Frequently Asked Questions
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Understanding Syndication Basics

• What is commercial real estate syndication, and how does it work for passive investors?

  • Commercial real estate (CRE) syndication is a group investment structure where investors (limited partners or LPs) pool funds to acquire and manage large properties, typically led by a sponsor or general partners (GPs). Passive investors provide capital, while the sponsor/GPs handles acquisitions, operations, and eventual sale.

• How does syndication compare to investing in REITs or directly owning rental properties?

  • Syndications offer direct ownership and greater tax benefits, but they have limited liquidity and less control over property selection compared to direct ownership.

  • REITs are publicly traded and offer liquidity but have lower tax advantages and less control.

  • Direct ownership gives full control but requires active management and higher capital commitment.

• What are the advantages of syndication for busy professionals?

  • Passive income without property management hassles.

  • Professional asset management by experienced sponsors/GPs.

  • Tax benefits like depreciation and 1031 exchange opportunities.

  • Diversification across asset classes and geographic markets.

  • Can use self-directed IRAs and 401k to invest passively.

• What types of commercial properties are typically syndicated?

  • Multifamily (apartment complexes)

  • Office buildings

  • Industrial warehouses

  • Retail centers

  • Self-storage facilities

  • Senior housing and medical offices

• How do I know if I qualify to invest in a syndication deal?

  • Many syndications require accredited investors (income of $200K+ single / $300K+ joint or net worth of $1M+ excluding primary residence).

  • Some deals accept non-accredited investors under Regulation 506(b), typically with a prior relationship with the sponsor or GP team member​

​Investment Structure & Financial Considerations

• What is the typical minimum investment for a commercial real estate syndication?

  • Most syndications require a minimum investment of $50K to $100K, though some have lower entry points.

• What kind of returns can I expect, and how are they calculated?

  • Returns vary but typically include:

    • Preferred Return: 6-10% annually (paid before GPs take profits).

    • Cash Flow: Quarterly distributions from rental income (4-10% annually).

    • Equity Growth: Targeted IRR of 12-20% over 5-7 years upon property sale.

• How are profits distributed, and what is a preferred return?

  • Preferred Return: Investors (LPs) receive a guaranteed minimum return (e.g., 7%) before the sponsor/GPs gets paid.

  • Profit Splits: Typically 70/30 or 80/20 (LPs/GPs) after the preferred return is met.

• What tax advantages do syndication investments offer for high-income earners?

  • Depreciation & Cost Segregation: Reduces taxable income.

  • Pass-through Deductions: Investors receive paper losses via K-1 tax forms.

  • 1031 Exchange Eligibility: Defers capital gains taxes when reinvesting.

• How does syndication impact my liquidity compared to other investments like stocks or bonds?

  • Less liquid: Funds are tied up for 3-10 years. No daily trading like stocks.

  • Limited early exit options: Some deals allow secondary market sales but are uncommon.
     

Assessing Risk & Due Diligence

• What are the biggest risks involved in real estate syndication?

  • Market downturns affecting property values.

  • Poor management by the sponsor.

  • Rising interest rates increasing debt costs.

  • Delays in property appreciation or rent growth.

• How do I evaluate the credibility of a syndicator or sponsor?

  • Track record: How many deals they’ve managed successfully.

  • Transparency: Open access to financials and investment details.

  • Skin in the game: Do they invest their own money in the deal?

  • Communication: Regular updates (quarterly or monthly) on project progress.

• What questions should I ask before investing in a syndication deal?

  • What is the sponsor’s track record and experience?

  • What are the projected returns and exit strategy?

  • What fees are charged (acquisition, asset management, disposition)?

  • How is risk mitigated (insurance, reserves, diversification)?

• How does the current economic climate impact syndication investments?

  • High interest rates may reduce cash flow if debt is variable-rate.

  • Inflation can increase rents but also raise operating costs.

  • Recession risks may impact tenant stability and property appreciation.

• What happens if a project underperforms or the market shifts?

  • Lower or delayed distributions.

  • Extended holding period to wait for a better market.

  • Reduced property value at sale, affecting final investor returns.

Investment Process & Timeline

• How do I find and invest in commercial real estate syndications?

  • Connect with syndication companies like Afterburner Equity

  • Join investor groups or attend real estate conferences.

  • Network with real estate professionals or accredited investor groups.

• What is the typical holding period for these investments?

  • Most syndications last 3-7 years, depending on market conditions and the business plan.

• Can I exit early if I need to liquidate my investment?

  • Generally, no easy exit—funds are locked in until the asset is sold.

  • Some sponsors offer a buyout clause or secondary market sales, but this is rare.

• How are investment opportunities structured for accredited vs. non-accredited investors?

  • 506(b) Syndications: Allow non-accredited investors but limit advertising.

  • 506(c) Syndications: Only accredited investors but publicly advertised.

• What kind of reporting and communication should I expect from the syndicator?

  • Quarterly financial updates on property performance.

  • Annual K-1 tax statements for filing.

  • Major updates on market shifts, refinance opportunities, or exit plans.