INVESTMENT STRATEGY
SPONSOR- SYNDICATED INVESTMENTS
Structuring Sponsor-Syndicated Investments UNDERSTANDING POTENTIAL RETURNS CAN HELP YOU MAKE STRATEGIC INVESTING DECISIONS.
FOLLOWING THE NUMBERS
LET’S LOOK AT AN EXAMPLE OF HOW THIS MIGHT LOOK: Investors contribute $900,000 of equity needed to close the deal. The sponsor contributes $100,000 of equity needed to close the deal.
by Jorge Abreu
The sponsor gets 30% of distributable cash as their “carry” incentive.
ponsor-syndicated private real estate investments can be structured in many different ways. In most private syndications, the sponsor contributes a smaller amount of the investment capital; however, the sponsor offers the investment opportunity, the time, experience, and support team needed. Although the investors will provide most of the money, their role in the project is more hands off. For example, the typical project often has the sponsor providing investors with a “preferred return,” S
often in the 6%-10% range, before the sponsor gets any proceeds outside of returns on their own personal invested capital and a predetermined split. Let’s say that split is 70/30. With this structure, the investors are entitled to 70% of distributable cash, and the sponsor gets 30% following let’s say an “8% preferred” return to the investors. Most syndicators still focus on transactions where the sponsor has some of its own skin in the game, meaning the investor funds will also include whatever money the sponsor contributes.
FOR A $10,000 DISTRIBUTION:
Investors (including the sponsor) will receive $7,000. The sponsor will receive $3,000 for their sponsorship role. Of the $7,000 to investors, outside investors will get $6,300 and the sponsor (in an investor capacity) will get $700, based pro rata on everyone’s invested amounts.
54 | think realty magazine :: january – february 2023
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