The Fundamental Stages of a Multifamily Real Estate Syndication

To achieve success in a real estate syndication, it is crucial to have a clear and well-defined plan that outlines the steps to be taken. This process helps managing partners to execute the plan effectively while providing passive investors with the necessary information to make informed decisions. Although there may be variations in the process followed by different syndications, all successful syndications typically follow a linear path with a clear beginning, middle, and end.

In the case of a value-add multifamily real estate syndication, there are five common phases that are typically involved.

The first stage of the syndication process is the property acquisition. This step is taken care of by the managing partners, also known as the sponsors or syndicators. Identifying, underwriting, and getting a property under contract is a lengthy and complicated process. REEP properties must meet a strict set of criteria before we will even consider touring it. We dig deep on its crime, location, surrounding job market and more. If it passes this initial exploration, then we take the property through a lengthy underwriting process. If we are happy with all the data that is revealed, then we look at making an offer on the property. Once a contract is signed, we work to develop the business plan detailing how we will improve the property over the life of the investment. Together with our in-house property management team, REEP Management, we create this business plan. Once we’re all confident in the property analysis and the plan, we then take the proposal to potential investors, such as you, to see how much interest there is. After everyone filled out the investor documents and deposited funds, we then finalize the purchase. rephrase it?

The initial step in a real estate syndication process involves property acquisition, which is undertaken by the managing partners, who are also referred to as syndicators or sponsors

Acquisition

The initial step in a real estate syndication process involves property acquisition, which is undertaken by the managing partners, who are also referred to as syndicators or sponsors. It is a complex and time-consuming process, which includes identifying and underwriting potential properties before contracting them. At REEP Properties, we adhere to strict criteria that include evaluating the property’s location, crime rate, job market, and more, before considering it for purchase. If a property meets our requirements, we proceed with an extensive underwriting process, and if satisfied, we make an offer on the property.

After signing a contract, we work in collaboration with our in-house property management team, REEP Management, to create a business plan outlining how we intend to improve the property’s value during the investment period. We present the proposal to potential investors, seeking their interest in the project. Once investors complete the required documentation and deposit funds, we finalize the property purchase.

Initiate Business Plan

In a value-add real estate syndication, the objective is to enhance the property’s value, and as the name suggests, we add value to the property from the outset. Once the deal is closed, our on-site REEP Management team commences immediate improvements as per the business plan. Initially, we focus on unoccupied units, branding, and addressing any issues in common areas. As leases expire, we continue remodeling additional units, and increase rents on all upgraded units. The property’s value is increased through property-wide upgrades and improvements, and we also consider adding amenities that are in high demand by modern renters, such as dog parks, outdoor kitchens, and package lockers. This process is also known as creating Forced Appreciation.

Property Refinance

Renovations and property improvements play a crucial role in increasing the property’s value, leading to higher rental income. For instance, a renovated unit can fetch an average rent increase of $100 per month, generating an additional rental income of $120,000 per year. At a conservative 10% cap rate, this increase in rental income amounts to $1,200,000 in additional equity for the property.

The managing partners can leverage this additional equity to either refinance or sell the property, depending on market conditions. If the property is refinanced, a portion of the initial investment is returned to the investors while retaining their share of ownership in the investment. The investors can continue to benefit from the property’s appreciation and equity growth as if the entire amount was still invested.

For instance, if an investor puts in $100,000 in a value-add multifamily syndication and the sponsors refinance the property after 18 months, returning 40% of the initial investment, the investor would receive $40,000 back. However, the investor’s shares in the investment would remain unchanged, and they would continue to receive distributions based on their initial investment of $100,000.

Hold Period

During the asset retention phase, the property continues to appreciate in value, aided by both organic property value increase and forced appreciation achieved through property improvements. The property management team also works to enhance property operations and occupancy rates to generate improved cash flow, which is distributed to investors as a return on investment, commonly referred to as a cash-on-cash return.

As new tenants move in or existing leases are renewed during the hold period, rents are increased, and rehabbed units can receive a significant rent increase, resulting in higher revenue and property value. The hold period generally spans five years but can be extended depending on the property.

Selling the Property

At the end of the hold period, the property’s value has been increased through forced appreciation and improved operational management. This marks the completion of the business plan, and it is time to sell the property and take advantage of the increased value. Once sold, investors receive their final payment from the sale proceeds.

While each syndication transaction is unique and may not necessarily go through all five phases, this is a typical example of the process. As a passive investor, you need not do much work, but it is still important to be aware of the normal syndication phases and any developments that occur.

Are you interested in learning more about investing in Multifamily? Our Knowledge Center and Historical Performance and Investment Strategy pages offer a wealth of information on our investment opportunities. Additionally, you can join our investor network to stay informed about future opportunities. If you have any questions, please don’t hesitate to contact us via email. We’re always happy to assist you.