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What are single asset syndications?

FAQ, Syndications

A syndication can be defined as a group of investors who collectively hold a single asset. This could be as LP and GP members of an equity investment LLC, or as Co-Lenders who pool their money and make a single loan to a borrower. In either case, they are considered a syndication. Below is a list of some pros and cons of investing into a syndication as opposed to a pooled asset fund. These are, of course, in addition to common pros and cons involved in investing in real estate through third-party sponsors, including fees and charges by the sponsors, conflicts of interest, and the risks involved in real estate investing:
Syndication – Pros*
1. Asset is known prior to investment
2. Some ability for LPs to negotiate and provide feedback to General Partner
3. Normally completed in one transaction
4. Limited number of investors
5. Simple, understandable business plans
6. Detailed underwriting information is available for review upon request
Syndication – Cons*
1. Sporadic, unpredictable availability
2. Short timelines, limited time to decide
3. Lack of diversification, high risk
4. Limited control of decision making
5. Lack of regular updates and transparency
6. Seasonal or fluctuating financial performance (mainly equity)
7. Cannot rescind investment midway

Investment Period: Similar to a closed-end fund, a syndication has a finite capital raise period that usually occurs a few months prior to acquiring the asset. The project sponsor typically raises all of the money that is identified as necessary to acquire the asset, fund capital improvement programs, and fund cash reserve accounts. The investment is generally made at the time of acquisition.

Capital Call: Generally, these can occur when an asset has either planned capital improvements a year or more into the hold period or when there is an unexpected capital need.

Redemptions: Redemptions are usually not possible as these are illiquid investments. Investors should expect to remain invested in the asset until it is sold.

Valuation: Single asset syndications generally are not valued or marked to market during their investment period. Valuation is determined at the time of acquisition and again once the asset is sold.

Learn more about Fairway Single Asset Syndications

Cash Flow: Distributable cash flow is dictated by a combination of the business plan and the performance of the asset. For properties that have a significant construction or renovation (value add) plan, investors will often receive little or no cash flow during the hold period. There are other asset types such as stabilized, well occupied (90+%) apartment communities or triple net industrial leased assets that can generate cash flow soon after acquisition.

Preferred Return: Returns to investors are generally dictated by a preferred return as outlined in the operating agreement for the relevant individual asset entity. Similar to cash flow, the return hurdles can be affected by the business plan and asset type. For example, if the sponsor for the investment expects the property to provide no cash flow but to produce a strong return at sale, investors may see a top tier return hurdle that is above 15% and also have a profit split that is closer to 50/50 since both investors and sponsors would not realize returns until the end of the investment.

*Nothing in this article should be construed as investment advice. The potential pros and cons described herein are broad generalizations. Each investment vehicle will have unique pros and cons. Review offering documents for any investment you are considering and consult with your legal and investment professionals prior to making any investment decisions.

About Fairway America

Fairway America is a leading alternative investments manager focused on middle market commercial real estate. Established in 1992, the company specialize in real estate credit and private equity strategies on behalf of individual and institutional investors. As of Q1 2022, the firm manages more than $315 million of investor capital and a portfolio of assets representing more than $2.2 billion in gross asset value across several major property types. For additional information, visit www.fairwayamerica.com.

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