As we move further into 2023, passive investments in commercial real estate syndications continue to be a popular and powerful way for investors to diversify their portfolios. In this post, we will explore the latest trends in commercial real estate trends in 2023, providing insights for both new and seasoned syndicators, and sharing ways that SponsorAdmin can help you ride those trend waves!
Understanding Syndication Real Estate Investing
As you know, a real estate syndication is when a group of investors pools their resources to develop or purchase a real estate property together. Two parties play vital roles in getting the syndication off the ground: the sponsor, who finds the property and develops the proposal, and the passive investors, who provide the necessary capital with which the real estate syndication property is purchased and renovated, rebranded, or improved in some way.
Real estate syndications allow investors to contribute moderate amounts of cash into a pool of capital, allowing them to band together to purchase larger investment properties than they could access alone. The benefits of participating include
🔵 Passive returns
🔵 Depreciation benefits
🔵 A portion of the profits at the deal exit or sale of the property
🔵 A community of experienced real estate syndicates from whom they can learn.
5 Emerging Trends in Real Estate Investing in 2023
Increased Use of Technology:
As technology continues to evolve, it's likely to play an even larger role in real estate investments — especially when you use advanced platforms like SponsorAdmin or SponsorDocs. These digital platforms for real estate syndication management are becoming more and more popular, making it easier for passive investors to find and participate in syndication investment opportunities.
Focus on Sustainable and Green Properties:
With growing awareness of climate change and environmental issues, there's an increased demand for sustainable and green properties. Real estate syndicates are focusing more on properties with energy-efficient features, renewable energy sources, and environmentally friendly designs for their real estate investments. Not only does this help the environment, but it also increases the property's appeal to tenants, investors, and potential buyers since everyone appreciates the promise of creating a better, healthier world to live in.
Diversification in Property Types:
While multifamily properties have traditionally been the most popular choice for syndications, there may be a trend toward diversification in property types. This could include more investments in commercial properties, industrial properties, multi-use facilities, and even niche sectors like senior housing and storage facilities. This diversification can help syndicators and passive investors spread risk and take advantage of opportunities in different market segments.
Increased Regulation:
As the real estate syndication model becomes more popular, it is attracting more attention from regulators. This could lead to increased regulation and oversight, which could impact how syndications and investment funds operate. It's important for syndicators and investors to stay informed about any regulatory changes and understand how they could affect their investments.
Rise in Crowdfunding:
The popularity of crowdfunding platforms has made it easier for investors with less capital to participate in large, multi-million dollar properties through the power of real estate syndications. This trend will likely continue in 2023, with more people taking advantage of these platforms to invest in real estate. This could lead to a broader pool of investors and potentially more opportunities for syndication deals.
These trends are shaping the landscape of real estate syndication in 2023, offering new opportunities and challenges for syndicators and real estate investors everywhere.
Three Phases of Real Estate Syndication Deals
Real estate syndications go through three phases: origination, operation, and liquidation, each equally as important to both the property owners and the property managers.
The origination phase involves sorting through potential real estate assets, selecting the best investment property, creating a business plan, and bringing the investors on board. The operation phase is when the general partner or real estate syndicate team manages the property, renovates, pursues equity appreciation, and ensures tenants are happy. Finally, the liquidation phase is when the real estate investment is sold, and all participating members receive their portion of the profits from the sale.
Here's the process in more detail:
Origination:
Often, real estate professionals or experienced investors decide to become sponsors of a real estate syndication investment when they identify a promising property or commercial development opportunity. After conducting their due diligence, the sponsor puts together a business plan and development strategy to share with a pool of other real estate investors.
This strategy includes details such as,
🔵 The estimated cost of the project
🔵 The timeline for completion
🔵 The anticipated total return on investment
Once the plan is in place, the sponsor presents it to investors to raise money for the purchase and management costs of the real estate investment deal. The sponsor and the limited partners then negotiate the terms of the real estate syndication agreement, which outlines the responsibilities of each party, the distribution of profits, and other key details.
Operation:
The operation phase begins once the syndication agreement is in place and the necessary funds have been raised. During this phase, the sponsor manages the development or renovation of the property according to the plan outlined during the origination phase.
This can involve tasks such as,
🔵 Overseeing construction
🔵 Ensuring the project stays on budget and schedule
🔵 Collecting rental income from tenants
🔵 Property management
The sponsor also manages the syndicate itself, which includes investor relations responsibilities such as keeping investors updated about the status of the project and addressing any issues or concerns that arise.
Liquidation:
Liquidation is another way to express the real estate investments' exit strategy. It's when the property is sold or refinanced, generating a return on investment for the real estate syndications' investors. The proceeds from the sale are distributed among the investors according to the terms of the syndication agreement. This usually involves returning the investors' original investment capital and distributing the remaining profits.
Syndications in the Real Estate Market
To invest in commercial real estate syndication deals, passive investors must meet certain financial requirements. All passive investors are divided into categories based on their financial ability to handle loss. To become an accredited investor and have the "green light" to participate in most deals, investors must meet guidelines per the SEC. Investors must have some combination of a large net worth, and/or a high annual income to get started.
For instance, most real estate syndication opportunities require a minimum capital requirement of $50,000 and are only open to accredited investors. Some syndication opportunities are available to a limited number of sophisticated investors.
Investors with fewer funds available for investment or a lower tolerance for risk should explore Real Estate Investment Trust (REIT) opportunities, widely available on a crowdfunding platform or large brokerage site like Fidelity.
One big trend in 2023 is that real estate syndicators are increasingly looking for more unusual financing options, including using crowdfunding platforms for raising capital.
Minimum Investment into a Real Estate Syndication:
The minimum investment amount for a real estate syndication can vary widely, depending on factors such as the type of property, the legal status designation, and the number of investors involved. However, it typically ranges between $25,000 to $100,000 and requires participants to be an accredited investor.
By leveraging new technology and crowdfunding platforms, however, real estate syndications can be available to those that have only $10,000 or $20,000 to invest. Creativity such as this reaches a broader audience and provides many young adults an opportunity to make their first syndication investment and helps syndicators raise funds faster and easier.
Syndication Agreement:
Before you present your investment opportunity, tax benefits, or cash flow projections to investors, you'll need the documentation prepared.
To contribute capital, investors need to review,
🔵 A Private Placement Memorandum
🔵 A slide deck that includes fee details
🔵 Property management plans
🔵 Projected vacancy rates
🔵 Rental income expectations
🔵 Anticipated construction
🔵 Financing costs, and more
So they can perform their own due diligence and decide if the deal is a good investment for their personal portfolio.
The SponsorAdmin platform produces the documentation you need in collaboration with trusted, thoroughly vetted CPAs so busy syndicators have speedy access to the customized documentation they need. Syndicators who use SponsorAdmin are well taken care of in areas of fund administration, tax compliance, AND investor relations.
How SponsorAdmin Can Help You Get Ahead in the Real Estate Industry
As we enter the second half of 2023, it's clear real estate syndication investment opportunities remain a high priority and popular wealth-building strategy for most investors. Whether you're a syndication deal pro, or you're just starting out as a syndicator understanding the emerging trends in real estate syndication, SponsorAdmin can help you make informed decisions, handle paperwork seamlessly, remain in compliance, and maximize your and your investors' returns.
We're seeing so many people leverage syndication as a passive income investment strategy and we're hearing more than ever that the syndicators are thrilled with the support they receive from using SponsorAdmin provides. We designed the platform to take the stress out of being a real estate syndicator, and as you can see from our case studies, we've more than delivered on that promise!
If you'd like to see how SponsorAdmin can help you spend more time raising capital and less time on administration head over to this page for all the details.
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