of raising the required capital, while an additional loan often comes from a bank or other financial institution. Depending on the specific deal, the collection can vary between 30% and 50% of the total capital required. For the duration of the investment, the sponsor retains responsibility and oversight.
The Process of Syndication
Syndications are usually set up and managed by a sponsor, often referred to as the "general partner" or "GP". This sponsor can be an individual, but it is more common for it to be a team of experienced real estate professionals as in the case of Immotokens. This team takes care of all facets of the deal, from the initial research to the final management of the property. In a scenario where value creation is the goal, the sponsor will, for example, ensure the involvement of architects, structural engineers and managers.
The investors within this structure are the so-called "limited partners" or "LPs". Although they are financially involved in the deal, they usually have no active control over the management of the property. They rely on the expertise of the sponsor, who assumes these tasks. In return for their investment, the LPs receive a share of the income and any sales profits.
Structure of the Deal
Within most real estate syndications, the sponsor is entitled to a combination of fees and revenue sharing. For example, a sponsor may receive a management fee from 1-2% for coordinating and implementing the project. This fee covers staff costs and external consultancy, among other things. Immotokens works on a lower, transparent fee that you can easily find.
To minimise conflicts of interest, sponsors often invest a significant amount in the project themselves. This gives them a direct stake in the success of the investment, in addition to the fees received.
Financing structures can vary, often using both preferred and common shares. It is common for loans to be repaid first, followed by disbursements to investors. The disbursement sequence and risks depend heavily on the initial agreements and the investor's position within the capital structure.
