A Glossary of Real Estate Syndicate Terms

A Glossary of Real Estate Syndicate Terms

May 25, 2022

Are you interested in learning more about real estate syndicates? This article is a glossary of useful terms to help you get started.  You can read more about real estate syndication here.

Cap table – A capitalization table, or cap table, is the record of which members own what stake in the syndicated property.

Capital call – A capital call is a request for additional funds from the members of the syndicate. If an expense requires more funds than the syndicate has in its reserves, a capital call to be placed to cover the cost of that expense.

Capital contribution – A capital contribution is an individual financial transfer made by an individual to a syndicate in which they are a member. Contributions do not need to be equal among members - a syndicate can have members with different percentages of capital contributions. Contributions can include initial funding to acquire a property, or for a capital expense (like a roof repair) during ownership.

Capital expenditure – A capital expenditure (CapEx) is a specific type of expense used to improve a property. These expenses are important to track separately from operating expenses as they can depreciated over time.

Co-investor – A co-investor is a term used to describe members of a real estate syndicate.

Deal – A deal is the term used for a proposal presented to potential investors containing information on a property or property type as well as the financials required to invest. Before selecting a specific property, this can include target parameters like capital range, proposed financing models, holding period, target financial returns.

Distribution – A distribution is a payment made by the syndicate to individual members. When a distribution occurs, members get a relative share of the distribution equal to their share of membership in the syndicate.

Holding period – The amount of time a syndicate intends to own a property. This is usually part of the deal parameters, and it represents the timeframe for an exit strategy, or the sale of the investment property.

Ledger – The ledger is a record of all contributions from members to the syndicate, and all disbursements from the syndicate to the members.  

Lender – The lender works with a syndicate to fund real estate deals. After reviewing the syndicate and its members, the lender provides pre-approval of financing for the syndicate. The lender also provides funding for the deal at closing.

Management fees – Management fees are allocated for the syndicate manager(s) to compensate the manager for the active work of managing the syndicate.

Manager – The manager is the principal member of the syndicate. Sometimes referred to as the syndicator, deal lead or deal sponsor, they are responsible for managing the activities of the syndicate including sourcing deals, acquiring financing, coordinating funds transfers, and managing the property. The manager may earn compensation or have a larger stake in the syndicate for performing this role.

Member – A syndicate member is sometimes also referred to as an investor in a syndicate. They differ from the syndicate manager as they invest in real estate deals by contributing funds and may vote on decisions about operations or property management. This is typically a passive role in the syndicate.

Operating agreement – A syndicate’s operating agreement defines the ownership structure and operating procedures of the syndicate. This can include member details, responsibilities and rights of members, ownership structure, and governing rules. This agreement will outline how to handle common scenarios the syndicate may experience like requests for contributions, changes in ownership and dispute resolutions.

Ownership structure – The ownership structure of a real estate syndicate details the specific roles, responsibilities and ownership of the members of the syndicate. A straight split structure would mean every partner is equal. However, syndicates can be structured however the members agree, and the details of the ownership structure are captured in the operating agreement.

Reserves – Reserves represent the available cash held by the syndicate. It is important for the syndicate to maintain sufficient reserves to cover expenses in the case of a slowdown in income, such as from a vacancy. Investors will make a contribution to be held in reserve when the syndicate is formed. Excess reserves could be distributed to members of the syndicate as defined by the operating agreement.

Syndicate – A syndicate is a business entity formed by a group of members to invest in real estate deals together. A syndicate typically holds a single syndicated property. Investors who are interested in investing in multiple real estate deals can be members of multiple syndicates.

Voting rights – Members of a real estate syndicate may or may not have voting rights. The rights to vote are detailed in the syndicate’s operating agreement. Types of votes may include syndicate changes, operating decisions or ownership changes.

If you are interested in creating or joining a real estate syndicate, see how Padvest can help you get started.