A multifamily syndication pools capital from a group of investors to buy an apartment community that would be too large for most individuals to buy alone. The sponsor finds the property, arranges the financing, runs the business plan and eventually sells. Investors provide most of the equity and share in the cash flow and profits.
The structure. Each property is held in its own limited liability company. Investors buy membership interests in that company. Their liability is limited to the amount they invest, and they generally have no obligation to sign on the loan or manage the property. Some operating agreements allow the Manager to request additional capital; the consequences of not contributing are set out in each agreement.
The roles. The sponsor sources and underwrites the deal, secures the loan, oversees renovations and property management, and reports to investors. Investors are passive. They review the offering documents and decide whether to invest. Once they invest, they share in distributions when the property’s cash flow supports them, and they receive annual tax documents.
How investors get paid. Returns can come from two sources: distributions of cash flow while the property is owned, when operations support them, and a share of the profit when it is sold or refinanced. Many offerings provide for a preferred return before profit sharing. Profit above that is split between investors and the sponsor, which ties the sponsor's compensation to results.
The life of a deal. A typical investment follows the same path: acquisition, a renovation and operating period, then a sale. Across the 25 realized investments sourced by CRP, the average hold has been about three years.
Alignment. The sponsors of each investment co-invest alongside investors and sign the lender’s non-recourse guarantees.
This article is for informational purposes only and is not an offer to sell or a solicitation of an offer to buy any security. Past performance is not indicative of future results.