Syndicating Commercial Real Estate FAQ
As we have experienced over the past several years, real estate values and prices have risen to a point where it is difficult for most individuals to purchase commercial real estate assets. However, they can participate with other people with similar interests and investment criteria in ownership by participating in a syndicated investment.
In general, a syndication is a pooling of funds and provides one of the most favourable tools to allow individuals to participate in a real estate investment. It is a means whereby a group of people come together to make a single investment in a venture.
Commercial real estate assets are generally income producing properties. They can be retail based, multi-family residential, office or industrial properties.
The most common form of syndication and the one we encounter most often as real estate salespeople and brokers is often referred to as a “friends and family” investment
Although there are many ways of setting up a syndication, the most common forms are either a joint venture or a limited partnership.
Joint Venture - A joint venture agreement is generally used where there are fewer participants in the investment, and everyone agrees to share the rewards and the risks according to their percentage interest and investment in the venture. The agreement will set out the percentage interest of each investor, which is based on the amount of their investment as a percentage of the whole investment.
Limited Partnership - A Limited Partnership is used when several investors participate and wish to have their liability to third parties and to each other limited, often to the extent of their investment. In this type of agreement, the General Partner is the managing partner and will be the person responsible and liable for obligations of the partnership, for example, guaranteeing mortgage obligations, if required by the lender, guaranteeing bank lines of credit and other personal obligations that may be required. The General Partner is usually the person finding the property and organizing the investment, including finding the investors. The other investors are Limited Partners.
In general, a syndication may involve as little as two people or as many as want to participate. There is no limit to the number of people who can participate in real estate based ventures or funds, such as a Real Estate Investment Trust (REIT) or similar private/public vehicles. For large participating ventures, the nature of the investment vehicle and the number of investors is subject to the Ontario Securities Act (“OSA”). However, as long as there are 50 or fewer participants, the venture is exempt from the rules and regulations of the OSA.
If you are involved in helping a client set up a syndication or looking into the possibilities, please seek professional advice. This can be a lawyer, accountant or consultant or combination of professionals who are familiar with these types of investments.
If I can share one basic principal, it would be Avoid Surprises – do your homework! Think about what you or your client are creating, know your facts, present a fair and honest assessment of your research so that a decisions can be made based on the information you present.
Sales Representative, Commercial Division
RE/MAX Realtron Realty Inc., Brokerage.
If you would like further information or to discuss any of your commercial real estate needs, please contact one of our commercial division members.
RE/MAX Realtron Realty Inc. (Commercial Division)