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Arranging and managing a multifamily syndicated real estate investment invariably involves a myriad of responsibilities and duties. Many of these relate to financial matters, such as the sourcing of investment funds, collecting revenues from the property and disbursing expenses, or other actions undertaken on behalf of the investors in the syndicate.
A large percentage of the tasks involved with multifamily and/or BTR-SFR syndications fall to the general partner (GP) to handle and/or arrange on behalf of the other people involved in the business arrangements. The GP clearly has an important role (often referred to as a fiduciary role) so this week we decided to take a closer look at some of the key issues involved.
What exactly is a fiduciary?
A fiduciary is a person or entity that is entrusted with the responsibility of managing and making decisions on behalf of another person or entity. The fiduciary has a legal and ethical obligation to act in the best interests of the person or entity they represent, putting their interests ahead of their own.
This relationship is known as a fiduciary relationship and is based on trust and confidence. Fiduciary duties can arise in various contexts, such as in business relationships, multifamily syndicated real estate investment management and legal representation. Fiduciaries are held to a high standard of care and any breach of their duties can result in legal liability. In the investment context, for example, a fiduciary must always act with prudence, loyalty and care when managing the investments of their clients or beneficiaries.
To recap, what is a real estate general partner (GP)?
A GP is a person or entity responsible for managing and operating a multifamily real estate investment project on behalf of its investors. The GP typically has a significant ownership interest in the project and is responsible for the day-to-day management of the property, including sourcing and negotiating deals, underwriting and due diligence, raising capital and overseeing asset management. The GP is also responsible for making decisions on behalf of the investors and ensuring that the investment project is profitable and successful and is, accordingly, a fiduciary to the investors, meaning they have a legal and ethical obligation to act in the investors’ best interests.
What are some of the key qualities GPs need to become an ideal fiduciary?
A successful multifamily and/or BTR-SFR real estate GP requires a specific set of essential qualities to becomes an ideal fiduciary for investors, and these include:
Experience and expertise
Real estate investments involve significant financial resources, and it’s vital to have a GP with in-depth knowledge and experience in the real estate industry. The GP should have a strong understanding of the real estate market, including the trends, regulations and risks involved in real estate investments. Additionally, the GP should have expertise in deal sourcing, underwriting, due diligence, and asset management to ensure a profitable investment.
Integrity and transparency
The GP should be honest and transparent in their dealings with their investors, always acting in their best interests. They should disclose all material facts and risks associated with the investment, and not hide any information from their investors. A GP should carefully establish trust with their investors by being upfront and transparent about any potential risks and challenges associated with the investment.
Risk management skills
Real estate investments come with a range of risks, including market risk, credit risk and operational risk. A successful GP should have the skills to identify, assess and mitigate risks associated with the investment as well as having a backup plan in place in case, for whatever reason, the investment doesn’t go as planned.
Strong communication skills
Effective communication is critical for a successful real estate syndicator GP and they should be able to communicate effectively with their investors, team members and partners, articulating their vision and strategy clearly, listen to feedback, and incorporate it into their decision-making process. A GP should also be able to provide timely updates and keep their investors informed about the investment’s progress.
Sound financial knowledge
A successful GP should have a sound understanding of financial management, including creating and managing budgets, analysing financial statements and making informed financial decisions. The GP should have the skills to manage the investment’s finances effectively, ensuring that it remains profitable.
The GP needs to have a strategic vision for the multifamily investment, identifying opportunities and risks and creating a plan to maximise returns for their passive investors. The GP should also have a long-term vision for the investment and be able to adapt to changing market conditions.
Team building skills
Real estate investments require a team effort, and the GP should have the skills to build and lead a team effectively. The GP needs to be able to identify and recruit talented team members, delegate responsibilities and create a positive work environment.
Networking skills are crucial for any successful real estate GP who should be able to build and maintain relationships with investors, lenders, brokers and other professionals in the real estate industry. Additionally, the GP should leverage these relationships to source deals, negotiate terms, and access capital.
Flexibility and adaptability
Real estate investments are often unpredictable and a successful GP should be flexible and adaptable to changing market conditions. The GP should be able to adjust their strategy and plan as needed to maximise returns and minimise risks.
Passion and dedication
Finally, a successful GP should have a passion for real estate and be dedicated to their investors. Real estate investments require hard work, persistence, and patience and a successful GP should have the drive and commitment to see the investment through to the end, whether it be a sale or refinancing.
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CPI Capital understands that becoming a successful multifamily real estate syndication GP requires a combination of skills, qualities and dedication. By possessing and using these essential qualities, GPs can become the ideal fiduciary for their investors, providing them with the investment returns which attracted them to be investors in the first place.
Thanks to its lengthy experience and accumulated knowledge gained from being involved with various multifamily syndicated investments, CPI Capital has earned the trust of its passive investors and can comfortably undertake the role of a reliable fiduciary.
CIO, CoFounder CPI Capital