Dear valued existing investors and future investors,
Yet again, we welcome you to this week’s CPI Capital’s news briefing. This regular, weekly newsletter contains a mixture of updates, commentary and informative related articles about the lucrative world of passive real estate investment.
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Obviously, multifamily and/or BTR-SFR passive investors are already familiar with real estate syndications, given that they have made investments in such entities, but what about co-syndications?
Not all passive investors have heard this term so we thought that, in this edition of our newsletter, we will discuss co-syndication in the context of real estate investing.
What is a co-syndication?
Co-syndication is a syndication structure where two separate general partners (GP) join forces to partner with limited partners on a real estate project. Essentially, co-syndication allows multiple general partners to work together on the same project and serve the same group of limited partners.
Why use co-syndications?
Co-syndication is a popular strategy in real estate investing as it allows GPs to pool their resources and expertise to pursue larger and more complex multifamily and/or BTR-SFR projects. By joining forces, general partners can share the workload, leverage their individual strengths, and minimise their individual risks.
In a co-syndication, each GP typically brings their own unique expertise to the deal. For example, one general partner may specialise in property management, whilst the other may have expertise in financing or construction. By combining their skill sets, the partners can tackle a wider range of projects and improve their chances of success and of higher investment returns.
In addition to the GPs, co-syndications also involve limited partners. Limited partners (LP) are passive investors who provide the majority of the funding for the project in exchange for a share of the profits. LP, typically, have no say in the day-to-day operations of the project, but they do have a say in major decisions such as the sale of the property.
What are some key benefits of co-syndications?
One of the primary, key benefits of co-syndication is that it allows general partners to access a larger pool of capital than they would be able to on their own. By partnering with other GP and LP, they can pursue larger and more complex projects that would be out of reach otherwise.
Another advantage of co-syndication is that it allows general partners to share the workload and minimise their individual risks. Real estate projects can be time-consuming and expensive, and by partnering with other experts, general partners can share the various tasks involved and reduce their individual financial exposure.
Other major benefits include:
- Access to a larger network of contacts: when multiple general partners are involved in a co-syndication, they each bring their own network of contacts and relationships to the deal;
- Shared resources and expertise: by pooling their resources and expertise, GP can pursue larger and more complex projects than they would be able to on their own;
- Diversification: co-syndication can be a way for investors to diversify their real estate portfolio, spreading their risk across multiple properties and locations;
- Access to different markets: if the GP have different areas of expertise or are located in different geographic regions, co-syndication can provide access to new real estate markets that might be otherwise out of reach;
- Reduced competition: co-syndication can be a way for general partners to reduce competition and increase their chances of success, avoiding bidding against each other for the same properties or tenants;
- Improved negotiating power: when multiple GP are involved, they can often negotiate better terms and pricing on financing, construction and other services related to the project;
- Flexibility: co-syndications can be structured in a variety of ways, depending on the goals and preferences of the partners involved.
What are some key drawbacks of co-syndications?
However, co-syndication also has some potential drawbacks. One of the most significant risks of co-syndication is that it may, in some cases, lead to conflicts between general partners. When multiple people at the same level are involved in managing a project, disagreements can arise over issues such as financing, construction, property management and tenant relations.
Therefore, it is crucial to establish clear lines of communication and decision-making procedures at the outset of the partnership.
Another potential drawback of co-syndication is that it can be more difficult to find compatible partners who share the same vision and values. Each partner should have a clear understanding of their role and responsibilities and be able to contribute to the project’s success.
Prudent due diligence before establishing co-syndications
When considering a co-syndication investment opportunity in the multifamily and/or BTR-SFR sectors, it is essential to carefully evaluate the property, the other GP and LP. This includes analysing the property’s location, condition, potential for rental income or resale, and associated costs such as property taxes, insurance and maintenance.
Additionally, it is important to assess each general partner’s financial resources, experience, and expertise. Each GP should be able to contribute to the project’s success and have a clear understanding of their role and responsibilities. It is also essential to evaluate the LPs’ financial resources and investment goals to ensure that they are a good fit for the project.
To minimise the risks associated with co-syndication, investors should work with experienced professionals, such as attorneys, accountants and real estate agents. These professionals can help investors draft a partnership agreement that clearly outlines each partner’s rights and responsibilities, as well as creating a plan for resolving disputes.
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CPI Capital agrees that co-syndications can be an effective strategy for real estate investors looking to access larger and more complex projects. However, we always carefully evaluate each investment opportunity and the other general partners and limited partners involved to minimise investment risks before making any commitment.
Furthermore, CPI Capital will only partner in any co-syndication with other experienced investors, so that both parties can share resources, expertise and contacts to pursue a wider range of opportunities and maximise the investment returns for our passive investors.
CIO, Co-Founder CPI Capital