Post-Con Syndicates

Fractional Dutch Auctions of Commercial Income-Producing Real Estate Properties - TIC Plan Ownership Syndications

Post-Construction Phase Syndications - Rules of the Road

A Post-Construction Phase Syndication is for the acquisition of existing projects. Accordingly, there are two (2) types of Post-Construction Phase Syndications:

No Construction Acquisitions. Acquisitions that do not entail any substantive new construction. The requirements for undertaking a syndication for this project type include:
- Loan Commitment. A firm commitment from an institution for the permanent mortgage financing loan must be provided by the Syndicate Sponsor (that's the developer and/or owner/operator).
- Property Control. The Syndicate Sponsor must have legal control of the subject property. Legal control is defined as a legally binding instrument. The site control document must be:
  - a binding purchase and sale agreement for the real property; or
  - an executed letter of intent that has no pending conditions that could result in the nullification of the letter of intent and/or place the Syndicate at risk; or
  - a binding real estate purchase option agreement for the real property; or
  - a form of fee-simple ownership of the property itself (have possession of the deed).
- Due Diligence Production. The syndication approach relies upon the concept of diligently documenting all of the issues, conditions, challenges, attributes, business deal points and related information in a timely manner and for the benefit and protection of both the Sponsor and the investing public. Click here and download the MS-WORD^® memorandum that shows which due diligence exhibits are required for this type of syndication. To learn why this is important, click here and download a memorandum on this subject.
Acquisitions with Construction and/or Substantial Rehabilitation/Renovation. Acquisitions that require substantive new construction (including substantial rehabilitation) are classified as Construction Phase Syndications. The attending due diligence requirements for undertaking a syndication are the same as a Construction Phase Syndicate.

In terms of the potential economic gain investors, sponsors and employees would enjoy if the project's operations are met with success in every material respect are based upon the type of syndicate that is formed (Pre-Construction, Construction and Post-Construction Phase Syndicates) which; in turn, are the basis for assessing risk and rewards - note the table below.

The table is a "waterfall" distribution schedule allocation table. This table - and the conceptual theory capital finance that supports the table - is part of the core intellectual property of the realestateplayssm syndication platform. In order to understand how this schedule works on a global and user basis, begin by looking at the red row. The red row tells the story; this is a waterfall distribution schedule based upon multiples of investor funds. So, if you are planning on purchasing a unit, the multiple would be $25,000 (total distributions are based upon the minimum syndicate sales target that is listed on every new syndication, and therefore cannot be represented here). The "Distribution Shares First 150%" column says multiply $25,000 times 150%, or $37,500. We are assuming this is a Post-Construction Phase Syndicate. This means that the Sponsor gets 30% of the first $37,500 in distributable income (or $11,250) and the investor gets 70% of the first $37,500 in distributable income (or $26,250). The next column says "Distribution Shares Second 100%" - meaning the next $25,000 in distributable income will be split 35% to the Sponsor and 65% to the investors (or, $8,750 and $16,250, respectively). This continues until you get to the last column. Once the previous distribution targets have been met, the distributions for the remaining life of the deal are 90% to the Sponsor and 10% to the investor. To get to that point, there first has to be a distribution of 450% of investment basis made ($25,000 x 450% = $112,500), in the aggregate, and split $51,250 to the Sponsor and $61,250 to the investor. Sounds good, especially if it happened in one year instead of 10 years. This brings up an important point of investment periods.

Post-Construction Phase Syndications are designed for properties that have already been constructed and are operational at their maximum sustainable rate. This means the project is profitable and would, therefore; present a much smaller investment risk profile because all of the construction risks have been eliminated and the market risk is minimal (due to the completion of the initial lease-up and/or stabilization). Accordingly, the investor risk profile is minimal - making the distribution plan hurdles much smaller in light of the risks that would have already been taken by others. It also means, more often than not, that additional gains in value of the property will be incremental and this dictates that investors accept a longer investment holding period in order to garner the same gross yields that investors would routinely demand who invested in the development, construction and initial operational capacity run-up of the property (i.e.: garner a gross return in a range of 150% to 300%). The Post-Construction Syndication would be expected to also generate a strong cash-on-cash return, but over an extended holding period of 7 to 10 years.

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